Euronav NV reported its non-audited financial results today for the second quarter ended 30 June 2022.
Hugo De Stoop, CEO of Euronav said: “Recent months have proven to be pivotal for Euronav. First, freight markets have improved substantially since March and continued this recovery on a counter-seasonal basis. Second, we have increased future fixed income streams to 2032 via the FSO joint venture partner buyout. Third, during the quarter we undertook a significant rejuvenation resulting in a reduction of the average age of our fleet and still have 10% organic core fleet growth to come from vessels under construction over the next 18 months. Fourth, our decarbonisation strategy and pathway to net zero by 2050 is the first such framework to be applied by a crude tanker company. Finally, the proposed combination with Frontline will further substantially enhance this positioning by adding scale and influence.
Recent trading data points – such as China’s return to crude procurement, vessel supply metrics and improved oil supply – have underpinned a recovery in the freight markets which is unusual for the season. Euronav is ideally placed to benefit from the shorter-term cyclical recovery but also the robust medium-term fundamentals of our market.”
For the second quarter of 2022, the Company realized a net loss of USD 4.9 million or USD (0.02) per share (second quarter 2021: a net loss of 89.7 USD million or USD (0.44) per share). Proportionate EBITDA (a non-IFRS measure) for the same period was USD 74.9 million (second quarter 2021: USD 22.6 million).
EURONAV TANKER FLEET
Fleet rejuvenation
Sale of 3 Suezmaxes
In April 2022, we announced the sale of the Suezmax Bari (2005 – 159,186 dwt). The vessel was held in a 50/50 joint venture with affiliates of Ridgebury Tankers and clients of Tufton Oceanic. In June, the Company sold its two eldest Suezmax vessels, the Cap Pierre (2004 – 159,048 dwt) and the Cap Leon (2003 – 159,048 dwt). As a result of these transactions the average age of our fully owned Suezmax fleet reduced from 11.4 years to
10.7 years.
Sale of 4 older VLCCs with proceeds re-invested into 2 modern, scrubber fitted VLCCs
In April 2022, Euronav purchased two eco-VLCCs, the Chelsea (renamed Dalis) (2020 – 299,995 dwt) and the Ghillie (renamed Derius) (2019 – 297,750 dwt), for USD 179 million in total in cash (sisterships of existing VLCCs). In parallel to this transaction, Euronav sold four older S-class VLCCs for an en-bloc price of USD 198 million. The four vessels are the Sandra (2011 – 323, 527 dwt), Sara (2011 – 322,000 dwt), Simone (2012 – 315,988 dwt) and the Sonia (2012 – 314,000 dwt). All four vessels are non-eco VLCCs with significant higher consumptions and carbon footprint than modern eco-VLCCs.
The transactions have reduced the average age of Euronav’s fully owned VLCC fleet from 7.3 years to 6.6 years, making it amongst the youngest VLCC fleets globally.
Euronav considers regular fleet rejuvenation as an important function of ship management in providing quality services to our clients. These top of the range eco-vessels will deliver an improvement in our operational performance upon delivery later this quarter.
FSO consolidation of joint venture
In June 2022, Euronav became the full owner of the FSO platforms previously held in 50- 50 joint venture with International Seaways, Inc. (INSW). Net of adjustments for working capital and debt, Euronav paid approximately USD 140 million in cash for the purchase of the two converted ULCCs. The current contract for these two custom-made units with a capacity of 2.8 million barrels runs until Q3 2022. After that and in direct continuation, they will switch to a new 10-year contract that was agreed with North Oil Company (NOC) in 2020. As a consequence, the 2 FSO companies are fully consolidated as of June 2022. The April and May results are still integrated as investments in equity accounted investees based on the JV relationship with INSW. Going forward and taking into consideration the renewed contract rates as from Q4 2022 onwards quarterly revenues will be positively impacted for an amount of USD 15.75 million whereas EBITDA contribution is estimated to be at a level of USD 10 million.
Update – Newbuilding delivery schedule
Outstanding capital expenditure for the six vessels currently under construction at the end of Q2 2022 was USD 345 million, split as follows: USD 44 million in 2022, USD 268 million in 2023 and USD 33 million in 2024.
Maintenance
On our existing fleet, we continue to take advantage of the current challenging freight rate environment to accelerate a number of scheduled dry dockings during 2022, with 16 dry dockings scheduled (11 VLCCs and 5 Suezmaxes) this year of which 12 (8 VLCCs and 4 Suezmaxes) have been completed already.
Combination with Frontline
On 11 July 2022 we announced that Euronav and Frontline have entered into a definitive agreement for a stock-for-stock combination based on an exchange ratio of 1.45 Frontline shares for every Euronav share (the “Combination”), which was unanimously approved by all the members of Frontline’s Board of Directors and by all members of Euronav’s Supervisory Board. The agreement confirms the principal aspects of the previously announced term sheet that was signed on 7 April 2022. More details are provided in the press release
Of 11 July.
Indicative Timetable and Next Steps
Frontline will be relocated from Bermuda to Cyprus, a member state of the European Union prior to the launch of the tender offer. The tender offer is expected to be launched in Q4 2022, once the relocation is achieved, and Frontline intends to proceed with a simplified squeeze out if certain conditions are met. A merger will be pursued as soon as possible following the tender offer, with the aim then being to submit the merger to the Frontline and Euronav shareholders’ meetings. In the meantime, the parties will pursue all corporate and other steps necessary for the Combination.
Euronav looks forward to the exchange offer and delivery of a merger with Frontline which we believe is in the best interests of all our stakeholders. Our recent AGM (19 May 2022) contained a number of key resolutions where shareholders had the opportunity to express their views on the strategic direction of the company and on which the majority of shareholders expressed support for current strategy.
Should Frontline decide to formally launch the tender offer, it will deposit a file for this purpose with the Belgian Financial Services and Markets Authority (FSMA), including a draft prospectus. The Euronav Supervisory Board will then examine the draft prospectus and present its detailed opinion in a response memorandum. If Frontline decides not to proceed with the tender offer, it will report about this in accordance with its legal obligations.
Distribution to shareholders COUPON 29:
Ex-dividend date 30/08/2022
Record date 31/08/2022
Payment date 09/09/2022
Euronav maintains its stated policy of distributing USD 3 cents per share per quarter.
Following the decision of the shareholders meeting of November 2021 to make the issue premium reserve account available for distribution and in line with the decision of the annual shareholders meeting of 19 May 2022, a distribution of USD 3 cents related to Q2 2022 will be paid via a repayment from that issue premium reserve. This distribution approach will again be optimal for shareholders as Euronav anticipates there will be zero withholding tax (WHT) associated with such a payment. USD 3 cents per share will thus be paid to shareholders on 9th of September.
FINANCING AND ACCOUNTING AT EURONAV
Liquidity
Euronav continues to maintain a strong financial base and excellent relationships with its capital providers: commercial banks, equity, and debt investors. At the end of June 2022, the Company had liquidity of USD 459 million, comprising USD 275 million cash and USD 184 million undrawn committed credit facilities.
On 21 June 2022, the group entered into a USD 150 million senior secured amortizing term loan facility to finance the acquisition of the 50% ownership in the FSO joint ventures. The new facility has been concluded with ING and ABN Amro who were also the supporting banks in the existing facility. The new facility is linked to the sustainability performance of the Company. The commercial terms include a reduction of the interest rate when the Company achieves its targets in relation to two sustainability KPI’s. The facility will have a duration of 7.75 years with maturity on March 30, 2030.
Moreover, fleet emission data for 2021 has been independently verified. The sustainability target aligned with the Poseidon Principle’s trajectory has been successfully achieved. Five bps margin reduction has been achieved on sustainability linked financings of USD 713M and EUR 80M.
TANKER MARKET & OUTLOOK
Dislocation from the Russia-Ukraine war has been the key driver of tanker markets since late Q1. The movement of crude has become (and is likely to stay) less efficient as Europe recalibrates its crude imports from Russia to Atlantic and Middle East sourced barrels instead. This current trend has further to run and will likely expand as other nations diversify their crude suppliers. This should drive longer ton-miles as crude should travel further – both factors absorbing additional vessel capacity now and going forward.
The time charter activity is beginning to show some positive signs of life. More than fifteen VLCC time charters with a duration of 12 months or more have been agreed so far in 2022 (source: Bloomberg), compared with just 10 in 2021. Recent rates have been set in the USD 35-38,000 per day (for 2020-21 tonnage) with charter duration also rising toward three years.
The current counter-seasonal increase in freight rates is establishing a potentially dynamic market for crude transportation this winter. Short term factors are underpinned for the second half, with the IEA expecting Chinese oil demand to increase from 14.6 Mb/d in 2022 Q2 to 15.7 Mb/d in Q3 and 15.9 Mb/d in Q4 with demand to average 16.2 Mb/d (+5.2%). Higher refining utilisation and the addition of new refining capacity will drive growth in the import demand. Vessel supply is also exhibiting supportive momentum – the surplus number of VLCCs in the Middle East recently hit a two-year low (source: Bloomberg TNNGSD Index) indicating a growing tightness in core tanker markets.
The expectation going forward is that global oil demand growth will need to be satisfied by non-OPEC producers in the Atlantic Basin thus driving ton miles further. The USA is forecast to add 1m bpd of production between now and the end of 2023 supported by Brazil, Canada and Guyana (200k bpd each).
Looking further ahead, fundamental data point to a sustainable recovery. The order book to fleet ratios (VLCC 4.9%, Suezmax 3.9%) remain at multi-year lows. The limited new vessel supply dynamic is driven by higher pricing (VLCC USD 119 million – 22 July – Clarksons quote) and shipyards being busy until 2025 with other segment orders. New regulations (EEXI) will start to progressively bite into a global fleet where 14% of the global VLCCs will be aged over 20 years and 29% aged over 15 years upon delivery of the current order book at the end of 2023.
So far in the third quarter of 2022, the Euronav VLCC fleet that operated in the Tankers International Pool has earned about USD 12,700 USD per day and 47% of the available days have been fixed. Euronav’s Suezmax fleet trading on the spot market has earned about USD 23,900 USD per day on average with 49% of the available days fixed. Freight rates for fixtures in recent weeks in both VLCC and Suezmax have been substantially above the run rate for Q3 indicating a tightening of the market ahead of the winter trading season.
SUSTAINABILITY AND ESG ACTIVITIES
Webber Research 2022 ESG Scorecard
Euronav has been placed in the top quartile of the only major report into Shipping Corporate Governance undertaken by Webber Research since 2016 (previously Wells Fargo). The Company was listed 5th out of 52 shipping companies of various sectors (containers, bulk, tankers) in the scorecard for 2022. Euronav will continue to observe and apply the highest standards of corporate governance. The ESG Scorecard ranks the public shipping universe on a number of corporate governance metrics with the goal of identifying both high quality shipping platforms and points of conflict based on underlying factors. The 2022 scorecard reflects that shipping sector is gradually integrating ESG standards and competition is becoming more intense.
Euronav’s road to decarbonisation
On 5 May 2022, Euronav presented its decarbonisation strategy and targets through a virtual event called ‘Euronav’s road to decarbonisation’. As the world’s largest independent quoted tanker company engaged in the ocean transportation and storage of crude oil, Euronav is uniquely placed to develop sustainable business within the energy transition. The Company has set a decarbonisation strategy that not only aligns with the emission reduction targets of IMO 2030 and IMO 2050, but even exceeds them in order to be fully aligned with the Paris agreement. The replay and presentation of the event are still available here: https://euronav.connectid.cloud/register.
Waterborne Technology Platform
On 23 May 2022, Euronav announced that it became a member of the Waterborne Technology Platform. Waterborne TP has been set up as an industry-oriented Technology Platform with the objective to establish a continuous dialogue between all waterborne stakeholders. This is a broad target audience, comprised of amongst others classification societies, shipbuilders, shipowners, maritime equipment manufacturers, infrastructure and service providers, universities, or research institutes, and with the EU Institutions, including Member States.
IR Magazine – final nominee
In June 2022, Euronav attended the IR Magazine Awards Europe 2022 as the Company was shortlisted as a finalist for the category ‘Best in sector: industrials’. This category covers companies that have impressed the investment community the most with their overall IR program in their sector. This recognition of our sustainability and investor relations effort is our third such acknowledgement in the past four years. Euronav was nominated next to some big contestants such as ABB, Deutsche Post DHL, DSV, Schneider Electric and Siemens. Deutsche Post DHL took the award home.
Marine Money – ‘2021 sustainability-linked deal of the year’ award
In June 2022, Euronav was awarded the 2021 sustainability-linked deal of the year award during Marine Money Week in New York, for our EUR 80 million sustainability linked credit facility signed with a number of commercial banks and including partnership with the Flemish Government. Marine Money’s Deal of the Year awards recognise the global bankers, financial advisors and legal teams who execute transactions that they believe are exceptional. Their criteria for selection include value creation for stakeholders, creativity, overcoming execution, challenges, and innovation.
Source: Euronav NV