Euronav NV yesterday reported its non-audited financial results for the third quarter of 2019 ended 30 September 2019.

Hugo De Stoop, CEO of Euronav said: “Recent freight rates levels are demonstrating that our markets are thinly balanced and that any disruption can have a dramatic impact. Catalysts such as sanctions and geopolitical events may be temporary factors; the market fundamentals and IMO 2020 implications, however, have gradually rebalanced the supply and demand and those factors form a good base for a sustainable cyclical upturn.

Moreover, Euronav should benefit from it fully as we only have one dry dock for 2019 and 90% of our trading fleet is currently exposed to the spot market. In terms of shareholder benefits, Euronav will be able to align and repatriate cashflows to shareholders more quickly than in the past via quarterly dividends starting in the course of 2020.”

For the third quarter of 2019, the Company had a net loss of USD 22.9 million or USD
0.11 per share (Q3 2018: a net loss of USD 58.7 million or USD 0.27 per share). Proportionate EBITDA (a non-IFRS measure) for the same period was USD 96.8 million (Q3 2018: USD 50.7 million).

This quarterly result is affected by two non-cash items representing a total of USD 6.7 million: USD 5.5 million of swaps amortization acceleration as we have refinanced the last Gener8 inherited facility and lost the qualification for hedge accounting, and USD 1.4 million of deferred tax assets related to the sale of the V.K. Eddie.

Image: Euronav

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

EURONAV TANKER FLEET

On 5 August 2019 Euronav delivered its oldest VLCC, the V.K. Eddie (2005 – 305,261 dwt) to her new owners. The vessel will be converted into an FPSO and therefore leave the worldwide trading fleet. A capital gain on the sale of approximately USD 14.4 million was recorded during the third quarter.

CAPITAL ALLOCATION

Euronav returned further capital to shareholders during Q3 buying back 420,000 own shares for a total consideration of USD 4 million. This is part of our capital allocation policy and is in addition to the fixed dividend policy of USD 0.12 per share paid each year.

Euronav may continue to buy back its own shares opportunistically, depending upon market conditions, regulatory requirements and other corporate considerations.

IMO 2020 PREPARATION

Euronav's detailed plans and preparations continue for this new environment starting January 2020. Euronav provided a thorough and detailed webinar presentation on 5 September 2019 with the transcript and presentation on our website at https://www.euronav.com/en/investors/euronav-imo-2020-webinar/

APPOINTMENT OF CHIEF FINANCIAL OFFICER

Euronav is pleased to announce that Mrs. Lieve Logghe will join the Company as Chief Financial Officer. She will succeed Hugo De Stoop who took the role as CEO. Lieve Logghe will be a member of the Executive Committee.

Lieve started her career in International Finance at PriceWaterhouseCoopers. After that, Lieve joined Sidmar (currently ArcelorMittal). She progressively moved through the finance organization in different European geographies up to a position of CFO for ArcelorMittal Europe. As from July 2018 she was promoted VP Head of Energy for ArcelorMittal Europe and Energy Procurement Coordinator for ArcelorMittal worldwide with the clear aim of reducing its carbon footprint.

Lieve's wide and varied skill sets in capital intensive industries and energy expertise will bring an immediate and positive contribution to Euronav.

IMPORTANT CHANGES COMING IN BELGIAN CORPORATE LAW IN 2020

A new Belgian Code of Companies and Associations (“BCCA”) approved in 2019 will simplify and enhance the flexibility of Belgian company law. As a consequence Euronav will be able to move to quarterly dividends, which the Company intends to effectively introduce in the course of 2020. This means Euronav will be able to pay dividends every quarter, and therefore repatriate cashflows to shareholders more quickly (than in the past) and be more aligned to the tanker cycle.

TANKER MARKET

Freight rate development during Q3 was lower than anticipated as the refinery maintenance program was longer and more pronounced than forecast. However, some counter seasonal strength in the large tanker markets reflected that the

supply and demand balance were tighter than the average rate printed in the quarter.

Naturally the values of vessels have followed the trend as demonstrated by several transactions during the quarter at higher valuations especially for older tonnage (10-20 year old), thus increasing the net asset value of tanker companies.

Contracting of new vessels has remained limited, however owner vigilance should be applied as new build prices appear to be softening with shipyards looking to complete order books for 2021 delivery and beyond.

Oil demand has softened in the wake of contracting GDP growth forecasts. The IEA has seen the forecast demand growth move from 1.4 million bpd to 1 million bpd for 2019 and 1.4 million bpd to 1.1 million bpd for 2020. The impact of IMO 2020 should however offset this headwind to some extent given new trading routes and higher volume of crude throughput to produce the new compliant fuel.

We believe recycling of older tonnage is unlikely to feature within the large crude tanker markets if the rate environment is elevated, as older tonnage has already begun to be absorbed into storage of both crude and various fuel oils.

RECENT DEVELOPMENTS IN THE TANKER MARKET

Fundamentals have been supportive for the freight market for VLCCs during 2019, reflected in the counter seasonal rallies seen in earlier this calendar year in February and July. The recent rally in freight prices has been driven by a number of events – some are permanent and some are temporary.

The very strong move in freight rates during October was driven in our view by four key factors:

(1) IMO 2020 has driven some 20 to 30 vessels to be tied up storing fuel oil – these are largely older tonnage and not all of them are expected to rejoin the trading fleet

(2) Saudi outages have driven more diversification of crude buying in Far East which ties up more capacity

(3) a series of short-term factors such as potential restrictions for certain tonnage associated with sanctions along with seasonal upswing in number of available cargoes has squeezed rates higher and been exacerbated by a concern over future vessel supply in Q4

(4) before the surge in rates some 60+ VLCCs were due to leave the market to retrofit scrubbers – some are currently in the yards but the majority are still scheduled to go to the yard in November and especially in December. However, the current rate environment may incentivize owners to delay their retrofit program to the first or the second quarter of 2020, which is positive as it will extend in time any global fleet capacity shortage.

OUTLOOK

The current quarter has started very strongly with some trading routes recording nearly all-time high freight rates. Whilst some short-term factors have undoubtedly assisted in driving rates to such 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.

Euronav has prepared for the introduction of IMO 2020 and retains a high degree of optionality with a strong balance sheet and operational capacity. Euronav has purchased sufficient fuel to cover more than half of our compliant fuel requirements for calendar 2020.

This inventory, which has been fully tested, has been purchased at a very competitive price around USD 80 per ton below the current spot price for compliant fuel with expectations of further spot price rises as IMO 2020 is implemented. Euronav has already begun to deploy this inventory ahead of IMO 2020 implementation in January.

So far in the fourth quarter of 2019, the Euronav VLCC fleet operated in the Tankers International Pool has earned about USD 60,900 per day, with 60% of the available days fixed. Euronav's Suezmax fleet trading on the spot market has earned about USD 27,300 per day on average, with 48% of the available days fixed.

Source: Euronav