11-08-2017

Euronav announces second quarter and half year results 2017

Euronav

Euronav NV (NYSE: EURN & Euronext: EURN) ("Euronav" or the "Company") today reported its non-audited financial results for the second quarter and for the first half of 2017.

Paddy Rodgers, CEO said: "Euronav made considerable progress during Q2. The confirmation of the extension of our five-year FSO contracts combined with an additional two seven-year time charters provide us with a robust and visible fixed income profile. Our balance sheet was further enhanced with a USD 150 million unsecured bond offering during May. The board of directors and management believe these strengths should be reflected in our return to shareholders policy which has now been upgraded to a minimum fixed annual dividend of USD 0.12 per share.

The tanker cycle is positioned at an interesting intersection. Demand for oil saw upgrades during Q2 for both 2017 and 2018 (IEA), supply of oil remains abundant despite OPEC production cuts and modern asset prices appear to have stabilized. Ton-miles were further boosted by U.S. exports since the start of the year and sources of finance, primarily banks, continue to reduce. However, the key challenge for the tanker market is the concentration of deliveries of newbuildings in both the VLCC and Suezmax sectors over the next 18 months which is putting pressure on the freight rate market.

If the illness is low freight rates then the cure is low freight rates as that should drive scrapping activity. Until this inflection point is reached, Euronav retains substantial balance sheet capacity and fixed income visibility to navigate through such a period of lower freight rates and/or to take advantage of expansion opportunities. The duration of the challenging freight rate environment will be entirely dependent on the number of additional orders to build new ships that are not needed by the market."

                             
  The most important key figures (unaudited) are:                      
                             
  (in thousands of USD)     First Quarter 2017     Second Quarter 2017     First Semester 2017     First Semester 2016  
                             
  Revenue     164,158     126,433     290,591     404,450  
  Other operating income     1,285     1,490     2,775     3,702  
                             
  Voyage expenses and commissions     (16,170)     (16,113)     (32,283)     (24,855)  
  Vessel operating expenses     (38,876)     (39,612)     (78,488)     (80,091)  
  Charter hire expenses     (7,637)     (7,848)     (15,485)     (11,010)  
  General and administrative expenses     (10,679)     (11,672)     (22,351)     (21,721)  
  Net gain (loss) on disposal of tangible assets     9     (21,016)     (21,007)     13,819  
  Net gain (loss) on disposal of investments in equity accounted investees                       (24,150)  
  Depreciation     (57,570)     (58,003)     (115,573)     (109,497)  
                             
  Net finance expenses     (9,436)     (10,205)     (19,641)     (19,074)  
  Share of profit (loss) of equity accounted investees **     9,161     11,863     21,024     22,276  
  Result before taxation     34,245     (24,683)     9,562     153,849  
                             
  Tax benefit (expense)     79     447     526     (159)  
  Profit (loss) for the period     34,324     (24,236)     10,088     153,690  
                             
  Attributable to:  Owners of the company     34,324     (24,236)     10,088     153,690  
                             
                             
                             
                             
  The contribution to the result is as follows:                          
                             
  (in thousands of USD)     First Quarter 2017     Second Quarter 2017     First Semester 2017     First Semester 2016  
                             
  Tankers     25,188     (36,109)     (10,921)     136,458  
  FSO     9,136     11,873     21,009     17,232  
  Result after taxation     34,324     (24,236)     10,088     153,690  
                             
                             
                             
                             
  Information per share:                          
                             
  (in USD per share)     First Quarter 2017     Second Quarter 2017     First Semester 2017     First Semester 2016  
                             
  Weighted average number of shares (basic) *     158,166,534     158,166,534     158,166,534     158,359,054  
  Result after taxation     0.22     (0.15)     0.06     0.97  
                             
                             
                             
* The number of shares issued on 30 June 2017 is 159,208,949.              
** Includes a deferred tax benefit of USD 2.5 million              
                             

 

                               
  EBITDA reconciliation (unaudited):                        
                               
  (in thousands of USD)     First Quarter 2017     Second Quarter 2017     First Semester 2017     First Semester 2016    
                               
  Profit (loss) for the period     34,324     (24,236)     10,088     153,690    
  + Depreciation     57,570     58,003     115,573     109,497    
  + Net finance expenses     9,436     10,205     19,641     19,074    
  + Tax expense (benefit)     (79)     (447)     (526)     159    
                               
  EBITDA     101,251     43,525     144,776     282,420    
                               
  + Depreciation equity accounted investees     4,456     4,505     8,961     13,973    
  + Net finance expenses equity accounted investees     396     247     643     2,210    
  + Tax expense (benefit) equity accounted investees           (2,564)     (2,564)          
                               
  Proportionate EBITDA     106,103     45,713     151,816     298,603    
                               
                               
                               
                               
  Proportionate EBITDA per share:                            
                               
  (in USD per share)     First Quarter 2017     Second Quarter 2017     First Semester 2017     First Semester 2016    
                               
  Weighted average number of shares (basic) *     158,166,534     158,166,534     158,166,534     158,359,054    
  Proportionate EBITDA     0.67     0.29     0.96     1.89    
                               
                               
     
All figures have been prepared under IFRS as adopted by the EU (International Financial Reporting Standards) and have not been reviewed by the statutory auditor.    
   

For the first half of 2017 the Company had a net profit of USD 10.1 million or USD 0.06 per share (first half 2016: USD 153.7 million and USD 0.97 per share). The result includes  a deferred tax benefit of USD 0.6 million and also reflects a deferred tax benefit of USD 2.5 million through equity accounted investees. Proportionate EBITDA (a non-IFRS measure) for the same period was USD 151.8 million (first half 2016: USD 298.6 million).

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

In USD per day

 
Second quarter 2017 Second quarter
2016
First semester 2017 First semester 2016
VLCC    
Average spot rate (in TI pool) 28,351 47,864 34,843 54,156
Average time charter rate** 41,480 44,382 41,300 42,461
SUEZMAX    
Average spot rate* 17,341 33,119 20,508 35,729
Average time charter rate** 21,651 26,363 22,830 29,307

*Excluding technical offhire days 
** Including profit share where applicable

UPGRADE TO EURONAV'S RETURN TO SHAREHOLDERS POLICY 

Please read the complete new policy here

Since Euronav announced its distribution policy in early 2015, the Company has paid out USD 391 million in cash dividends (USD 2.46 per share) and USD 7 million (USD 0.04 per share) in share buy backs. This is one of the highest pay-out of any tanker company over this period.

As a result of substantial changes in tanker market outlook and in view of the Company's strong balance sheet and visible fixed income from the FSOs and time charter contracts, the Board of Directors of Euronav believes that it could improve its return to shareholders policy.

In the near future the tanker freight market may indeed be more challenging than in the last ten quarters and as a result the Company may not generate semi-annual positive results.  As a consequence, under the current return to shareholders policy, the Company may not distribute significant interim or final dividends, or any dividends at all. At the same time, there are now numerous opportunities available which would better serve shareholders so as to generate improved and sustained value over the longer term.

Under its new return to shareholders policy Euronav intends to (1) pay a fixed minimum dividend of USD 0.12 per share every year (equivalent of USD 0.06 for each half year) and; (2) if the results per share are positive and exceed the amount of the fixed dividend, that additional income will be allocated to additional dividends or buying back shares or, of course, accretive vessel or fleet acquisitions, as the board at that time deems most valuable for the shareholders in the long term.

INTERIM DIVIDEND 2017

Accordingly, Euronav will pay an interim dividend of USD 0.06 per share for the first half of 2017. This will be the first payment under this new policy announced today. It is anticipated that the ex-dividend date shall be 25 September 2017 with a record date of 26 September 2017 and a payment date of 5 October 2017.

The interim dividend for the first half of 2017 of USD 0.06 per share should be compared to the previous policy which was to pay 80% of net income over the full year with the interim payment a reflection of first half performance and outlook for the second half. A challenging second half freight market consensus for 2017 for the large tanker market would have implied a zero dividend for both the interim and full year 2017 under strict application of the former policy.

EURONAV TANKER FLEET

In June Euronav sold the VLCC TI Topaz (2002 - 319,430 dwt) for USD 21 million recording a capital loss of USD 21 million. The TI Topaz joined the Euronav fleet in the first quarter of 2005 and has contributed positively over the years to the results of Euronav, especially during strong freight rate years such as 2005, 2006, 2008, 2010, 2015 and 2016. The book loss relates to the value of the ship in our books where assets follow straight line depreciation over 20 years.

In May Euronav and its joint venture partner, International Seaways, signed a contract for five years for the FSO Africa and FSO Asiain direct continuation of the current contractual service. The contract was signed with North Oil Company ("NOC"), the future operator of the Al Shaheen oil field, whose shareholders are Qatar Petroleum Oil & Gas Limited and Total E&P Golfe Limited.

The new contracts for these custom-made 3 million barrels capacity units that have been serving the Al Shaheen field without interruption since 2010 will have a duration of five years starting at the expiry of the existing contracts. The new contracts are expected over their full duration to generate EBITDA (earnings before interest, taxes, depreciation and amortization) in excess of USD 360 million for the joint ventures. Based on Euronav's 50% ownership in the joint ventures the five year contracts are expected to generate in excess of USD 180 million of EBITDA for the Company.

FINANCING

In May the Company successfully launched a USD 150 million unsecured bond with a coupon of 7.50% and maturity in May 2022. This was Euronav's first entry into debt capital markets and represents a significant development for the Company in diversifying its funding structure. Indeed, traditional sources of capital, especially bank lending, available to tanker shipping are coming under increasing regulatory and competitive pressure within the banking sector.  

In June, the company started a treasury note program (Commercial Paper) and placed approximately EUR 50 million in the market for various short term maturities at a pricing of 60 bps over Euribor. This is not additional debt but rather an opportunity to decrease the cost of borrowing by systematically using the proceeds to repay part of the company's revolving loan facilities.  

Euronav also signed a 12-year USD 110 million Export Credit Agency (ECA) financing with commercial banks and Ksure for the financing of the two VLCC newbuildings (the Aquitaine and the Ardeche) the Company took delivery of in January.

TANKER MARKET

We believe that the recent deferral of the required implementation of installing new ballast water treatment systems on all large crude tankers from September 2017 until 2019 will have a negligible impact. Many operators had already de-harmonised their surveying cycle arrangements in anticipation of this legislation so that the original implementation date of 8 September 2017 would, in our view, not have been a specific catalyst for scrapping. However, a significant portion of both the VLCC and Suezmax global fleet is reaching maturity (20 years old or more) between the end of 2017 and end of 2020 during which time both the ballast water treatment directive and reduced sulphur emissions directive will have to be implemented. Within this "regulatory window" (2018-2020) increasing commercial pressures which are driving charterers away from vessels aged 15 years or more will be applied to the 106 VLCC (15% of global fleet) and 72 Suezmax (also 15%) vessels that will turn 20 years old between now and the end of 2020.  

The delivery schedule of the current order book is likely to continue to pressure the freight market downward with 28 VLCCs and 23 Suezmaxes due for delivery in the second half of 2017. However, the order book to fleet ratio of 13% for both VLCC and Suezmax sectors versus an average since 1996 of 22% (VLCC) and 24% (Suezmax) (source: Clarksons) looks manageable in the mid-term if no new orders are placed, especially when looking at recent scrapping activity with 3 VLCCs and 5 Suezmaxes scrapped so far this year (Source: Clarksons). However, the concentration of the delivery of newbuildings is the key driver to current and future freight rates. With 28 VLCCs and 23 Suezmaxes due for delivery in the second half of 2017, without scrapping, this downward pressure will remain.  

The picture for oil demand remains constructive with the IEA upgrading both 2017 and 2018 forecasts during Q2 fueled by Far East demand and an oil price in a pricing range conducive for economic expansion. With U.S. exports reaching 780,000 bpd during Q2, this should translate into a requirement of an additional 35-45 VLCCs for both this year and next.

The extension of the OPEC production cut to March 2018 was clearly a negative development during May. However, the supply of crude oil remains largely constructive: U.S. shale oil production continues to expand; Nigeria/Libya production (exempt from OPEC cuts) is recovering; general supply outage levels remain low and new supply sources are coming online (e.g. Kashagan). It remains to be seen whether the OPEC production cuts delivered since Q4 2016 translate into something more restrictive for exports and therefore tankers in the second half. 

OUTLOOK

Euronav has taken affirmative action in response to a weaker tanker background. The Company has a strong balance sheet with low leverage and access to over USD 800 million of liquidity following its entry into the debt capital markets during Q2. High quality fixed income (the FSO vessels and 4 x 7 year Suezmax time charters) secured via strong relationships and with visibility to 2025 provides Euronav's stakeholders with additional security which will now be reflected in our upgraded return to shareholders policy. Euronav takes its responsibility as steward of capital seriously and management believes that possessing a strong yet flexible capital structure will be critical in the next 18-24 months.

Euronav further believes that the sector is now entering a new phase of the cycle with stabilized prices for modern assets but uncertainty over, and pressure upon, freight rates.  Euronav is well positioned to navigate the next stage of the tanker cycle - to be strategically opportunistic whilst remaining exposed to any potential upside from an improved freight rate environment.

So far during the third quarter of 2017, the Euronav VLCC fleet operated in the Tankers International Pool has earned about 20,000 USD and 61% of the available days have been fixed. Euronav's Suezmax fleet trading on the spot market has earned about 14,700 USD per day on average with 60% of the available days fixed.  

CONFERENCE CALL

Euronav will host a conference call on Thursday 10 August 2017 at 09.30 a.m. EST / 03.30 p.m. CET to discuss the results for the quarter.

The call will be a webcast with an accompanying slideshow. You can find details of this conference call below and on the "Investor Relations" page of the Euronav website at http://investors.euronav.com.

Webcast Information  
Event Type:  Audio webcast with user-controlled slide presentation
Event Date: 10 August 2017
Event Time: 9:30 a.m. EST / 3:30 p.m. CET
Event Title:  "Q2 2017 Earnings Conference Call"
Event Site/URL:   http://services.choruscall.com/links/euronav170810J37dUXTm.html

Telephone participants may avoid any delays by pre-registering for the call using the following link to receive a special dial-in number and PIN conference call registration link: http://dpregister.com/10110784. Pre-registration fields of information to be gathered: name, company, email. 

Telephone participants located in the U.S. who are unable to pre-register may dial in to 001-877-328-5501 on the day of the call. Others may use the international dial-in number 001-412-317-5471.

A replay of the call will be available until 17 August 2017, beginning at 11:30 a.m. EST / 5:30 p.m. CET on 10 August 2017. Telephone participants located in the U.S. can dial 001-877-344-7529. Others can dial 001-412-317-0088. Please reference the conference number 10110784.

Source: Press Release 

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