• Challenging quarter due to stunted demand recovery and restricted crude supply
• Euronav continuing to diversify financing with new sustainability-linked funding sources
• Investing for the future with VLCC and Suezmax fleet renewal added during quarter
Euronav NV reported its non-audited financial results for the first quarter of 2021, ended 31 March 2021.
Hugo De Stoop, CEO of Euronav said: ”Low freight rate market conditions prevailed during Q1 and into the current quarter. Mobility restrictions linked to the COVID-19 pandemic continue to affect global crude consumption. Whilst the tapering of OPEC + production cuts later this month is an encouraging sign, available large crude tonnage remains abundant. We remain confident that the market will recover in the medium-term and that is why we took advantage of available low asset prices to make counter-cyclical investments in both the VLCC and Suezmax segments during Q1.
Alongside the excellent relationships that Euronav maintains with shipyards, our new eco-ships will form a key part of our energy transition strategy to lower our fleet emissions.”
For the first quarter of 2021, the Company realized a net loss of USD 71 million or USD 0.35 per share (first quarter 2020: a net profit of 225.6 USD million or USD 1.05 per share). Proportionate EBITDA (a non-IFRS measure) for the same period was USD 33.1 million (first quarter 2020: USD 335.2 million).
EURONAV TANKER FLEET
During February Euronav entered into a sale and leaseback agreement for the VLCC Newton (2009 – 307,284 dwt) with Taiping & Sinopec Financial Leasing Co., Ltd.. The vessel was sold for USD 36 million. The transaction produced a capital gain of about USD 1.2 million. After repayment of the existing debt, the transaction generated USD 19 million free cash.
Acquisition - Suezmax
Also in February, Euronav announced it has entered into an agreement for the acquisition through resale of two eco-Suezmax newbuilding contracts. Currently completing construction at the Daehan Shipyard in South Korea, these modern vessels are being acquired for an en-bloc price of USD 113 million. Both vessels are due for delivery in January 2022. The vessels have the LNG Ready structural notation and Euronav is working closely with the shipyard and classification society to have the Ammonia Ready structural notation as well. This provides the option to switch to other fuels at a later stage in the future.
Acquisition – VLCC
In April, Euronav entered into an agreement with the Hyundai Samho yard for two VLCC newbuilding contracts. The vessels will be delivered during Q4 2022 and Q1 2023, costing USD 186 million en-bloc, including USD 4.2 million in additions and upgrades to the standard specifications. Euronav also has the option to contract a third VLCC with the same specifications for delivery in the second quarter of 2023. The vessels will have the LNG Ready structural notation and Euronav is also working with the shipyard and classification society to include an Ammonia Ready structural notation.
On our existing fleet, we will continue to take advantage of the current challenging freight rate background to accelerate a number of scheduled dry dockings. 27 dry dockings are scheduled to take place in 2021 (17 VLCCs and 10 Suezmaxes) of which 8 have been completed already (7 VLCCs and 1 Suezmax).
Cash dividend related to Q1 2021
Euronav remains committed to distribute quarterly dividends throughout the cycle independently of the net income results and will distribute a fixed dividend of USD 12 cents on an annual basis or USD 3 cents per quarter.
In view of the record date of Friday 21 May 2021, shareholders may not reposition shares between the Belgian Register and the U.S. Register during the period from Thursday 20 May 2021 at 9.00 a.m. (Belgian time) until Monday 24 May 2021 at 9.00 a.m. (Belgian time).
Annual General Meeting & Special General Meeting May 2021
Euronav has invited its shareholders to participate in the Ordinary General Meeting and the Special General Meeting to be held on Thursday 20 May 2021 at 10.30 a.m. CET and 11.00 a.m. CET, respectively, in 2000 Antwerp, Schaliënstraat 5.
In light of the COVID-19 pandemic, it is uncertain if the measures imposed by the Belgian Federal and Flemish governmental authorities, including prohibition and/or restrictions of physical gatherings, will still be in effect on 20 May 2021. Furthermore, additional measures may be imposed at the time of the shareholders’ meetings.
These measures are in the interest of the health of the shareholders, as well as of the employees of the Company and others participating in the organization of the meetings. Accordingly, the Supervisory Board strongly encourages the shareholders not to physically attend the shareholders’ meetings and strongly invites the shareholders to exercise their rights by (i) upfront distant voting using the form for voting by letter, or (ii) upfront by written proxy to the meetings’ secretary.
Furthermore, shareholders are encouraged to exercise their right to ask questions relating to the agenda items of the shareholders’ meetings in writing. No standing reception will be organized after the meetings.
FINANCING AT EURONAV
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 March 2021, the Company had liquidity of USD 1.1 billion comprising USD 149 million cash and USD 969 million undrawn committed credit facilities.
With COVID-19 infections surging in India and beyond, crew changes are becoming challenging again. Now, more than ever, seafarers need to be designated as key workers to ensure priority vaccination and access to safe transit and travel. Crews have worked tirelessly, at the heart of the world trade, to keep moving crude. Despite difficulties with port access, repatriation, crew changes and many more challenges, there can be no denying that seafarers have gone beyond the call of duty.
So far, fewer than 60 countries have heeded our call for seafarers to be designated as “key workers”. More countries need to do so if we are to resolve this crisis and ensure seafarers are treated humanely, so that their travel to and from their place of work is properly facilitated. There is still a long way to go before we are back to a normal crew change regime.
As vaccination is rolled out in many countries, many governments, including the Belgian government, have started to prioritize seafarers in their national COVID-19 vaccination programmes which is a very positive evolution. We recognize that many seafarers have endured intense hardship while working to keep trade flowing, and we are grateful to them for their service.
TANKER MARKET & OUTLOOK
The VLCC and Suezmax freight markets remained difficult throughout Q1. Two factors have contributed to continually defer freight rate recovery. Firstly, high compliance with production/export cuts from OPEC+ has continued to restrict cargoes available for commercial transit. This kept 7.2 million bpd out of the market during Q1.
Secondly, COVID-19 driven restrictions continue to depress demand for crude oil. Consumption according to the EIA globally has averaged 94 million bpd between July 2020 through to March 2021 (compared to 100 million bpd in Q4 2019, the last full quarter before COVID-19).
The severe impact of those two negative factors was evidenced by the blockage of the Suez Canal, a key crude tanker transit lane, for six days in late March. In ordinary circumstances this would have led to substantial disruption in the large tanker market and a likely increase in freight rates. However, due to the short-term oversupply of tonnage this has had limited effect in operational terms or in benefiting freight rates.
Given this market background, the lack of ship recycling has confounded many observers, including ourselves. Historical precedents suggest periods of challenging freight rates in the tanker markets have induced owners of older tonnage to recycle their ships, reducing therefore the global trading fleet. Since 1990, on average 5% of the VLCC fleet has exited the global fleet following a 12-month period of low freight rates (below USD 25,000 per day). However, this pattern has not emerged in the current low market cycle.
Many analysts believe that older tonnage has instead been used for “illicit trade” that has developed around Iranian and Venezuelan sanctioned cargoes. The vessels undertaking this trade have been almost exclusively older tonnage (DNB estimate average age of 20 years for such VLCCs). Rather than head for the recycling yards (and enjoy a high current recycle price of USD 20 million for a VLCC) such vessels have instead been sold, usually to private operators (83 elderly VLCCs sold for instance since 2019) (Source: Gibson Shipbrokers).
Such trade appears to have been policed less effectively in the past few quarters than previously. The impact has been substantial with potentially 66 VLCCs (54 Iran, 12 Venezuela) and 29 Suezmaxes (20 Iran, 9 Venezuela) involved (source: Gibson Shipbrokers). The effect has been to reduce recycling to 11 VLCCs (1.3% of fleet) and 5 Suezmaxes (1%).
Contracting of new tankers, primarily VLCCs, has been a recent source of attention. A key driver has been dual fuel contracting in the VLCC sector with a quarter of the order book now dual fuel denominated. The vast majority of these vessels (80%) will not enter the spot market but will instead start with multi-year time charter. The Suezmax sector has not seen the same level of contracting, with less than five new builds ordered per quarter over the past year.
These dual-fuel vessels reflect the growing structural focus on emissions reduction from financiers. This will in turn increase pressure on older, higher emission tonnage. A quarter of both the VLCC and Suezmax fleet is over 15 years old and consume, on average, 22 % more than younger tonnage aged at 6 years or less (source: Tankers International). Shipping banks, investors, and regulators (IMO, via EEXI regulations due 2023) are increasing their focus on emissions and compliance. Euronav believes this will inevitably lead to a further reduction in older tonnage utlilisation at some point and ultimately drive their exit from the global tanker fleet.
A short-term inflection point in the tanker cycle has therefore remained elusive. However, asset prices, driven by higher steel prices, are higher across all age VLCC and Suezmax categories. A tapering of production cuts from OPEC+, now scheduled to deliver 2.1 million bpd of additional crude between May and July, should help improve the market. Every 1 million bpd of crude transit should translate into a requirement for 30 VLCCs. Finally, the return to the world economic order of legitimizing the “illicit” crude tanker trade with Iran could be the catalyst for older tonnage engaged in this trade to be recycled out of the global fleet.
So far in the second quarter of 2021, the Euronav VLCC fleet that operated in the Tankers International Pool has earned about USD 10,000 per day and 48% of the available days have been fixed. Euronav’s Suezmax fleet trading on the spot market has earned about USD 10,500 per day on average with 41% of the available days fixed.
Additional unsecured sustainability-linked facility
After the end of Q1, Euronav announced that it had signed an EUR 80 million unsecured revolving credit facility. This new facility, which was significantly oversubscribed, was concluded with a range of commercial banks and with the support of Gigarant. Sustainability and emission reductions are key components of the margin pricing in the facility. The conclusion of this funding brings facilities with an integrated sustainability component to just under a third of Euronav’s total financing.
The facility will have a minimum duration of 3 years, with two 1-year extension options. A range of measurable sustainability features, such as year-on-year reduction in carbon emissions starting from 2021, will be supported by compliance with the Poseidon Principles. The following banks form the lending consortium, KBC, ABN Amro, Belfius, ING, Societé Generale, BNP Paribas and SEB, supported by Gigarant.