EURONAV NV EBITDA (before non-recurring items) USD 135.9m - strongest Q3 since 2008
Decision not to exercise options for 4 VLCCs - value of options written off
Resilient quarter for VLCC and Suezmax rates despite seasonal expectations
Delivery of first VLCC (the Antigone) from acquisition announced in June (1st of 4)
New credit facility agreed covering 50% of fleet; Euronav fully funded
ANTWERP, Belgium, 29 October 2015 - Euronav NV (NYSE: EURN & Euronext: EURN) ('Euronav' or the 'Company') today reported its non-audited financial results for the three months ended 30 September 2015.
Paddy Rodgers, CEO of Euronav said: 'The positive thesis for the tanker sector started in early 2014 continues to evolve as expected. The four key drivers of our business: robust demand for crude oil, moderate vessel supply, high supply of oil and continued ton-mile expansion - all delivered further gains in what is usually a seasonally weak quarter. This resilience of the thesis was demonstrated with a strong recovery in the freight market after a number of external factors simultaneously impacted the market during August. The winter market has started very strongly. Euronav remains committed to its policy of distributing 80% of net income.'
The most important key figures are: | ||||
in thousands of USD | First | Third Quarter | Year-to-Date | Year-to-Date |
Semester | ||||
2015 | 2015 | 2015 | 2014 | |
Revenue | 416,529 | 204,334 | 620,863 | 329,119 |
Other operating Income | 4,296 | 1,976 | 6,272 | 6,558 |
Voyage expenses and commissions | (37,665) | (17,616) | (55,281) | (91,127) |
Vessel operating expenses | (76,779) | (38,126) | (114,905) | (87,088) |
Charter hire expenses | (13,726) | (5,685) | (19,411) | (25,650) |
General and administrative expenses | (21,126) | (9,004) | (30,130) | (28,278) |
Net Gain (loss) on disposal of tangible assets | 2,126 | (7,991) | (5,865) | 1,361 |
EBITDA | 273,655 | 127,888 | 401,543 | 104,895 |
Depreciation | (101,699) | (53,611) | (155,310) | (113,059) |
EBIT (result from operating activities) | 171,956 | 74,277 | 246,233 | (8,164) |
Net finance expenses | (27,035) | (10,797) | (37,832) | (55,895) |
Share of profit (loss) of equity accounted investees | 25,015 | 13,056 | 38,071 | 22,294 |
Result before taxation | 169,936 | 76,536 | 246,472 | (41,767) |
Tax Benefit (Expense) | 3,315 | (4,346) | (1,031) | (94) |
Profit (loss) for the period | 173,251 | 72,190 | 245,441 | (41,861) |
Attributable to: Owners of the company | 173,251 | 72,190 | 245,441 | (41,861) |
Non-controlling interests | - | - | - | - |
PRESS RELEASE REGULATED INFORMATION 29 OCTOBER 2015 - 8.15 a.m. CET | ||||
The contribution to the result is as fo | llows | |||
in thousands of USD | First | Third Quarter | Year-to-Date | Year-to-Date |
Semester | ||||
2015 | 2015 | 2015 | 2014 | |
Tankers | 156,625 | 64,025 | 220,650 | (64,006) |
FSO | 16,626 | 8,165 | 24,791 | 22,145 |
result after taxation | 173,251 | 72,190 | 245,441 | (41,861) |
Information per share: | |||||||
in USD per share | shares | (basic) | * | First | Third Quarter | Year-to-Date | Year-to-Date |
Semester | |||||||
2015 | 2015 | 2015 | 2014 | ||||
Weighted average number of | 153,071,800 | 158,625,615 | 154,943,416 | 112,238,388 | |||
EBITDA | 1.79 | 0.81 | 2.59 | 0.93 | |||
EBIT (operating result) | 1.12 | 0.47 | 1.59 | (0.07) | |||
Result after taxation | 1.13 | 0.46 | 1.58 | (0.37) | |||
All figures have been prepared under IFRS as adopted by the EU (International Financial Reporting Standards) and have not been audited nor reviewed by the statutory auditor.
*The number of shares outstanding on 30 September 2015 is 159,208,949.
For the third quarter 2015 the Company had a net result of USD 72.2 million (third quarter 2014: USD -20.6 million) or USD 0.46 per share (third quarter 2014: USD -0.16 per share). EBITDA (a non-IFRS measure) for the same period was USD 127.9 million (third quarter 2014: USD 36.3 million).
If the Company had continued to apply the proportionate consolidation method for its joint ventures for the third quarter of 2015, the adjusted EBITDA would have been USD 149.7 million (third quarter 2014: USD 53 million), the adjusted EBIT would have been USD 88.7 million (third quarter 2014: USD 0.3 million) and the result after taxation would have remained the same.
The average daily time charter equivalent rates (TCE, a non IFRS-measure) can be summarized as follows:
In USD per day | Third quarter 2015 | Third quarter 2014 |
VLCC | ||
Average spot rate (in TI pool) | 52,368 | 24,661 |
Average time charter rate* | 43,516 | 30,189 |
Suezmax | ||
Average spot rate** | 40,048 | 21,737 |
Average time charter rate* | 30,944 | 21,168 |
* Including profit share where applicable
** Excluding technical offhire days
CORPORATE
On 19 August 2015 the Company signed a new USD 750 million senior secured amortizing revolving credit facility for the purpose of (i) refinancing 21 vessels; and (ii) financing four VLCCs which were recently acquired as resales of existing newbuilding contracts announced on 16 June 2015 as well as (iii) Euronav's general corporate and working capital purposes. The facility which was 1.35 times oversubscribed refinances two existing facilities: the USD 750 million loan agreement dated 22 June 2011 and the USD 65 million facility signed on 23 December 2011.
As mentioned in the press release of 16 June 2015 reporting the acquisition of four VLCCs, the Company was also granted an option to acquire a further four VLCCs with delivery windows late 2016 and 2017. These late delivery windows were the reason for management to sign an option rather than including these vessels in the acquisition at that time. The value of the option was to have a sort of hedge against any significant vessel price inflation, which in the meantime has not materialised. After careful consideration, the Board has decided not to exercise the option to purchase four VLCCs. As a consequence, the value of these options has been written off to zero and a USD 8 million non-recurring charge (non-cash) has been taken for Q3.
The remaining capex linked to the three VLCCs that will be delivered early 2016 is USD
195.9 million. Including these three outstanding VLCCs, Euronav is fully funded in its current structure and retains a strong conviction that tanker markets are undergoing a sustained and structural recovery in freight rates. With the vast majority of our fleet currently on the water, Euronav is ideally positioned to benefit from this positive freight market environment but will also remain disciplined as stewards of shareholder capital. The Board believes this course of action is in the best interests of all stakeholders.
On 25 September 2015 Euronav took delivery of the first vessel of four VLCCs which were recently acquired as resales of existing newbuilding contracts announced on 16 June 2015: the Antigone (2015 - 299,421 dwt).
TANKER MARKET
Compared with the third quarter 2014, VLCC earnings on the spot market are up 112% for the third quarter.
The quarter was remarkable for the underlying strength of freight rates in what is usually a seasonally weak period. The strength of rates during July and September was the key feature of the Q3 tanker market. A number of factors simultaneously impacted the freight market in August which saw a short, sharp correction - principally in VLCC rates - but such is the strength of the current market fundamentals. This 'correction' lasted just five weeks.
August saw a weak patch in freight rates due to (a) crude cargo imports to China and exports from Iraq being slower than usual; (b) owner behaviour on pricing which had been consistently resolute during 2015 giving way temporarily to lower rate setting; (c) low season for cargoes and high season for refinery maintenance and (d) increased number of vessels available as a result of re-letting/speeding up.
Four key drivers of the tanker sector remain positively structured in both the short and medium term. Firstly, ton-mile expansion continues with new longer trade routes, such as Latin America to Far East becoming more frequent.
Secondly, despite some evidence of US production (shale) marginally declining, global crude oil supply continues to push higher. During the quarter Kuwait, Saudi Arabia, Iraq and Russia all delivered record output. Quite simply more oil produced means more cargoes to be transported or stored.
Thirdly, global oil demand projections remain at elevated levels despite some recent adjustment. The IEA currently forecasts demand growth for 2015 at 1.8m bpd moving to 1.2m bpd for 2016.
Fourthly, whilst the order book - primarily for VLCCs - has continued to grow, the overall build has remained modest by historical standards. Given the average 20 year life of a crude tanker it is often overlooked that there is a natural level of attrition (3-5% per
annum) in the global fleet - indicating that a total order book to fleet ratio of 15-20% is manageable.
In addition, over Q2 and Q3 Euronav believes there has been a portion of the VLCC order book which has been accelerated in order to avoid complying with incoming environmental legislation which is applicable from January 2016. Any vessel where the keel is laid after 1 January 2016 must comply with Tier 3 legislation on Nitrogen Oxide emissions. This has had the effect of accelerating newbuilding orders so as to avoid the potential increased costs derived from this new legislation. Euronav retains its view that every new order at the shipyard is value destructive if it is not linked to the direct scrapping of a similar ship or to a long term time charter contract.
A great deal of commentary exists over China. Euronav believes it is important to look at the three key factors when assessing China. Firstly, China imports around 7 million barrels of crude per day. This is a large baseload of demand. Secondly, as the economy deliberately transitions from an industrial to a consumer-based model the demand for crude should be relatively constant. Lastly, the crude tanker sector benefits from two important and supportive drivers - the return of the 'teapot' refineries to western markets (before summer 2015 'teapot' or smaller refineries were restricted to purchasing only domestic crude) and building of the Chinese SPR (Strategic Petroleum Reserve). These should underpin further steady crude demand growth from China into the medium term.
As discussed in our Q2 commentary, the theme of port congestion persists. This is taking capacity out of the market and is primarily driven by excess supply of crude unable to find storage on shore. This feature is now largely recognised through higher demurrage rates factored in the commercial structure of freight rates.
OUTLOOK
Traditionally, the third quarter is seasonally the weakest during the tanker calendar year. However, 2015 saw the average Q3 rates for VLCC and Suezmax broadly in line with Q1 and Q2 and specific cargo rates have hit a seven-year high in the early part of Q4. This reflects the strong fundamentals that underpin the crude tanker sector currently and which Euronav believes has structural support to drive the market for several years.
So far in the fourth quarter the Euronav VLCC fleet operated in the Tankers International pool has earned about USD 65,000 per day and over 46% of the available days have been fixed. Euronav's Suezmaxes trading on the spot market have earned about USD 34,600 per day on average with 61% of the available days fixed for the fourth quarter.
Euronav now has 54 vessels on the water with three VLCCs to be delivered in early 2016. With our fleet fully and conservatively financed Euronav has no funding requirements going forward and is well positioned to profit from the strong tanker industry fundamentals in place for at least the next 12 months. An established dividend distribution policy maximizes returns and provides management with a discipline for future growth opportunities.
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