Euronav NV (NYSE:EURN) Q1 2023 Earnings Call Transcript May 11, 2023

Euronav NV beats earnings expectations. Reported EPS is $0.87, expectations were $0.72.

Operator: Hello, and welcome to Euronav Q1 2023 Earnings Conference Call. [Operator Instructions] Please note, today’s event is being recorded. I would now like to turn the conference over to your host today, Brian Gallagher. Mr. Gallagher, please go ahead.

Brian Gallagher: Thank you. Good morning and afternoon to everyone and thanks for joining Euronav’s Q1 2023 earnings call. Before I start, I would like to say a few words. The information discussed on this call is based on information as of today, Thursday the 11th of May 2023, and may contain forward-looking statements that involve risks and uncertainties. Forward-looking statements reflect current views with respect to future events and financial performance and may include statements concerning plans, objectives, goals, strategies, future events, performance, underlying assumptions and other statements which are not statements of historical facts. All forward-looking statements attributable to the company or to persons acting on its behalf are expressly qualified in their entirety by reference to the risks, uncertainties and other factors discussed in the company’s filings with the SEC, which are available free of charge on SEC’s website at www.sec.gov and on our own company’s website at www.euronav.com.

You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement. And the company undertakes no obligation to publicly update or revise any forward-looking statements. Actual results may differ materially from these forward-looking statements. Please take a moment to read our safe harbor statement on Page 2 of this slide presentation. I’ll now pass it over to Chief Executive, Hugo De Stoop, to start with the content slide on Slide 3. Hugo, over to you.

Hugo De Stoop: Thank you, Brian, and good morning or afternoon to wherever you are and welcome to our call. I’ll run through the Q1 highlights before passing on to Lieve Logghe, our CFO, to give you the key financial figures. Brian Gallagher, our Head of IR and Research, will then run you through 3 key factors within the current tanker market trends before I return to summarize the outlook. Moving on to the next slide. It was a very good quarter for Euronav and one where the freight market was especially strong. What was unusual is that the market got stronger as the quarter developed, which is counter seasonal drive compared to what we are used to seeing in the first quarter where typically the market starts to abate as the spring is approaching.

Indeed the month of March brought the highest Suezmax and second-highest rates for VLCCs since 1990. This combined to drive Suezmax’s rates higher than VLCC rates underpinned by strong demand from China and better tonne miles across the tanker spectrum. This situation has reserved somewhat in Q2 with rate softening now, and VLCC rates appear to those in Suezmax, but averages rates in Q2 are highly elevated in both absolute terms and for the time of the year, when we would have expected seasonality to pull rates downwards much earlier. With the new supervisory board [indiscernible] in place looking at both the strong company balance sheet and visibility on positive medium term fundamentals, a higher return to shareholders pay has been proposed, which will see Euronav investors benefiting from the final dividend for the full year 2022 of $1.1 and a Q1 dividend of $0.70, both payables in Q2.

Which means that a total of $1.8 per share will be distributed to our shareholders in the coming weeks. I will now pass over to Lieve to run you through the financials. Lieve, over to you.

Lieve Logghe: Thanks, Hugo. Taking Hugo’s point further, the Euronav’s capital base is very strong with over $900 million in cash liquidity. Leverage falling again in Q1 to just below 43%, and robust cash generation coming from our fleet and benefiting from the repositioning we have executed in the past 2 years. We have, again, taken advantage of higher values for all the tonnage and retain capacity for more should we decide to do so. With that, I will now pass it back to you, Brian, to give some thoughts on the current market cycle.

Brian Gallagher: Thank you, Lieve. The order book has gained ample attention amongst investors in recent months. One of the key visible points of reference the tanker sector has is a very, very low level historically the order book currently sits at. This is shown on the left hand side of Slide 9. This is below even a replacement level of 5%, assuming uniform build and a tanker life of 20 years. However, there has been some signs of life and some overdue contracting of new crew tankers, mainly in the smaller segments, but including Suezmax in recent months. This was to be expected given the strong fundamentals and the fact that practically no vessels have been ordered since Q3 2021. The right hand chart on Slide 9 might look dramatic, but remember, we are looking at around 10 unconfirmed orders of Suezmax on a base of over 1,500 Suezmax and VLCC units globally.

There was also further context that is required and we give this in Slide 10 with 2 further points to make. On Slide 10, you can see that, firstly, Suezmax price inflation has not been as rapid as that we’ve seen in the VLCC sector. Hence, on a relative basis, there’s still a detraction from a Suezmax’s space. With regulatory changes coming in, but adoption of new fuels slower than expected, owners are likely looking at vessels that have a longer useful life. Secondly, let’s also remember who is ordering these ships. There are no speculative orders in the order book, the mix is a sensible one of public owners like Euronav, respected longer term private and scale owners largely in the Greek arena, and also the national owners who are investing on a strategic basis.

It was unusual to see such a dearth of orders from Q3 2021. But even with this recent uptick, if it is fulfilled, these vessels will not hit the water until another 24 months to 36 months. So now turning to the demand side of the equation on Slide 11. On Slide 11, you can see that China has reopened, and Euronav has seen barrels purchased for economic recovery and for stockpiling over the last 6 months. It remains volatile with a record month for March followed by a more fallow April. However, the trajectory of recovery looks well established and also some of this growth is being fed by Atlantic barrels. It is interesting to see the number of VLCC cargoes leaving the U.S. Gulf Coast has continued to grow even after the strategic petroleum reserve barrels were all moved earlier in 2022.

With that, we retain our very, very positive medium-term view on the sector, and I’ll now pass over to Chief Executive, Hugo De Stoop, to give some more medium-term thoughts on the cycle and the current traffic light outlook. Hugo, over to you.

Hugo De Stoop: Thanks, Brian. Very good topics. Summing up then, the fundamentals are supportive, but short term, some headwinds are emerging. New build costs and incoming regulations are capping supply despite recent contracting. The global fleet age gives some encouragement that either vessels will exit the mainstream fleet via recycling or exit via the shadow or dark fleet. After 5 consecutive quarters, upgrading the sector on our 5 key drivers, we today downgrade our supply on the back of the OPEC cuts announced recently. Whilst we do not believe that all of these cuts will be enacted or even delivered, it provides a headwind at a seasonal point of the year when we would expect refinery maintenance programs and move into summer months to reduce demand in any case.

That has happened and impacted freight rates in the very short term, but the fundamentals continue to remain supportive and freight rates remain profitable. Our business is in very solid shape, supported by strong finance, organic growth from our own order book of vessels due to be delivered and a strong shareholder focus to return the cash generated from our platform as quickly as possible. With that, I will hand it back to the operator.

Q&A Session

Operator: [Operator Instructions] And the first question comes from Jon Chappell with Evercore ISI.

Operator: And the next question comes from Chris Wetherbee with Citi Group.

Operator: And the next question comes from Omar Nokta with Jeffries.

Operator: And the next question comes from Frode Morkedal with Clarksons Securities.

Operator: And the next question comes from Ben Nolan with Stifel.

Operator: And the next question comes from Chris Tsung with Webber Research.

Operator: And the next question comes from Greg Lewis with BTIG.

Operator: And the next question comes from Thijs Berkelder with ABN AMRO.

Operator: And the next question comes from Quirijn Mulder with ING.

Operator: And this concludes both the question-and-answer session as well as the call. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.

Hugo De Stoop: Thank you, everyone.