CMB.TECH NV (CMBT) 2016 Q3 法說會逐字稿

Thank you. Good morning and afternoon to everybody. Thanks for joining Euronav's Q3 2016 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, Monday, October 31, 2016, 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 fact. 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 the 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 statement. Actual results may differ materially from these forward-looking statements. Please take a moment to read our Safe Harbor statement on page 2 of the slide presentation.

I will now pass you over to Euronav's CFO, Hugo De Stoop, to run you through the first part of the presentation. Hugo?

Good afternoon, wherever you are, and thanks for joining our third-quarter 2016 earnings call. Turning on to the agenda slide, that is slide 3, I would like you to take you through the highlights of our third quarter followed by a full review of our key financial figures before handing over to Paddy to take you through the latest market themes as we see them at Euronav. We'll then turn over to the operator for a Q&A session.

Moving on to slide 4, despite a difficult quarter Euronav still managed to post its seventh consecutive quarter of net profit. In the third quarter, we expected to see some weakness in freight rates, as a result of seasonal trade patterns. However, a number of supply factors -- like ships returning from drydocks, newbuilds entering the world fleet, and all the tonnage remaining in the freight market -- exacerbated the pressure on the market.

During the quarter, we remained active in the sale and purchase market. We acquired two further high-quality VLCCs through a resale of contract; and we then agreed with the yard, who we have a very good relationship with, to postpone the delivery of those vessels to the first quarter of next year, that is 2017, making them de facto a year younger.

Also, just after the end of the quarter, we announced two 7-year time charter contracts for two new Suezmax ice-class vessels that will be built and will be delivered in the course of the first quarter of 2018.

Looking forward to the fourth quarter, we have so far booked 55% of our VLCC spot days at just under $24,000 a day, and around 57% of our Suezmax spot days at a touch below $20,000 per day.

I would now like to move to the income statement on slide 5. All figures have been prepared under IFRS as adopted by the EU and have not yet been audited.

As the previous slide shows, Euronav delivered a net profit despite a challenging operating environment in terms of freight rates. Part of the reason for this was the fixed-income or time charter portion of our business.

The depreciation charge rose over 60% quarter-on-quarter as a result of the full impact for a quarter of delivery of the two VLCCs that we took delivery of last quarter, and of course the two Suezmax, post the joint venture changes announced in Q2, which means that they are now fully consolidated. There were no other exceptional items for Q3.

Now moving on to the Euronav balance sheet as of the end of September, on slide 6. This remains a critical slide in our presentation, and all figures presented are at the end of September, on September 30, 2016.

Euronav continues to retain a strong balance sheet and access to high levels of liquidity. We believe this is key to the future success, given the volatility of the tanker sector and changing structure of the financing of shipping in general.

We retain a disciplined approach to our capital structure, with a limit on leverage at this point in the cycle. Currently, at the end of September our leverage was 40% of book values, or 43% when we mark the values to market. Upon financing of the final part of the two VLCC resales, these numbers will move up, but will not affect the strength of our balance sheet.

Q3 was a busy quarter. We returned $88 million in cash to our shareholders and partly paid for two VLCCs acquired as resales of contract.

But leaving the most important part to the end, liquidity remains critical in the running of a successful tanker company, and Euronav continues to have access to liquidity via the availability of funds parked in its three revolving credit lines.

That concludes the financial section of the presentation, and I will now hand over to our CEO, Paddy Rodgers, to give you an update on current market themes and outlook as we see them. Paddy, over to you.

Thank you, Hugo. I would like to start by reviewing our past on slide 7. This graph shows Euronav since listing on Euronext in 2004, with total debt, the share price, and the number of vessels plotted.

Interestingly, despite the number of ships doubling, total debt within Euronav has remained at similar levels since 2004. In short, managing a balance sheet does not need to be boom and bust, but rather more charting a course through the cycle.

As Hugo highlighted in detail earlier on, Euronav has some of the strongest capital ratios in the sector. Our view is that we must always be cognizant of ensuring Euronav can negotiate the cycle no matter how prolonged or deep a downturn may be.

We do not, however, anticipate a prolonged downturn -- to the contrary. But we prepare for what we do not want or even anticipate.

In fact, we believe some very strong medium-term building blocks are being established, such as reducing contracting of newbuildings -- down 77% year-to-date for VLCCs, for instance. However, we have to be aware of the impact of vessel supply, which in shorter periods can have an outsized impact on owner sentiment and ultimately freight rates.

If the tanker market is robust through such periods, Euronav is operationally geared, with 80% spot exposure, to deliver good returns. If not, then we have good cash liquidity to rely upon.

Moving on to the next slide and some commentary on asset prices, slide 8. This chart shows the longer-term price history for a five-year-old VLCC in both nominal terms in blue, and in green adjusted for inflation. We think we have some data and price discovery from our discussions regarding Suezmax ice-class contracts that we announced last month.

The shipyards are clearly in a very difficult position, in many instances both politically and financially. However, as we have made clear in our press release, we do not believe that this is going to manifest itself in aggressive price discounting from current levels for newbuilding vessels.

This is not to say we do not see the possibility of a little further downside in the secondhand market. But we do think asset prices and values have reached a natural level for now, in line with longer-term inflation-adjusted lows.

Finally, moving on to the current outlook, slide 9. Q4 so far has been encouraging. And it's important to stress: demand has not been an issue.

It is only vessel supply-side issues, both for vessels and for the supply of oil, that have impacted on freight rates. Q4 is shaping up to be a regular Q4; but looking forward, vessel supply is likely to have pockets of elevated delivery, which will likely impact the tanker market.

Secondly, balance sheet strength remains as important as ever. We have a strong enough balance sheet to withstand any headwinds in the short term, an ability to take advantage of opportunities to expand should we wish to, and yet also high operational leverage to generate positive returns in positive rate environments.

Finally, whilst there were some issues with ton-mile development and vessel supply, medium-term the tanker sector is establishing some strong growth drivers as future vessel supply, shipyard flexibility, and owner discipline look driven by financial restrictions, which will augur well for the tanker sector from 2018 onwards.

More specifically and recently in our presentations, we have started to use a traffic light system to show where each of the five key drivers of the tanker business are currently showing. As this slide shows, we think there are three green lights and two yellow.

This is a change from September, when we looked at ton-miles as a red light. Clearly with an important OPEC meeting coming up, some of the supply of oil may change; but for now, additional supply coming onstream from the Arabian Gulf and, in particular, Iran and Iraq, and the possibility of US shale exports, it seems unlikely that any cut would have a dramatic impact.

For much of the past 18 months we would have had five green lights. Demand for oil, supply of oil, and financing still remain very positive in our view -- specifically, the financing of the sector, which continues to get tougher.

Ton-miles is now amber, given a sharp reduction and dislocation we saw from Atlantic barrels in recent weeks, but it's coming back towards green as West African supply is back on.

We see the vessel supply as amber presently, clearly when short-term there are deliveries which will put pressure on freight rates. However, owners will need to act rationally and look for the better return for their asset rather than focus on keeping ships occupied.

Encouragingly, with the seasonal uptick in cargoes, some canceled and deferred orders, and improved sentiment, rates can improve. And the challenge is to retain this attitude during upcoming periods.

I will now pass you back to the operator, as this concludes the formal part of the presentation. Thank you for listening.

(Operator Instructions) Mike Webber, Wells Fargo.

Good morning, gentlemen. This is Donald Bogden stepping in for Mike. Thank you for taking my questions.

We've seen a sharp decline in dated Brent by crude differentials, incentivizing Asia-Pacific charterers to increase light crude runs. Have you seen this in the market? And was it responsible for the sharp uptick in rates that we've seen over the last, call it, four weeks?

I wouldn't really say that. I think what you missed -- what I'd really like to emphasize is that we've had extremely strong month-on-month cargo volumes all year long; and year-over-year compared to the similar month in previous year, they've been higher. We had an absolute outstanding 178 cargoes out of the AG in the last month.

So what we're seeing is underlying very strong demand. We saw quite a bit of disruption in the Atlantic, particularly impacting Suezmaxes. But as most light oil per the East is coming out of Angola, I wouldn't say that there was a huge dislocation as a result of Nigeria for the VLCCs.

So all in all, what I would say is I think it's been much more around owner sentiment and much more around the fear of having a ship that's a newbuilding coming from a shipyard which is not a favored ship; having a ship coming back from a drydocking; or having a ship that's too old or unvetted that that has tended to pull down on the rates during Q3. So it's very much about the mindset of the owners than it is about the specifics of the mileage.

Gregory Lewis, Credit Suisse.

Yes, thank you. Good afternoon, gentlemen.

I was a bit surprised. We're all the way through October, I guess we just finished October, and it looks like the Company has already booked well over 50% of its available days not only for VLCCs but for Suezmaxes.

Was there some sort of timing shift that's happened already? I'm just trying to understand. I would have thought it would've been comfortably in the 40%s. I'm just trying to get a better understanding.

Was there something specific, or opportunities? Or that's just the way the timing of this quarter worked?

Well, I think first of all, I'm always a little bit reluctant to suggest that there some sort of massive way that you can tactically play the market or the quarter. But I would say that we tended to go for longer voyages, positioning ourselves perhaps for a stronger half of the quarter, and that's in our minds. But also don't forget the call is a little bit later this quarter.

Jon Chappell, Evercore ISI.

Thank you. Good afternoon, guys. Just a couple slides, tie them together, into my one question. There is pretty good opportunity it seems for you right now, Paddy, as you talked about the asset values being near historical lows or cyclical lows; and then you match that up with the liquidity that Hugo talked about. How are you balancing keeping precious cash on the balance sheet versus potentially taking advantage of a once-in-a-cycle opportunity to acquire assets? Especially given your views that this may be a shorter-term blip than a prolonged downturn.

That's a very good point and I think that's basically the subject matter of most of internal management discussion. It's just trying to get the balance right.

I think our view has always been that we shouldn't massively directionally trade our expectations of the market, because we've learned from the mistakes of so many shipowners before us so you can often be surprised by events. But getting that balance right between where you think the possibility is to load the gun for the next uptick is a very, very important business decision that we have to make, alongside the corporate decision of ensuring that the Company is at all times sustainable through any possible unforeseen developments.

Chris Wetherbee, Citi.

Hey, thanks. Good afternoon, guys. Wanted to touch on the vessel supply outlook, so trying to bridge the gap between short-term headwinds and longer-term more manageable. Maybe digging in a little bit on how we think about 2017 might play out, maybe a little bit first half, a little bit on deliveries as we see some of these fourth-quarter deliveries like yours get pushed out a bit.

Help us a little bit understand how you might see next year playing out from a supply perspective. Thank you.

Again, I wouldn't go into the business of rate prediction because I think it's a mug's game, although I know unfortunately you suffer from being obliged to do that. But I think that the reality of it is that it's very, very dependent not only on the way that it actually plays out but also on the way that it's perceived to play out.

So I think that if you see vessels drifting into Q1, then of course you will get slightly more lumpy deliveries. Not everything will slip. Some people may be obliged to take delivery in Q4 regardless of the relative value, simply because of their financing requirements that need to get closed out before the year end.

So there are lots of things that could impact on it and maybe don't make it completely natural that everything in Q4 slips to Q1. I think that naturally the market tends to soften as we go into Q2; and eventually, of course, we tend to see Q3 as the lowest of the year.

I think against that backdrop, what we would be hoping to see is that pressure would mount during the course of the year on older tonnage, tonnage due for either retrofitting or requiring additional or major post-15-year drydocking, coming under a huge amount of pressure as the year goes on and owners really being put in mind as to whether or not they want to continue, or whether they want to retire the vessels.

So I would expect there to be some rate weakness into Q2 and Q3 next year, and that really providing a catalyst -- we would hope -- for a real shift in people's view of value. And of course, for us we would hope that that would incline people to be looking forward then to the next cycle rather than being too concerned about the daily or weekly rates.

Amit Mehrotra, Deutsche Bank.

Thank you, operator. Thanks, everybody. So just want to talk about the LTV of 43%. Hugo, could you just provide us with that number pro forma for the delivery of all the new contracted vessels? And then, Paddy, can you just talk about some of the regulatory issues facing the industry as relates to ballast water and sulfur cap, and just how Euronav is positioned, and what you think the impact to the oil supply picture can be. Thanks.

Yes, Amit, thank you. Well, it all depends on how much money we're going to make in Q4, because those ships delivered only in Q1. But normally it should not be more than 47%; and I expected to be 46%, 46.5% on a pro forma basis after delivery of those ships.

And as far as the regulatory question is concerned -- of course, Amit, you'll have to go and sit on the naughty step for having put two questions into one -- but I think our view is of course a lot of these things have been talked about, but eventually they're really coming to materialize.

So water ballast treatment we now have the necessary signatures to treaty, and we also have the IMO showing some teeth on reducing the sulfur cap. It being shipping, of course, it's never quite a simple as that. There are still issues around full approvals and agreement on what the system should be that everybody should use for their water ballast treatment; and the second one of course is exactly how any of us are going to manage the sulfur cap, which could go from using scrubbing equipment or alternatively buying low sulfur fuel oil, which a number of suppliers have now said they will refine.

So there is not a huge amount of clarity yet. But we do know that within a couple of years people will have to have made a decision about water ballast treatment; and we do know that within three years we'll move to a low sulfur environment.

And both of these of course are going to be developments which put pressure on speculators and encourage an industrial view of shipping. So as far as we're concerned, we're in favor of cleaner air and cleaner seas; we're in favor of increased regulation.

We're not frightened of the additional costs that may be implied by it. And we believe it will take people out who are involved in the industry on a speculative basis, and support and encourage a more industrialized and responsible approach to shipment.

Ben Nolan, Stifel.

Yes, thanks. Just really was looking for it maybe any update that you might have on the two FSOs now that the new contract has been awarded to Total. Where do you guys see that playing out? Or any update on maybe the time frame as to when we might expect to hear something there?

We're not really in a position at the moment to give any update on it. Things have obviously moved quite slowly. It was, obviously, a bit of a shock to a lot of people, that the operator in the field was changed as late in the day as it was, and that's obviously meant that there's been a slow start to entering into discussions with all the different suppliers who were running under the previous franchise.

So I'm afraid we're not really able to give an update at the moment. But as soon as we have something firm, of course, we will make an announcement.

Wouter Vanderhaeghen, KBC Securities.

Yes, thank you. Good afternoon, gentlemen. You have not disclosed the time charter rate for two Suezmaxes you concluded recently with Valero. Can you give us some more color how these time charter rates have been set in the market today, where there is not really like a benchmark? Thank you.

Well, I think we just took a project approach. Obviously it's one of our closest customers, and our view on it was they gave us a strong view on how they felt their requirement would develop, and we worked with them looking at the sorts of rates of return that we would be required to make a long-term commitment.

And we managed to find agreement and a mutually satisfactory outcome. So we didn't really look across the market at current rates.

Noah Parquette, JPMorgan.

I just want to follow-up on (technical difficulty) with the IMO regulations, what do you see that's kind of farther out, what do you see the potential of LNG is, as a (technical difficulty) fuel or for ships (technical difficulty) designs? And how would that play out? Thanks.

I'm not sure that LNG is top of anybody's list at the moment in terms of the solution to this, the low sulfur cap. There would be -- certainly not in our sector.

I think, obviously, as a locally used fuel, it's already in use locally in areas which are in ECAs or where there is a particular requirement and where there is a reasonable infrastructure. So something that's a bit more like a liner trade.

I think before you see people stocking the kinds of volumes that a VLCC would need to burn, it will be some way off. So I don't see that as an immediate fuel switch. It's much more likely to come from either the use of equipment onboard or, alternatively, through low-sulfur heavy fuel oil refined specifically for the purpose.

Fotis Giannakoulis, Morgan Stanley.

Yes, hi, Paddy. Can you please comment on the discussion about the potential OPEC cut? If you have seen any increase in the chartering activity in the last few weeks that is attributed to the possible OPEC cut on November 30 and onwards? If you think that this has any impact in the market.

And also given the fact that we have plenty of newbuildings, 20 this year and another 47 next year, how much do you think the trade will need to grow in order to absorb these vessels? And what do you think is going to make the market change and go back to the previous very strong levels?

Now I'm going to take that as one question, so that you don't have to join Amit on the naughty step. But I think that my view of it would be that the OPEC discussion or the OPEC -- or let's call it correctly the Saudi Arabia/Russian discussion, looks like they had reached some form of agreement. That agreement looks like it's falling out of bed on the basis of the news that's coming from Vienna.

And of course, the problem is not the fact that both the Saudis and the Russians are happy, because they are pretty much maxing out on their production, but that the two growth players in the region, Iraq and Iran, are not eager to start talking about cutting back. Iraq is extremely handicapped, of course, with its split in its oil production into two different regions; so they also have to get domestic agreement between the Kurdish zone and Basra. They also -- of course, and Iran at the moment is still very much in the mood where it's at last got the chance to sell oil internationally again and it wants to make hay while the sun shines.

Lining right up behind that, of course, is the US shale production capacity. So I think that the likelihood that this ends in a significant reduction of supply of oil into the marketplace and an increase in oil price that's significant looks highly unlikely from where we are today.

On that basis, we think on the oil supply side there's no reason to have any great concern. We think there will be a lot of noise and a lot of owners might get nervous about it, but that goes to my view on sentiment pricing.

In terms of newbuildings coming, certainly there are going to be some. But I honestly think that we'll turn the corner during 2017 as freight prices perhaps come under a little bit of pressure, and as people also begin to go through third Special Survey, particularly with the first generation of Chinese ships. So I believe in the end, rather more balanced.

Magnus Fyhr, Seaport Global.

Yes, hi. Just a follow-up on Greg's question earlier about the average rates book for the fourth quarter. I know there are a lot of timing issues with these coming up for renewals. But would rates -- be able to see rates at $35,000, $40,000 a day? Are you guys confident that we should be closer to that number for the second portion of the ships being booked for fourth quarter?

Well, look. We're not -- what I would say is this. The answer is yes if the market stays as it is.

Very good. Thank you.

Spiro Dounis, UBS Securities.

Hey, Paddy; hey, Hugo. Thanks for taking the question. Really loving this new Q&A policy, by the way.

So just want to start with -- or I guess finish with the Suezmaxes that you just put on charter with Valero. Obviously they are replacing two others, I believe, that are maybe a little bit older.

I guess just in terms of end-of-life for these vessels, most likely what's the outcome as you see it? Is it going to be potential sale, or could we see these things be retrofitted, maybe turned into some sort of permanent storage?

I think the second of those options would be the ideal outcome. I think that we have a pretty good record on the quality of these older ships, particularly the ones where we've managed them the whole of life. These ships look particularly good, very strong, and we believe that people looking at them for the purposes of storage or for an offshore project would be quite attracted by the fact that they are pretty much in mint condition.

So definitely be interested in taking something like that. But if not, we have to bite the bullet and move on. We can't just preach scrapping for everybody else and not for ourselves, you know?

Ladies and gentlemen, that does conclude today's question-and-answer session. I'd like to turn the conference call back over to management for any closing remarks.

No, just to say thank you to all the participants, and we look forward to a strong fourth quarter.

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your telephone lines.