CMB.TECH NV (CMBT) 2016 Q4 法說會逐字稿

Good morning and welcome to Euronav's fourth-quarter 2016 earnings conference call. (Operator Instructions) Please note today's event is being recorded.

I would now like to turn the conference over to Paddy Rodgers. Please go ahead.

Thank you. Good morning and afternoon to everyone, and thanks for joining Euronav's Q4 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, Thursday, January 26, 2017, 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 advise any forward-looking statements. Actual results may differ materially from those 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 on to Euronav's CFO, Hugo De Stoop, to run through the first part of the presentation.

Thank you, Paddy, and good morning or afternoon wherever you are, and thanks for joining our fourth-quarter 2016 earnings call.

Turning to the agenda slide, I would like to take you through the highlights of our fourth quarter followed by a full review of our key financial figures before handing over to Paddy to take you through the latest market themes. We will then turn over to the operator for our Q&A session.

Moving on to slide 4, we would like to make the following highlights. Q4 was weaker than one could expect from the fourth quarter. The seasonal weakness in freight rates that affected the third quarter was pronounced into Q4, and the recovery started only in late October. By then, we had already booked over half of our available stock fleets.

On a more positive note, our joint venture with International Seaways, x-OSG, was pleased to announce our heads of agreement to extend the contract for five years for our floating storage and offloading platforms deployed on the Al-Shaheen field off the coast of Qatar. Once we have finalized the contracts, we will report back to the market, but we are obviously very pleased with the commercial terms that we have agreed.

We were very active during the quarter with some refinancing activity where we refinanced the term loan with a margin of 275 basis points over LIBOR and replaced it with a more flexible revolving credit facility with a lower margin of 225 basis points.

In addition, we executed sale and leaseback for four of our middle-aged VLCCs, which is giving our balance sheet further flexibility and improve our liquidity position. I will cover this in more details on the next slide.

Looking forward to the first quarter of 2017, strong freight rates performance has continued, and we have so far booked 48% of our VLCC spot days at $48,000 a day and around 41% of our Suezmax spots at a touch over $24,000 per day.

I would now like to move on to the income statement on slide 5.

As always, all figures have been prepared under IFRS as adopted by the EU and have not yet been audited. The biggest impact on the P&L was the $36.5 million capital gains from the sale and leaseback transaction. Stripping out this gain would give underlying earnings of $13.5 million or $0.087 of earnings per share. The net finance expense line at $16 million was higher than usual as this includes a one-off $5.5 million additional non-cash costs related to the remaining (inaudible) transaction costs linked to the financing facility we have refinanced as explained earlier.

In 2016, we have tried to simplify our structure and have eliminated all the shipping joint ventures we had and which covered one VLCC and four Suezmaxes. Therefore, the equity accounted investees line now only covers our FSO joint venture.

Management is pleased to announced that it intends to recommend to the Board of Directors, subject to final audited results being identical to the preliminary ones, and absent material adverse circumstances, that the Board proposed at the general assembly of our shareholders to set the final and full-year dividend at $0.77 per share.

Taking into account the interim dividend of $0.55 per share related to the first half of the year and paid in September, the expected dividend is $0.22 per share. It must be first approved by our shareholders at the Annual General Meeting which will take place on 11 May, 2017, and will be paid shortly thereafter. This total dividend for the year of $0.77 per share combines with our return to shareholder policy which sets the target of returning 80% of net income over the full financial year after stripping out our capital gains. Indeed, our earnings per share for the full-year 2017 are $0.96 per share, after the deduction of our capital gains.

Now moving on to the Euronav balance sheet at the end of December on slide 6. This remains a critical slide in all our presentations, and all figures presented are at 31 December, 2016.

Euronav has expanded its access to high levels of liquidity and continues to retain a strong balance sheet. As explained earlier, we have further bolstered our liquidity with some refinancing activity in a sale and leaseback on four VLCCs during Q4 to allow us access to close to $600 million of liquidity at year-end. This compares to around $410 million at the end of September.

We retained a disciplined approach to our capital structure with a limit on leverage at this point in the cycle. At the end of December, our leverage was 38% in book value terms compared to 45% in mark-to-market value times. Please note that these figures do not include any financing with regards to the two Suezmax vessels backed a seven-year time charter we announced in September, nor does it include the fact that we have recently taken delivery of two VLCCs that we built last year as a reseller contract.

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. Paddy, over to you.

I would like to start by outlining our current thoughts on the delivery schedule and its potential impact, then move on to our (inaudible) incoming regulation, before summarizing our current thoughts on the tanker market for 2017. Slide 7 shows the monthly schedule of delivered VLCCs over the past two years and the schedule for the first half of 2017 compared with the average VLCC time charter equivalent rate. This chart clearly shows the delivery schedule is going to accelerate in 2017 compared to the past two years.

Our experience highlighted in our press release today suggests a cautious outlook as owner sentiment and behavior has at times since June been weak in the face of newbuildings delivering into the global fleet. Production cuts from OPEC expected to bite later this quarter, usual seasonal patterns anticipated around Chinese New Year, and over 40 VLCC equivalents expected to be delivered in the first half of 2017 all add up from our perspective to a challenging set of factors to be addressed.

Slide 8, an increasing area of investor interest has been the impact of incoming regulations, most specifically, the ballast water management convention due to be applied from September this year. A number of commentators have expressed the view that this will potentially accelerate scrapping. Whilst we believe this development is a positive one for the tanker market in the medium-term, we do not anticipate an immediate impact given the uncertainty surrounding the new regulations.

With no agreement on a preferred operational system from the US Coast Guard and uncertainty over the timetable from the IMO, most owners will be incentivized to defer decision-making beyond their vessel's next scheduled drydocking by amending survey certificate dates.

More clarity is expected from the IMO during the year, and this will be needed before this regulation can really begin to bite. But in the medium-term, we believe this will have a very positive impact on the tanker market. I will now sum up our current Outlook on slide 9.

We are changing our traffic light outlook for 2017 with three amber lights or yellow lights now from two at the time of the Q3 call. Demand for crude oil remains in good shape. Indeed, last week, the IEA upgraded their demand number for 2016 and reiterated 1.3 million barrels per day of growth for 2017. Availability of financing continues to be limited, leading to restricted contracting activity and more discipline being applied to all facets of the market.

We retain a cautious view on ton miles and vessels supply from our Q3 call. Reduced production and increased vessel supply especially in the first half of 2017 will provide a headwind for tanker operators. But reduction of crude volumes out of the Arabian Gulf, if it is replaced with Atlantic supply, may well be positive for ton miles. Where we have changed from a green light to an amber is on supply of oil, which given the proposed OPEC and wider associated production cuts in the first half of 2017 mean we believe it is appropriate to change our traffic lights on this variable from green to amber. However, it is important to stress the view remains constructive in the medium term. These headwinds have increased supply, production cuts, and weak owner sentiment are focused largely in calendar 2017.

At Euronav, we have taken the opportunity to bolster our balance sheet with a number of initiatives that Hugo talked through earlier. With the lowest leverage in the tanker sector and access to over $500 million of liquidity, Euronav is ideally positioned to navigate the coming cycle, to be strategically opportunistic whilst retaining exposure to any potential upside from an improving freight environment.

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

Before we go to the question and answer session, I would like to turn the conference back over to Mr. De Stoop who would like to make some additional remarks regarding the balance sheet.

Yes, I just wanted to make one additional remark which is on slide 6 and which is about our remaining CapEx, which is set at $212 million split between $100 million for the VLCCs which we have now taken delivery of and $112 million for the Suezmaxes that we have ordered last year and will be delivered in 2018, and we expect to draw about $100 million -- $190 million of debt against the full CapEx that I just mentioned.

Thank you.

(Operator Instructions) Jon Chappell, Evercore ISI.

So, Paddy, my question to you is, if everything plays out the way that you have kind of laid it out and you have been consistent with your views as well, this year, choppy to weak, medium-term outlook still strong. 12 months from today, when we are doing this conference call on 4Q 2017, what will you hope that you have accomplished balance sheet wise, fleet wise. Is it going to be a year of offense or your defense?

I think it's a very obvious -- it's a very good question. Obviously we are setting ourselves up, recognizing the future is always very difficult to predict. But we are setting ourselves up to be ready for the worst and prepared for the best, and I think that some -- we've seen this frustrating slide in values over the course of the last couple of years, and I think that we have correctly nailed that early on as being about withdrawal of finance.

I think that if we see some movement now on freight rates as well, then I believe that we will begin to see what we would start to feel was a bottoming out, and at that point then it would obviously behoove us to think very seriously about fleet expansion or growth and really trying to balance that over the course of the years going to be critical. But I would hope that anybody who was looking at us in a year's time would be looking at us and saying there's a company that has used what we might call increased availability of funds very well and yet remains extremely robust, illiquid, and with a long-term future. So keeping everything balanced. We've always said growth at reasonable price and a balanced outlook, resilient, strong and exposed to the upside.

So, if we can say we still have all of those things in a year's time, I will be well happy.

And by the way, before we say goodbye, I just wanted to say congratulations. Hope all is well is going with the family at home and all the best for the new year.

Thanks so much, Paddy.

Noah Parquette, JPMorgan Securities.

I just wanted to follow up on the ballast water treatment. For your own fleet, how many -- how much of your vessels still need to be refitted? And what -- can you give us some sort of guidance on that schedule over the next few years?

Yes, I think that -- so -- we've got a couple of different systems in operation because there are two regimes. One is the IMO regime, and the other one is the US Coast Guard, and they hang on different things. But the US Coast Guard is asking for an implementation on a fixed timeline around dry docking, but at the same time, it is still writing waiver letters at the moment because there's been an incomplete process of identifying the appropriate system for each type of ship.

And I think that it's really, really important to understand that you have very, very different problems for ballast water treatment for a ship that is tiny compared to a ship like ours, which has an absolutely huge capacity of water on board where it's in ballast condition. So the US Coast Guard is still cautious and being assisting by offering to write letters of waiver, and on the IMO side, the linkage is to the IOPP certificate. And so people are looking at it and saying, well, we will de-harmonize them, we will get the IOPP certificates renewed, and then we'll see where we go when that needs to be re-renewed in five years' time.

Now all of this might sound like it's a little bit evasive, but I really want to get this over. It's very, very important for everybody to understand there are plenty of systems out there that would be completely inappropriate for a VLCC. Until we have seen -- or for Suezmax. Until we have seen that the right systems are available and the regimen is in place to properly test them, neither of which work has been done effectively by the IMO and the US Coast Guard yet, it is very important for us to defer decision-making.

Okay. So we have seen ranges on the price of a system from $0.5 million to $1.5 million, and obviously it seems like nobody knows for certain yet which is understandable. But for a VLCC, can you give any sort of guidance considering the size of the ship and requirements that you need specifically for a VLCC?

Well, there is a big bracket of pricing, and the reason is really whether you are going to end up going for a system that is treating the water inbound with ionization or with clarification or whether or not you are treating it in voyage within an inner gas system. One would require considerably more infrastructure spend than the other, but both of them have their own challenges. But I think you are probably on the low side with $0.5 million, but I would have thought that it could be considerably more expensive. I think the low side would be at least $1 million and then upwards to anything $2.5 million.

Okay. That's very good color. Thank you.

Spiro Dounis, UBS.

Paddy, just wanted to ask you about Suezmax rates. It seems like the spread between Suezmax rates and VLCC rates has been widening throughout most of last year, and I guess a lot of that has -- probably has something to do with supply. Just wondering if you are seeing anything else that's driving those rates lower, and as we head into next year, when more supply comes online, would you expect, I guess, VLCCs and Suezmaxes to widen or basically stay along the same trajectory?

Okay. So I think there was a time when the Suezmax was an Atlantic trader and where there was a strong trade in VLCCs on the Atlantic when, between those two ships on a similar route, there was an almost fixed differential which could be expressed in word scale points. Because, at a certain point, if the gap widened too much, then you would split up a VLCC into two Suezmax cargoes or the VLCC cargo to two Suezmax cargoes, and if the gap narrowed too much, you would double up a Suezmax onto a VLCC.

So that was always a kind of rule of thumb as to how the thing works. It has changed dramatically since US shale has arisen because there is no longer that TD5 route in such volume that we used to see, which was West Africa, Nigeria, to the US Atlantic Coast.

Now the ships are trading worldwide. I'm afraid that a lot of the supplier Suezmaxes has come on at a faster rate, and it has also come on in many hands. So a lot of people who weren't tanker owners decided to introduce themselves into tanker ownership through buying Suezmaxes. Many people who have previously been in VLCCs decided to move down into the Suezmax sector, and what we have at the moment is a relatively speaking larger percentage of Suezmaxes compared to the V fleet that we have had in the past. So there were more of them than there used to be in absolute numbers, but also in relative proportion to the V fleet, and it's in many more hands. A very disparate ownership group, and it has no hallmark trade. There's no price setting for the market trade. So the whole thing has become altogether much more diverse and a little bit more difficult to understand and predict.

For the big moments of crude into the major consumers, the critical thing has been port congestion. So they have wanted to use the largest ships possible to ensure that for one turnaround in port, you've got as much oil into the system as you could. So I think that we have seen this widening. It looks like it's here to stay at least for a full mile. Suezmaxes looked like they have more supply in 2017 than these, so we would expect to see Suezmaxes softening, being a bit flatter. VLCCs may soften this year, but we think it will stay volatile because it will be a fight between good demand for ton miles against increased supply.

Appreciate the color. Thank you.

Gregory Lewis, Credit Suisse.

I just wanted to follow-up on the decision to do that -- the sale and leaseback transaction in the fourth quarter. I mean, clearly, you were able to monetize those assets. I guess they roll off contract when they are in their mid-, late teens. Is that -- I guess -- is there demand for additional types of those ,opportunities and is that something that Euronav will continue to explore? Or is that sort of a one-off?

Greg, this is Hugo speaking. At the moment, it's a one-off. I think that you rightly pointed out that those ships were around 10 years of age, which means that we will pause the second survey as we took them back on their rules, and we will redeliver them ahead of their third survey, which was also a little bit strategic. And, as you have seen, there is no production, which is normally the case in a more classical sale and leaseback transaction. That is also the reason why it has been classified as an operating lease and the reason why those ships are no longer on the balance sheet.

So it was a combination of factors, and I think that as always, we tried to be as opportunistic as we can in trying to find -- to maximize the value for our shareholders wherever we can.

Okay. Great. Thank you very much.

Amit Mehrotra, Deutsche Bank.

Just had a question on the economics of the FSR recharter. Just trying to understand what type of earnings cash flow headwind there will be in 2018. We're estimating it's about $15 million of headwind to EBITDA in 2018 on a year-over-year basis. Is that in the ballpark? And then what type of incremental debt capacity do you think you could accrue for your share of the joint venture given the leverage or the lack of leverage on that vessel? Thank you.

Let me first start with the latter part of your question. I think as far as debt capacity is concerned, it will entirely depend on the cost of debt, and if that cost of debt is lower than our current average cost of debt, then we may, indeed, take a little bit more based on that contract and then park it again on our current lines and our cost of capital just by doing that.

Otherwise, on the numbers, you are -- I'm not sure I understand where you were coming from because we said it was $360 million of EBITDA. You have to split that into because we are a joint venture partnership with International Seaways x-OSG, and then you divide it into five years. So it's more something like $35 million, $36 million per year of EBITDA.

I know, but I'm talking about the year-on-year change. So I think that's a $15 million reduction on an annual basis; is that correct?

Yes, that's correct. (multiple speakers) [51.5] EBITDA, but, of course, on cash flow, it will look completely different because -- well, depending on whether we take additional debt or not, let's not forget that those ships will have almost no debt by the end of their current contract, which is July and September of this year.

Great. Okay. I will stick it -- I will leave it to one. Thank you guys for taking my questions.

Chris Wetherbee, Citi.

Wanted to touch a little bit on crude demand and sensitizing that a little bit to economic growth to the extent that the US certainly has the potential to pick up from an economic standpoint. Curious how you think that could impact the other variables in your red light or amber and green light charts that you have there.

And I think the second question to that would also be from a tax policy perspective, border adjustments are complex dynamics. But how do you think about it impacting the trade? Obviously this is speculative, but as we go down the road, it's something we could be talking more about.

Yes. Okay. So, well, first of all, if you -- and you are referring to I think it was slide 9 where we had the various lights on. You will notice that the ton miles was both green and amber. We like to have our cake and eat it, and we called it changeable. The reason for that is just that really in the last two months since the OPEC decision was made, at least formally announced, we have seen a real pickup in US exports to the Far East. So whether it's from storage facilities in the Caribbean or whether it's in Venezuela, Brazil, or now from the US Gulf -- the US shale oil, these have been going to China.

And it's great ton miles. So that ton mile picture looks extraordinarily positive. And the OPEC cart itself may well be a production cart that doesn't have quite as much impact on cargo as people think.

So I think that -- we think that if the US is going to have an environment that strongly supports increased production of shale, then we could see some very significant cargo growth. And I don't -- I know a lot of people might be nervous about pipelines. First of all, pipelines will take some time to come in. But even when they do come in, as long as there is that tap of shale oil that is going out to the US Gulf to China, then that has the big shipping impact. The fact that you might take some heavy Canadian grades, which mean that ships don't go from the AG to the Gulf of Mexico, won't be that important. Simply because ships will have to ballast then to the Gulf of Mexico in order to lift the US shale to go to China. So, all-in-all, I think that that looks quite rosy.

As far as your other comment, which I suppose was -- I may not have fully understood it, but I think what you mean is that there could be an imposition of essentially import barriers through taxation. And, again, it really just comes back -- that is an idea that somebody might have, but normally it sparks a retaliatory tax. So I'm not sure what will happen. But if you shut off the flow of Arabian grades into the US and you don't shut off the flow of US grades out for the Far East, impact on shipping may not be that significant. But, of course, if you have a world shut down, effectively a trade war with everybody saying I am not taking your products, then that will generally be pretty poor for shipping, I think.

Okay. That's helpful. And just in terms of economic sensitivity, obviously that's a fairly basic dynamic. If we get accelerated GDP, clearly good for the trade just generally speaking and we will see where the ton miles shake out.

Yes, exactly.

Thanks for the time, guys. Appreciate it.

Magnus Fyhr, Seaport Global.

Just one question on -- a lot of focus on the OPEC cuts here. I know it's still early, but can you give us some color if you have seen any reduction in exports out of the Middle East so far on the V market?

Well, no, we haven't, but the cuts were based off a number which was September, and there was a big pushup in production in October, November and December. So that's why I said all of it, it's more smoke and mirrors than you would think. We have yet to see it impact, but of course, let's not forget there's a big event next week, which is Chinese New Year, and we will see what happens after that.

All right, thank you.

Herman Hildan, Clarksons Platou.

Hugo mentioned $0.5 billion of liquidity, and just could you remind us on your buyback policy and how you are thinking about buybacks versus fleet growth?

Well, I think it's not only a buyback versus fleet growth. It's also versus dividend, even though we have so far been very, very generous on dividends and focus on dividend because we believe that gives the best value to our shareholders. But that's how we look at things. So it's growth, it's dividends, and it's buybacks.

We have done limited buybacks in 2016 as we didn't think that it was really having the impact that we wanted to on the share price, and I think that we will continue with that philosophy going forward. As a matter of fact today, the share price is trading at the lesser discount to NAV than what it was last year when we did those buybacks. So I think we will continue to monitor that very closely. But we are not at the moment thinking about buybacks as the share price is not trading as badly as it did last year.

Okay. Thank you.

(Operator Instructions) Ben Nolan, Stifel.

I have two, but I will leave it to one and get back in. So the first -- or well the only is there has been over the last number of years a lot of speculation and maybe wishful thinking that there might be some M&A in the space.

Given this current environment and the lack of M&A that has happened over the last few years, do you think we are any closer to proper corporate mergers happening, or is it still going to be individual asset buying as kind of the course of growth for you guys but also for the industry more broadly speaking?

It's one of those things that I don't think that we have any particular view one that anymore than you do. It's always one of those questions where anybody who is going to be looking at it will be looking at the transactional cost, the complexity, whether there is any real added value in buying a company rather than buying a fleet. Is it because it gives you some size? We have been able to do big transactions without buying a company, and if you buy a company, what are you buying?

So I think that analysis in shipping is always the tricky bit, and it will just be a question of doing the juggling act of saying what's the price of this and what is the price of that?

It is a very different exercise to be done on paper and in the real world, and fortunately or unfortunately, it depends where you sit. In shipping, most of the shipping companies have poison pills, so you can only do friendly mergers, which tend to be more difficult than from time to time if you look at the -- at going hostile because of a big discount.

So I think that the speculation is always there or comes back from time to time, but what you realize is that there is very little activity -- M&A activity in shipping because of what I said. Poison pills and only friendly deals can be done.

Okay. That's great. I will get back in for my next one. Thanks.

David Vagman, KBC Securities.

So one question from my side. Is it possible to know by how long the application of new regulations is going to be deferred, and could you quantify what could be the impact on scrapping in 2017? Thank you.

I think that decisions to scrap into 2017 will be made on the basis of economics of just simply what's the price of the scrap yard, what's the value of the ship, and what's the carry cost? At the moment, as long as ships are cash flow positive, then people aren't going to scrap, and I think that's the situation at the moment.

During the course of 2017, well, we will have to see. I think there will be moments when you will have some very low rates and there will be some moments when you have higher rates. So it will very much depend on an individual basis for the ship owner concerned.

I don't see regulation forcing ships out this year, and I think that if we gave a scenario at the start of the Q&A on what might happen with ballast water treatment, but I would have thought a 2 to 2.5 year phase-in fact as people choose different options of how they deal with it will probably mean that most of the spending will be done around year two, year three, which funny enough will coincide with a profile that would probably encourage a lot more scrapping anyway just because of the age of the ships.

Thanks very much. Very clear. Thank you.

Mike Webber, Wells Fargo.

Paddy, I wanted to talk about asset values for a second. Your equity has been more correlated with asset prices than rates over the past two years. Broker prints, they seem to be a little bit sticky, like $82 million for resales, but it seems like the clearing price would be a bit below that. So, I am just curious from your perspective, how you see the year playing out? How close to a bottom are we? Are you starting to see more of a diversified set of bids sniffing around these assets, and maybe at what level do you think we would see that?

And then finally, with regards to the ballast water treatment and software requirements, when do you think we will actually start seeing that incremental CapEx start getting discounted into secondhand values because it doesn't seem like it's happened yet?

No, I think the big shadow over the issue of value as well as -- it's not really -- maybe we have hit some sort of floor or illiquidity point around a number of ships that you are probably well aware that have been in the market for sale for some time actually on resales, not finding a buyer, and yet neither side prepared to close the gap and trade to let us really know what the effective price is.

I think the trouble is that whilst you would think that somebody would say you know what that price will do, I will take it. What is holding people back and making them uncertain on the buy side is just the capacity at the shipyard which is yet to be resolved in Korea. And I think that when we get more clarity about the Korean government's actions amongst the shipyards to work out exactly how much capacity there is, then we will probably get a clearer picture on what people think good value is.

I think there are may be some further downward movement, but I think most of us would say that bearing in mind that it really is a cash cost business, building a ship. These guys do really have a floor, which is almost better not to build than to build at a loss. So I think we're getting close to that, if we're not there, and that will begin to support pricing and maybe encourage buyers to come back in and start to buy it now.

Fair enough. And just I guess as a follow-up to that, it seems like we are still in the early innings of rates adjusting to capacity hitting this year and probably easing, but just curious where you think we are from an asset cycle perspective? If we are in the early innings from rates rolling over, it seems like asset value has been moving well ahead of rates for quite a while here. So, if you can use, I guess, a baseball reference -- I don't understand cricket or else I would use that, but the -- what (multiple speakers)

We certainly won't discuss the strikes calling ratio of Olivier Giroud. But what I would say is this. I suppose the way to do it would be to take a year-by-year approach. And if you said where do you think we're going to be on supply and scrapping in 2020, well you know by the time you get to 2020, you can easily have an order book of 30 or 40 VLCCs, and it would be no concern whatsoever. Because you would naturally have so many ships that were in the 20- to 25-year bracket, but you know they are going to go out.

So I don't think that the order book of VLCCs today is particularly worrying, and we've been saying this for some considerable time. The issue is that there are no natural scrappers because, relatively speaking, it is quite young.

So when do we begin to bite into that? Well, I suppose if somebody knew that they have a ship that is probably going to scrap in 2020, they will get a bit anxious about having to spend money on it in 2019 and 2018. So then they might be thinking, do you know what? I would rather scrap than take it right the way through to 2020 because I've got some investments to make which I have very little time to recoup from trading.

So I think what we're going to see is that the regulations won't have a cutoff date, and they won't have an impact that is all of a sudden everything has changed. But they will be beginning to color it and bringing forward the decision to scrap that might have naturally been made a few years later. And that's what I would expect to see.

During 2017, I think that if you want to see people moved economically to scrap immediately, then we're going to have to have first some brutal numbers and particularly numbers that take us through an expected good quarter badly. If we went through nine months now including Q4 that was below cash breakevens, then that might encourage some scrapping of all the units. People might just throw the towel in because, all of a sudden, there was a carry cost. But I don't think we're going to see that. In fact, I figure we're going to see it's a soft market, volatile, and we will see where it goes. So, at the moment, the issue is supply versus ton miles.

Got it. Okay. That's helpful, and I will do my best to forget the Giroud comment. Thank you.

Amit Mehrotra, Deutsche Bank.

Paddy, you and the team have been pretty aggressive in the past in terms of utilizing debt and equity financing to make some big in-block purchases at a time in the cycle that you guys thought or think is advantageous. I'm thinking back to like 2013 and 2014 ahead of the 2015 upturn. And it seems like you guys are kind of setting the table up for something big in terms of getting the fire power vis-a-vis the sale leaseback and now maybe the FSO visibility has improved. So what I'm just trying to understand is if that's a correct read in terms of what you guys are setting the table for, and could we see the Company raise outside capital, specifically equity to maybe increase the firepower that you already have on the debt side to make a bigger move, or is it still wait and see? I'm just trying to compare it to where we are today versus where we are maybe in earlier mid-2014. Thanks.

Yes, I don't see us issuing stock. And just at the moment, it would be crazy for us to be issuing stock when we are carrying such good liquidity. I think that very sensibly, because it's a cyclical business, we have seen the potential for a softening market for a while. And so we took -- we have made sure that we are close to cargo and have plenty of cash. It's not, as we said many times, a very simple business.

It maximizes optionality. It will give us the ability to think freely and clearly and not be driven by short-term requirements, but be able to be a bit more strategic in our thinking.

So I think we are happy where we are, and we will just be waiting for you to call the market firmly up before we make any decisions.

Okay. All right. I thought I would try to ask that question, but thanks a lot, Paddy.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to the management team for any closing remarks.

Good. Well, thank you all very much for attending the call and for very interesting and thoughtful questions, and we look forward to meeting you all no doubt during the course of the year and speaking to you again in the quarter. Thank you very much.

Thank you, sir. Today's conference has now concluded. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.