Earnings Call Transcript - CMBT Q1 2024

Alexander Saverys, CEO

Good afternoon, and good morning, everyone. Welcome to the earnings call of Euronav and CMB.TECH. My name is Alexander Saverys. I'm the CEO of Euronav and CMB.TECH, and I'm joined by our CFO, Ludovic Saverys. We have a couple of topics we would like to touch upon with you today. We will start with our first quarter financials and highlights. We'll then zoom in on the Marine division and a market update per segment, time charter performance and the market outlook, and then we'll close with a conclusion and have time for questions and answers. I'd like to hand over to Ludovic.

Ludovic Saverys, CFO

Yes. Good afternoon, everybody, and thanks for joining this earnings call. We're happy to share with you a strong result for Q1 within Euronav/CMB.TECH. We did net profit on the quarter of $495.2 million; there has been a significant uplift in profit, thanks to the capital gains on some sale of vessels, more notably the second half of the deal with Frontline, which was widely discussed previously. If we take the capital gains out, we have a nice underlying profit of $88 million for the quarter. At the same time, we were able to end the quarter with very strong liquidity of over $1.2 billion. This is obviously even after the conclusion of the purchase of CMB.TECH which was a highlight we will mention later on. In our rewarding the shareholder strategy, there was already a distribution announced of $4.57, the Board has concluded based on the strong results of Q1 to propose to another special general meeting an additional $1.15 distribution per share, which is again going to be a mix of dividends and distributions out of issue premium, as mentioned in the press release. At the same time, the company has also started a share buyback program within the latest months where we have concluded about 8 million shares purchased at around $15.5 which is another reward for our shareholders. On the business side, we have continued to optimize our fleet. We've contracted 10 more newbuildings and sold another 3 older tankers while launching the inauguration of our first hydrogen production and refueling station in Africa and the announcement of a first hydrogen-powered vessel in Africa. Next slide, please. Zooming in on the various Marine divisions. As a repeat, we have Euronav and the tankers, Bocimar dry bulk, Delphis with the container vessels, Bochem on the chemical tankers and Windcat, which is our offshore wind division. The company has about 47 ocean-going vessels on the water with another 45 newbuildings on order, as shown on the slide in the various divisions. On top of that, we have about 53 CTVs, which are small passenger craft bringing the engineers to the offshore wind mills and 12 CTVs or CSOVs on order. On the bottom side of the slide, you can see the P&L breakeven in the various divisions as a mix. You can see that the Q1 time charter equivalent, we are well above all the P&L breakevens in all the divisions, which obviously is an explanation for the very profitable quarter we had in Q1. In terms of guidance for Q2, we've also highlighted there that on the tanker side, we're still around $46,000 on roughly booked days in the tanker side, $37,000; I think this is one we like to highlight. We have a big order book on Newcastlemax super-eco vessels coming on stream that Alex will touch upon, but we are happy to say that we have already booked $37,000 on these fixed days in that quarter. We have a current backlog on contracts accumulated through other divisions of about $2 billion, which is testimony, I think, to the diversification of the compensation strategy we're trying to implement. This is a highlight again for everybody to see what the strength of the platform is in terms of available days and open days for '24, '25, '26, where we respectively have roughly 19,000 total days in '24, 24,000 in '25 and up to 30,000 total days in 2026. The blue bars obviously show what the contract backlog is, this is the way to show that our platform is rightly positioned to enjoy, especially on the tankers, older vessels and the dry bulk Newcastlemaxes to enjoy the spot market whilst on the chemical tankers and containers and more newbuildings that we try to expand our contract backlog. That concludes the highlights of Q1. As we mentioned in the press release, it has been a very busy quarter up to now, where we were pleased to announce a significant profit. We also want to reiterate the acquisition of CMB.TECH, which was a transformative step for Euronav/CMB.TECH. The mandatory bid has closed, and our reference shareholders at CMB have successfully opened and closed their mandatory bids. We are pleased to report that Euronav and Anglo-Eastern have collaborated on ship management. We continue to optimize our fleet by selling older vessels and investing in newbuilds, as previously mentioned. We inaugurated our production and refueling station in Africa, which is a pilot project marking the start of a longer initiative aimed at securing and producing low-carbon molecules. We believe we have delivered strong returns to shareholders with two dividends proposed in recent months and the initiation of a share buyback.

Alexander Saverys, CEO

Thank you, Ludovic. I would like to take you now through our various divisions and the various markets in which we operate. Starting with our most important market today, which is crude oil and tankers in Euronav. As you can see on the slide, we've highlighted a couple of things that have already been mentioned by Ludovic, but I'd like to take some points a bit more in detail. As a recap, after the sale of our 3 VLCCs, we're left with a trading fleet of 14 VLCCs and 22 Suezmaxes on the water. Our order book consists of 5 VLCCs, ammonia powered and 4 Eco Suezmaxes. We still have our 2 FSOs, which have a long-term contract, contributing nicely to our bottom line. We also have time charter contracts on our Suezmaxes, including 2 time charter contracts on our VLCCs. When we look at our breakevens and the spot market, you can see it's split up here for VLCCs and Suezmaxes. VLCC breakeven is around $26,500 and what we achieved in Q1 is $41,700. For Suezmaxes, we're around $20,800 with an achieved rate of $58,000. On the time charters, you can also see the numbers at the bottom of the slide. In general, on this market, we are still looking at a relatively low order book, even though ordering has picked up, but definitely for '24 and '25, we are still seeing very few vessels in the order book. Obviously, we are very much influenced by geopolitical tensions and all the wars, contributing positively to ton-mile demand and to our results. On this slide, we are basically monitoring the order book; as you can see, the order book has definitely picked up. There's been some good Suezmax ordering activity and some VLCC ordering activity. Historically, it is still quite low. I think for us, what the most important years are, are 2024 and 2025. In the near term, we will see very few vessels delivering. More generally, the fleet is aging, and that is true for many shipping segments. We are reaching historical highs and by 2026, 25% of the fleet will be older than 20 years, which should normally contribute to positive markets going forward. Supply/demand outlook and the earnings. That's 2 different graphs just to highlight the same elements I just mentioned in the previous slide. If you look at the historical numbers on VLCCs and Suezmaxes, we are definitely not at the very top of the market right now, but the numbers are definitely very, very healthy. I'd like to continue on our dry bulk division, which will become the second biggest division in the Euronav/CMB.TECH Group. So far, we have 4 vessels on the water. Very soon, we will take delivery of a fifth vessel. By the end of the year, there will be 10 ships in total on the water. This is our largest series of vessels on order, all being built in Qingdao, Beihai in China, and the deliveries are spread between 2023 and 2027. We see, in general, in the market growth; the growth numbers are not huge, but if you combine it with the relatively low order book, the supply-demand balance looks very nice. Specifically for our company, we also look at the specifics of our Newcastlemax design. You can see on the table to the right, we try to highlight what a normal 10-year-old Newcastlemax is earning today and the kind of premium we are achieving with our super-eco vessels, which have a slightly larger cargo intake but also a lower fuel consumption. This is contributing very nicely. On the asset side, the newbuilding side, we are definitely in the money on our whole order book. We are hearing talks now of orders in China for 2028 delivery for Newcastlemaxes around the $80 million mark. Again, this is positive for the value of our company. The order book to fleet, as I said, is low. It's historically low. Again, zooming in on '24 and '25, very little ships are coming on stream in general on the dry bulk side, but definitely on the Capesizes and Newcastlemaxes, which is a segment that is of interest to us. The average age of the fleet is increasing, and in 5 to 6 years from now, 1/3 of the fleet will be 20 years and older, which should be supportive for our results and the market going forward. Here, we try to map the supply-demand outlook specifically for Newcastlemaxes. On the right, the current Capesize and Newcastlemax earnings historically for the last couple of years. The average between 1990 and 2019 and then the last couple of years shows we are above trends. We had a very strong first quarter of the year, thanks to very good data, and very good cargo flows. Q1 is usually a weak quarter in the dry bulk markets. This year, it was totally the opposite. We had some very, very good earnings against all expectations in Q1. Moving to our chemical tankers, the chemical tanker fleet profile is that we have 3 ships on the water today. We are going to take delivery of another during the next couple of months. Then we have 2 vessels delivering at the end of 2025. Part of our ships are trading in a chemical tanker pool, and we achieved very healthy earnings in Q1 of $25,500. The rest of our ships are fixed out long-term around the $19,000 mark, as you can see on this slide. We see healthy growth numbers. The chemical tanker fleet is very much influenced by the swing factor of MR tankers entering the market or not. MR tankers have very good earnings right now and don't see a need to come in and cannibalize the chemical tanker market, which again means chemical tanker rates are much better. There are very good supply/demand dynamics in the chemical tanker markets and earnings are likewise very favorable. Moving to the containers, I think we can say that we are not positive. There is the disruption of the Red Sea right now, which is supporting rates somewhat, but as soon as that situation resolves, we believe that rates will go down. Again, there are too many vessels. You can see in the middle of the slide the supply and trade numbers for 2024 show a big disconnect between the number of ships being delivered and demand growth that we see. It is countered a little bit by, of course, the larger ton miles for ships that are avoiding the Red Sea, but we are afraid that once that is resolved, we will see that the market will go down again. It doesn't really affect Euronav and CMB.TECH because all our container vessels that we own are on long-term charters at very good rates. We currently have 2 ships on the water today, with another 2 coming in the summer, and our 1,400 dual-fuel ammonia ship is delivering in the middle of 2026. All these ships are on 10-year charters and the last one on 15-year charters. However, on the market, we are not very positive for ships that would be on the spot market. Ending with our offshore wind division, Windcats. So what does Windcat do? It brings engineers, electricians, maintenance people to and from the offshore wind parks that are being constructed or are already in operation. We have 2 asset types: our crew transfer vessels, which are small boats, and the earnings are in relation to the size of the ship, earning good rates compared to our breakevens. We also have a second asset type, which is our CSOV, our commissioning service operating vessels; the first vessel is delivering next year, and we have a series that runs into 2026. Nothing has been fixed on the CSOVs yet, but we did indicate what our breakeven is on our CSOVs. The current spot market is expected to be very supportive for our CSOVs. There have been a couple of milestones in Windcats, such as the delivery of a few ships. We now have 53 CTVs on the water and recently had a long-term charter to Eneco that was concluded. We also delivered the first hydrogen-powered dual-fuel ship in Germany to our JV partners, FRS. That brings me to the conclusion; there are basically three things we wanted to touch upon. First, highlighting our return to shareholders, as was already discussed by Ludovic. After the $4.57 per share of dividends that we will approve next week at the AGM, the Board has proposed an additional dividend of $1.15, which will be put to a vote at a special general meeting in July. Returning to shareholders is definitely a big topic for the first half of this year based also on the very good results we have achieved. Our portfolio approaches delivery, and we are probably taking delivery of one ship per month, which is a very big program. It keeps our technical teams very busy, but for '24, '25, '26, and even in the first half of '27, we will take delivery of many newbuildings, some of which have already been fixed on good long-term time charters. Regarding decarbonization, all our ships that are on order today, barring a few exceptions, are ready to be operated by dual-fuel engines or fitted with new engines so that remains a key topic in our strategy: the decarbonization. Very importantly, for us in our portfolio approach, we aim to increase our contract backlog. Today, we have a $2 billion contract backlog. We would like, by the end of the year, to bring that to $3 billion. That's important to show cash flow visibility going forward. Our outlook for '24 and beyond. If you listen to what I just said about the markets, it's difficult to be negative except for containers. I think all the segments we are operating in are in good markets. There are always potential headwinds that nobody can see coming, but I would say that supply-demand wise in all the major markets we are operating in looks very, very strong, not only for '24 but also for 2025. We repeat, and this might be a question that some of you will ask later on, that we want to remain listed on Euronext and NYC and keep these 2 listings in the short to medium term. That ends our presentation, and we will now open the floor for questions. Please raise your hand or a flag if you have a question.

Enya Derkinderen, Moderator

Yes. Luuk Van Beek, you can now ask your question.

Luuk Van Beek, Analyst

Yes. A couple of questions. First, on your dividend policy in combination with your leverage. I understand it is discretionary, but do you have some general indications of what your main considerations are regarding whether to pay a dividend for a future quarter or not? My second question is on your CapEx. You gave a very useful breakdown of the CapEx for the next couple of years, which is around $900 million, $950 million per year. Is that a run rate which you intend to maintain for the near future in view of the strategies that you already set for your organization? Or do you intend to accelerate further and add further construction plans to your planning?

Ludovic Saverys, CFO

Yes. Great. Luuk, thanks. It's Ludovic here. So on the first question, it is tough to give a definitive answer on the percentage of profit or other. I think we have a fully discretionary policy because we have a big CapEx program and we have to tailor the dividend policy towards the strength of our balance sheet. Now the markets are good today; thus, we can continue to invest and pay dividends. I think this is the point we have right now. Should markets obviously shift or turn, then we will have to adapt that policy. But as of now, we're very happy to reward our shareholders in the way we do. Regarding your second question on the CapEx, we have about $2.9 billion of outstanding CapEx, which is a run rate of $900 million per year. We don't have a policy of keeping that run rate indefinitely. We need to find good projects. As Alex mentioned, on the tanker newbuilding speculative ordering, we think the market has topped out in terms of timing of deliveries, but also price which is becoming quite expensive. On the dry bulk side, prices are still interesting, but the slots available are quite difficult to justify a large expansion in newbuildings. No, it is not that we have a fixed target for a CapEx program. But yes, we will jump on opportunities should we see consecutive ordering at attractive prices or contracts being written before we proceed with newbuilding orders. Obviously, after that decision, we will tailor the balance sheet towards it. I think the policy of financing 65% of newbuilding prices remains, should we see attractive opportunities and go further. We obviously can still start selling some of the older assets, which is what we call the optimization part of the strategy.

Enya Derkinderen, Moderator

Kristof Samoy would like to ask a question; you can now unmute and ask your question, please.

Ludovic Saverys, CFO

Kristof?

Kristof Samoy, Analyst

Okay. I was still on mute. First question on the MEPC in last March; did anything happen that you evaluate the likelihood or magnitude for a global greenhouse gas levy? Has it changed your view? And this is the first question. Then on Namibia, could you inform us on the final investment decisions on the bunker facility and the production infrastructure plans you have there? And then, as a follow-up, the Board of Antwerp has also announced an investment in Namibia; will you be co-investing with them? Finally, could you shed some light on potential long-term contracts for your dry bulk newbuild program you are taking on?

Alexander Saverys, CEO

Yes. Thanks, Kristof. So on MEPC, as always with the IMO, it goes very, very slowly. We regard the outcome of the last MEPC meeting as positive but not dramatically changing anything in the very short term. It's more about the deadlines that are being put forth. There is at least a plan to reach a conclusion, to come to this famous carbon levy and then also decide on what they're going to do with the money. We, as you know, are very vocal about the fact that we want things to go faster; we think shipping should be regulated on a global level. All these regional initiatives like in Europe are making our business a bit more complicated even though we are happy with what has happened in Europe so far. So MEPC was positive but not really a game-changer yet; we should watch the next meetings that are coming. On Namibia and the bunkering facility, to recap what our plans are in Namibia, we have taken an FID and have nearly completed the construction on our first production and refueling plant, which is about EUR 30 million investment, of which we have EUR 10 million invested, and the rest is from our partner, and we receive some support from the Federal government of Germany. The next phase would be the ammonia bunkering facility. We are in the midst of the feed and are going to take FID towards the end of this year. That's probably a topic we want to touch upon in next calls; so an FID definitely has not been taken yet. Regarding your question about the Board of Antwerp and what they have announced, let me clarify that the announcement = a phased approach to developing a new port to the north of Walvis Bay. We are already active in the port. What they will do first is do a study; once the study is finished, they will then decide whether to move forward with the investments. We will have discussions with them, as they are our neighbors and partners here. In terms of coverage for the bulker vessels, everything is currently on spot. We see a lot of interest from our end-users and customers to charter our ships, but we have not concluded anything yet.

Enya Derkinderen, Moderator

If anyone else would still like to ask a question, please raise your hands. Kristof, do you have another question because you raised your hand, I believe.

Kristof Samoy, Analyst

Yes, if nobody else is raising questions, then I might squeeze in a few more, if I may. Just in terms of future vessel disposals of older vessels, can we expect certain segments to be more likely to witness disposal? For instance, would there be a reason to assume that disposal would be rather in VLCCs than Suezmaxes? Could you shed light on the CII metrics of your VLCC fleet and Suezmax fleet, please?

Alexander Saverys, CEO

On the disposals, we have made it clear that if we see good prices for older tonnage, we will look at selling them and recycling the cash to invest in more modern ships. It is what we just did with the 3 VLCCs. That process is recycling money; we can reinvest it into further newbuildings. Regarding a specific asset class we will focus on, no, but based on the age profile of the current Euronav/CMB.TECH fleet, the obvious candidates are more in the Euronav Tanker division than in other divisions. However, whether it's going to be a VLCC or a Suezmax will depend on the price, the buyer, and the opportunity that presents itself. On CII, Kristof, I suggest you send me an email so I can consult my technical team regarding the profile of our fleet. I apologize that I can't provide you an answer on this call.

Kristof Samoy, Analyst

Okay. Maybe another question, if I may. We read a lot from different sources that old majors are loosening age constraints for vessels they charter. Can you confirm this based on your practical experience in chartering?

Alexander Saverys, CEO

I cannot speak for specific old majors, but in general, I would say that you are correct. It is typical of strong markets; when markets are very high, our customers loosen their self-imposed regulations on age because they do not want the prices to escalate for modern vessels.

Enya Derkinderen, Moderator

Quirijn Mulder, you can now unmute and ask your questions, please.

Quirijn Mulder, Analyst

Can you hear me?

Alexander Saverys, CEO

Yes, we can hear you perfectly.

Quirijn Mulder, Analyst

I wanted to ask about FSOs. How do those fit into your overall portfolio approach? They're still contracted for a few years, but given their nature, do you view them as non-core?

Alexander Saverys, CEO

That's a very good question. First and foremost, these are assets that we've had in our portfolio for a very long time, and we are very satisfied with the quality of the assets and the contract coverage. Going forward, we don't know what will happen with these assets. We have not made that decision yet. We are definitely not against these assets per se; we will just evaluate the opportunities that arise when the contracts expire. To put it simply, we are not eager to sell them or hold onto them. We will assess the situation based on the market conditions. It's true, of course, the assets are slightly older, but as you know, they have been fully converted. Reconversions can happen, extending the life of these assets.

Quirijn Mulder, Analyst

That's helpful. I also wanted to ask about the CSOVs. You mentioned they are still open; I was wondering what kind of term contracts are available in the current market conditions.

Alexander Saverys, CEO

That's a very good question. There are two types of contracts available for CSOVs: short-term contracts during the construction phase of offshore wind parks, typically lasting 3, 6, or 9 months, or much longer-term contracts, lasting 5 to 10 years, for either comprehensive construction works or for the maintenance of the parks. We are looking at both. However, our preference so far has been to lean towards shorter-term contracts unless we see a very good rate that ensures a good return.

Luuk Van Beek, Analyst

I have two follow-ups on your disclosure. Would it be possible to provide a breakdown of revenues and EBIT by segment in the future because they are such different markets? Also, could you provide more disclosure about the order backlog you mentioned of $2 billion, including the segments and the duration?

Alexander Saverys, CEO

Look, I suggest I give you the answer that we provide to others in the analyst community. Reach out to Joris Daman and my broader team, and they will be able to answer those questions. Okay, unless anybody else has a question. Quirijn, do you still have a question or?

Quirijn Mulder, Analyst

No.

Alexander Saverys, CEO

Okay. Then I would like to thank you for taking the time to join us in this earnings call. Thank you for your questions, and I look forward to seeing you and speaking with you very soon. Thank you very much. Bye-bye.

Ludovic Saverys, CFO

Thank you.