Earnings Call Transcript - CMBT Q4 2022

Operator, Operator

Good day, and welcome to the Euronav Fourth Quarter 2022 Earnings Conference Call. Please note this event is being recorded. I'd now like to turn the conference over to Brian Gallagher, Head of Investor Relations. Please go ahead.

Brian Gallagher, Head of Investor Relations

Thank you. Good morning and afternoon to everyone, and thanks for joining Euronav's Q4 2022 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, February 2, 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 the SEC's website and on our own company's website. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of that 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 the slide presentation. With that, I will now pass over to Chief Executive, Hugo De Stoop.

Hugo De Stoop, CEO

Thank you, Brian, and good morning or afternoon to wherever you are, and welcome to our call. I will run through the Q4 highlights before passing on to Lieve Logghe, our CFO, who will then highlight key factors over the quarter and important work the finance team has done in increasing, again, our liquidity through sustainable financing. After that, Brian will run you through some current market trends before I return to summarize our strategy and where we believe we are in the current cycle and outlook. Q4 was the breakthrough quarter we've been pointing at in our last two calls. The strong demand for tankers reflected in higher freight rates was created by three factors: seasonal patterns into the Northern Hemisphere winter, a sustainable supply of oil from OPEC and non-OPEC, and finally, a repositioning of the world fleet ahead of the embargo on crude from Russia that was enacted on December 5. TCE rates actually squeezed materially higher into November, and even though they have reset since, they remain at very profitable levels, well above the medium-term averages. Euronav benefited from this upswing and from the fleet rejuvenation we have done in the last 18 months, in taking our new tonnage and reducing our older fleet of higher-consuming ships. Given our current corporate situation in full respect to the combination agreement with Frontline, we are unable at this stage to release dividends beyond the trees and minimum outlined in that agreement. However, to give some guidance and reassurance to our investors, we are indicating what level of returns could have been, and this is in line with our past commitments. Future developments will determine if, how, and when this can be returned to our shareholders. I will now pass over to Lieve to run through the financials. Lieve, over to you.

Lieve Logghe, CFO

Thanks, Hugo. Q4 2022 was indeed a very busy quarter in terms of the financials. Our leverage has improved positively to 45%, boosted, on one hand, by incoming cash from the higher freight markets, and on the other hand, from sales proceeds of some older vessels. The operational leverage is clear in our business during such periods, with a net profit of nearly $235 million generated in just one quarter. This figure was clearly boosted by $62.6 million of asset sales, reflecting our continued fleet renewal program. Such capital gains are, in our view, correctly retained within the capital structure of our business and not for distribution. It is important that this capital is recycled into a new and more energy-efficient fleet, which we have done and will continue to see with these seven vessels currently under construction. I will now turn to an exciting and growing part of our funding: sustainable financing on Slide 8. We are on a journey, and we made another significant step with some dedicated hard work from our finance team and our partners during Q4. Over half of our financing now comes from sustainability-linked sources, making Euronav the leader in the sector among shipping companies globally. The new facility we agreed, totaling $377 million, comes with some challenging ESG objectives, including social targets for the first time, but also with a higher incentive for achieving such targets. This change in the incentive structure, we believe, has further to run as it gives motivation to increase the scale and penetration of our sustainable funding. With that, I will now pass it back over to Brian Gallagher to give some thoughts on the current market cycle.

Brian Gallagher, Head of Investor Relations

Thank you, Lieve. I start with the slide from the last sector we gave in Q3, illustrating the very real step change that we've seen in the oil on the water and in transit. The positive follow-through has had on freight rates, especially over the last second half of 2022. Historically, as one would expect, there has been a very positive correlation between time 28 and volumes of cargoes on the water, but the Russian mid-dislocation started last March, and the subsequent increase in ton miles across the tanker sector has given a structural boost to our markets. This provides a strong base going forward for the sector, along with the age of the world fleet, which is at a 22-year high, and the fact that order books are at a 40-year low, giving a very strong vessel supply signal. The other key short-term factor for investors is also to look at China, which we now look to analyze on Slide 9. The tanker market recovery we've seen over the last six to nine months has all been delivered with very little input from China. COVID restrictions have continued to remain very severe and have restricted economic activity consequently. This does look to be starting to change though. The cargo accounts for February and March, in particular in the VLCC sector, have been very, very encouraging and positive as China opens up and activity returns. Slide 11 shows an illustrative pathway of the recovery as we see it. As I mentioned, we are starting to see early signs of this. We believe this will further underpin freight markets well into the second half of 2023 as China is only expected to recover the level of consumption lost pre-pandemic. We turn now to the other side of the short-term factors that investors are looking at: Russia-related activity on Slide 12. Much speculation has centered in recent months on the positive factors that the Russian situation and dislocation brought, which would soon evaporate, affecting the tanker market space. Whilst there was a lot of noise, it is clear that there was a lot of dislocation within Russia with refinery shutdowns, production shutdowns, and maintenance programs—volumes are now back to levels that we saw pre-December 5. Production levels were also back to the November run rate, and the nature of the crude and sport trade is changing, with more evidence of more ship-to-ship transfers occurring across Europe and the Mediterranean onto larger vessels, particularly VLCCs. Siedmand-Apramax are now doing more shuttle-type runs between those low tensions rather than the entire journey themselves as in the past. So in summary, our short-term market views continue to remain very, very positive, and our current trend is very supportive as we move into Q2. We do expect to see a sustained and strong winter period over the next few weeks and months. I'll now pass over to our Chief Executive to give some more medium-term thoughts about the cycle and concluding with our current traffic light outlook. Hugo, over to you.

Hugo De Stoop, CEO

Thank you, Brian. The recent firming in freight rates has been driven by shorter-term factors, and this will now give way to very solid longer-term drivers. The global fleet is small by historical standards, and yet the order book is at 40-year lows, but no one is ordering because of the high price regulations and time to delivery, as shipyards are not able to deliver tankers until 2025 and 2026. New operational regulation will also bring curves on all the tonnage. So the vessel supply situation appears to be locked in. On the demand side, we see China returning to normal levels of demand, a global economy bringing back even modest levels of demand growth, and all of that oil needed to be transported further distances than in the past. These factors should drive a sustained period of profitable freight rates. We at Euronav will continue to reward shareholders and invest in the energy transition. Indeed, Euronav delivered on its promise to be an energy transition leader in the past five years and accelerated that in the past 12 months, and we'll continue to do so. Now, onto the traffic lights, Slide 15. This will surprise no one. We are again upgrading one of our traffic lights to green. This time, demand is driven mainly by the prospects from China reopening. The sharp eye that Manu will notice most of the lines are now green or greenish. That is true, but there still remains some upside in investment supplies and also in demand, in our view. There is more oil in the tank. With that, I would now like to pass it back to the operator, but with a final word. You will appreciate the sensitivity of our corporate situation. We have made public that the arbitration process will provide an initial decision next Tuesday. Given the sensitivities and regulations around that process, we will not be in a position to take questions on that. Now, back to the operator to take the other questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Our first question comes from Omar Nokta from Jefferies.

Omar Nokta, Analyst

Good afternoon, Hugo. First off, I commend you and the team for being able to continue really executing on the business here, given all the distractions. I can't imagine it's that easy to focus on the business while dealing with all the noise. I appreciate the comments you made, Hugo, just before we started the Q&A session, especially regarding the arbitration ruling. And I just maybe will float out this question. I know the February 7 is the expected ruling. It seems a little sooner than I would have assumed. But maybe just—are you able to give us a sense of what the different outcomes could be when a ruling is made? Is there a certain series of parameters that's being evaluated? Or any color you can give there? Or is it you prefer not to?

Hugo De Stoop, CEO

No, I think it's a very good question. It's difficult to clarify in writing. I mean, summary proceedings are dealing with aspects that require urgency in a judgment. So I may take an example, which is, unfortunately, a couple in divorce; the husband has the title on the house—he doesn't know what the judge will decide regarding staying in the house, keeping the house, or whatever. If he sells the house, then there is nothing left in the estate—maybe the money from the sale can be spent. So an emergency judgment will say that he cannot sell the house until we have decided the outcome of the divorce and who gets what. And that's what we are trying to have here. So it's not on the merits, it's not about whether or not damages were created, whether or not there was the right termination, etc. It is really to see what should be frozen until there is a judgment on the fundamental state, which is called the merit. I hope this is helpful.

Omar Nokta, Analyst

Thanks. I appreciate that. That lays it out nicely. And then maybe just as a follow-up. I know there's a lot of sensitivities with what's happening. And I just wanted to check with you if there have been any discussions that you’ve had with CMB regarding the strategy that they're looking to take moving forward if they were to be successful with the Board?

Hugo De Stoop, CEO

I can really not comment on that. It is for them to express what they would do if the outcome is favorable to them. I can only repeat what we have said in the press release, which is that we at Euronav continue to be constructive and try to find solutions to all the problems. Obviously, there are three parties around the table. Our attitude continues to be very constructive; we're not the type of people who say that we are all enemies and let's go to war. I think we always have to look forward into the future. I think that every problem has a solution. As long as the three parties have the same attitude, I'm sure that we will find a very positive outcome that will be beneficial for all shareholders, which also means that probably nobody will have the perfect solution that they want for themselves, but it will be a compromise, and we very much hope that that will be the case. When? I don't know. How? I don't know. You first need to have that attitude.

Omar Nokta, Analyst

Yes. Well, thank you. Obviously, a very complicated situation, but one that can be resolved. So I appreciate the time, Hugo, and I'll pass it over.

Hugo De Stoop, CEO

Thank you. And thank you for the comments earlier on. I very much appreciate it.

Operator, Operator

Our next question comes from Frode Morkedal from Clarksons Securities.

Frode Morkedal, Analyst

Yes, thank you. I'll skip all the questions on the arbitration and go to the market. You mentioned both in the report and now in the presentation. On China, I guess you're seeing less U.S. crude exports to Asia being one of the main reasons for the decline in the VLCC rates. Maybe you could expand on that argument? And maybe what you're looking for in order for this to change for the better?

Hugo De Stoop, CEO

Well, the facts are correct. Everything that you said is accurate. The question is how will that develop going forward? And that's always very difficult because it depends on the levels of volume that people want to export. It's important to remember that when we are talking about the U.S., it's critical for ton-mile, but in fact, we're discussing the West Coast of the Atlantic Basin. So it's the U.S., but it's also Brazil, and starting now, in the next two to three years, it's also going to be Guyana. So there's a lot of expansion in oil production coming from what we call long-distance, very positive ton-mile. The second aspect is that there was a lot of export from the U.S., but they were mostly going to Europe. We are seeing now that some of those cargoes are going to China. So if you say two cargoes going to—or three cargoes going to Europe, it is the equivalent ton-mile to a cargo going to China. So it is complex, and we have the same visibility that the new guys have. As I said, it depends on how many barrels, how many cargoes are being released from different places, and that's always been difficult to forecast in all markets. Overall, we see that there are more restrictions than in the past due to the Russian situation. Overall, we see that these cargoes at least have to travel much further than in the past, and that's positive. About China, in particular, obviously, China is now reopening. I think that the government has made it very clear that they want to reinvigorate the economy. The first step is reopening, and the second step is to deal with COVID. Let's not forget that we have had our waves, but they are having their first real wave now. So you need to handle that for a couple of months. Once that is over, we are very optimistic about the fact that the economy will grow massively compared to the previous quarter, which was hampered by this situation. Where the cargoes are coming from? We will see, but chances are we will definitely need more cargo coming from the Atlantic.

Frode Morkedal, Analyst

Perfect. That's great. That's it for me.

Operator, Operator

Our next question comes from Jon Chappell from Evercore ISI.

Jon Chappell, Analyst

Thank you. I think the illustrative example in the press release of the capital allocation policy is very helpful. There is a lot of uncertainty around your ability to distribute capital, maybe to the same extent as the prior cycle. So super quick two-parter to my first question. First, I just want to clarify: in the last cycle, it was an 80% payout ratio, mixed with dividends and buybacks, and that's what you're ideally hoping for in this cycle. And the second part of that is—I do understand that February 7 is only five days away—but from your divorce example, it sounds like that's only making a determination on whether the house can be sold or not. When is the second arbitration roughly completed, so we can start to think about distribution of the proceeds from the house sale?

Hugo De Stoop, CEO

Yes. On the first part, you're absolutely right. We will continue to have a balanced strategy between dividends and share buybacks when it comes to returning to shareholders. Obviously, share price will be a very important factor that we take into account, as much as the outlook and, to a certain extent, capital allocation, but that's no different than what we did in the past. On the second part—it's complicated. But we certainly do not believe we will need to wait for a judgment on the merits to distribute capital. I mean, there are many intermediary steps that can be taken. What will happen next week will be very important in terms of which clauses of the combination agreement need to remain in place for that duration. Until next Tuesday, it's difficult to give you an exact or precise date, especially because even on the merits, we don’t know how long it will take, but quite frankly, we're all business-focused. This is a very important transaction, as you can imagine, but not being able to return any capital to shareholders for an extended period of time would not be ideal for the business. So again, that is a problem; we will find a solution.

Jon Chappell, Analyst

All right. That's very helpful. My second one kind of follows along the lines of how you defended that answer about focusing on the business but also being businessmen. I understand the sensitivities here again, but I'm trying to understand what the ideal outcome is for you—if the arbitration goes 100% in your favor, I would think the next step would be a shareholder vote. But a shareholder vote would be the merger, and we have two 25% shareholders who apparently don't want it. So it seems like it's almost impossible. To the extent that you can say, what is your ideal world here? Once a solution is arrived at, how do you move forward from there?

Hugo De Stoop, CEO

I'm not going to be able to answer that because it's too sensitive. I appreciate that there are a lot of systems, and we're all very focused on it. It's only a couple of days away, and I don't want to risk anything by commenting on something that could be detrimental.

Jon Chappell, Analyst

Completely fair. Thank you.

Operator, Operator

The next question comes from Thijs Berkelder from ABN AMRO.

Thijs Berkelder, Analyst

Yes, thank you. The first question is operationally—I’ve seen that your reported breakeven for the P&L has gone quite a lot. Can you maybe explain what can be expected there looking at 2023, also given the strong rise in inflation and wages? And the second question, yes, is on corporate governance—have you agreed with the future marriage with Frontline? Now, certainly, your husband-wife no longer wants to marry without giving any reason at all, and really stepping you and your team in the back. Why would you, as you are now managing the supervisory board, still seek a merger if the partner has proven so unreliable? And how is it possible you, in the preliminary agreement, did not have a clause defining a penalty payment for breaking the agreement for such events? And maybe finally, what kind of financial compensation should we be looking for? Is it purely legal costs, or can we assume more financial compensation to come in?

Hugo De Stoop, CEO

That's a great question. You're very far because you're allowed to ask one question, one sentence, you asked three or four. Congratulations for that. I think the first one, I'm going to give the word to Lieve about OpEx inflation, if I understand correctly, knowing that it has come down year after year, certainly in the last four or five years, and that was due to an exercise in trying to use economies of scale, and that takes time. But it is, as you've seen, paying off very, very well. Obviously, now we are inflationary. So I give the word to Lieve.

Lieve Logghe, CFO

Yes, indeed it is. We have to take into consideration, and we have budgeted for an inflation increase between 4% and 5%. The main topics there are indeed crewing costs because we can still optimize it. As Hugo mentioned, we did a step-down over the last two or three years, and that has paid off. Obviously, with inflation everywhere popping up, it's a topic that will hit negatively but to a smaller extent on our OpEx. Combined with the fact that also for technical and fuel loop oils, we will have a bit of a negative impact or inflation kicking in also in the environment of 4% to 5%. So globally, looking at our budget, we are speaking here for 4% to 5%.

Thijs Berkelder, Analyst

Okay. Clear.

Hugo De Stoop, CEO

Good. The second part of your question is complex, and I'm not sure it's the appropriate forum, but maybe I can explain in theory. In some contracts, there are termination clauses, and each party has a right to terminate, which can be well, financially compensated or nothing. Here, the termination clause is pretty clear, but Tuesday, we will see whether there was any right to even it or not. Let's wait until Tuesday to see indeed the reason for which Frontline has terminated. If we are valid or not, I’m not a judge, so I could not help you there. On the financial side, I think we first need to see what comes out on Tuesday, even though that's not on the merits, and the merits lead to the financial part. But that is also a relatively complicated calculation that is being done as we speak. I think that will agree with me in this kind of transaction where you're not simply buying something that is valued in the market, but where you're exchanging shares, and the calculation becomes a little bit more complicated. Each side will have to make its own calculations, and someone else, called an arbitrator, will decide what is right or wrong financially. The fundamental question you've asked is very interesting. It's almost a philosophical one. If the person you want to marry suddenly doesn't want to marry, does that mean you should start a trade relationship? Does that mean you should dislike or even profoundly dislike this person? I've seen in many occasions where a wedding is canceled, and three months later, people get very amicable. Maybe there was a misunderstanding; maybe there was something that they were not ready for. Again, we are talking about a problem; let’s identify it and see if we can find a solution. Maybe the solution is that we don't marry; maybe the solution is that we do marry; maybe we change the place of the wedding; maybe we change the orchestra; maybe we won't invite a model. This idea that because you no longer want to marry at a certain point in time, it's forever, and that this person that you were in love with becomes an enemy is not part of our philosophy.

Thijs Berkelder, Analyst

Yes. Maybe one short follow-up. Looking at trading within your shares by your Nordic region shareholders, is there also any reason to investigate there to check whether there’s any reason to look at market manipulation from a legal standpoint?

Hugo De Stoop, CEO

Well, that's not our job. I think there are enough authorities and regulators, and many people are looking at that. Honestly, I have only 24 hours in a day. So I'm not even going to opine on it. I have many better things to focus on.

Thijs Berkelder, Analyst

Got you. That means you are not having indications that such an investigation is ongoing?

Hugo De Stoop, CEO

Sorry, in case you didn't hear me, I don't have any comment on that specific question.

Operator, Operator

Our next question comes from Amit Mehrotra from Deutsche Bank.

Chris Robertson, Analyst

Thanks, everyone. This is Chris Robertson on for Amit. Given the structurally higher rate environment that we expect here, considering the regulatory uncertainty around future fuel technologies, it seems like owners will have a pretty big incentive to hang on to older tonnage for as long as possible over the next few years. This seems to me like it will create a real need for fleet renewal as we get further along towards 2030, not only in the tanker segment but also in others. So could you comment on what you think the response from the shipbuilding industry might be to absorb a large number of orders as we get further along here? Is there enough space at the yards to take on what looks to be a real renewal need?

Hugo De Stoop, CEO

That's a very good question. I like it because you're looking at the long-term in this industry. Often, we focus on the short term. As you know, there are different technologies, with fuels basically being the green fields that are being investigated. Some believe LNG is already better and will be transformed into a green fuel when synthetically produced. Some believe methanol is a very good view as long as you can produce the hydrogen in a green way and capture the CO2. Others believe ammonia will be better because there will be no CO2 emissions, but this technology does not exist today; it is being worked on. We have promised from the shipyards and engine manufacturers that it will be done before the end of the decade. Obviously, starting with smaller engines—because of the size of our ships, we have the biggest engines—and we have been told that these will be developed at a later stage. Regarding the shipyards themselves, it’s true that there’s some set capacity at the moment, which is spread between three countries. We can identify it relatively precisely. There are some efficiency gains that can be achieved by going from two shifts to three shifts, which they used to do within the same space, but marginally in every yard means a few more ships. When you say everybody in the shipping industry will have the same at the same time, I slightly disagree, if you allow me. We have seen that the gas carriers, obviously using gas as fuel, are betting on green methane being produced. When you look at the container market, they have also seen a lot of orders for dual fuel LNG. So they are making the same bet. In recent times, we're seeing many betting on methanol. That’s certainly a fuel that has a future because there have been enough orders that the infrastructure will be developed. Moreover, in the future, there will be orders for ammonia, and we are certainly interested in that development. In short, the gas carrier, container guys, and some dry bulkers and tankers are already discussing technologies; however, producing the green fuels is the only problem. Therefore, I'm not sure there's going to be a huge rush at some point. As far as our industry is concerned, the reason we have such a thin order book is because we haven't had a market that allows people to visit the shipyards with the cash they earned. Now, the picture is slightly different, but the yards are populated with many orders from various segments. We see that for the next two or three years, capacity is constrained. Overall, I think the shipbuilding industry, compared to the owners, will find a way to produce enough ships when required. But we are contemplating whether there is an advantage to being a leader, i.e., a first-time owner of a particular type of ship in our category. It could be a methanol dual fuel; you know that the last order we placed for Suezmax—both are methanol and ammonia ready. We are continuously working with the yard, and we have a joint development program with HHI in particular to add on to those ships as much technology as we can upon their delivery. They are not completely dual fuel ready, but converting them is very likely in the future. That said, we don't want to place all our bets on a specific fuel because, as we've seen in the past, well, 12 months ago, everybody was saying LNG was the only option. Then suddenly, the wind began to shift and now we see more orders for dual fuel methanol. I bet you that in the future, say two or three years down the road, we will see more for ammonia dual fuel. Putting all your eggs in one basket is not prudent, and that’s exactly what we are not doing.

Chris Robertson, Analyst

Yes. Thanks for that really thorough and thoughtful response, Hugo. As a follow-up, I just wanted to focus on a few of the new building vessels that you have taken delivery of. Can you talk about the fuel efficiency compared to the first generation of the ECO vessels and what rate premiums you’d expect to see on the recent new builds versus maybe a 2015 or 2016 vessel?

Hugo De Stoop, CEO

Yes. Depending on where you build your vessels, it's a minimum of 5 tons up to 12 tons improvement. Because in our industry, we talk about TCE, and the TCE takes into account the consumption; the improvement in the TCE is just a multiplier of the number of tons that you save per day times the price of the fuel at that time. At the moment, I would say 5 tons—about $600, I suppose—$600. So, it's $3,000. If it's 10 tons and obviously a lot more if it's 12 tons, then you can do the math yourself. In addition to that, on the modern versus—certainly the model vessels that we will take at Euronav—we have also invested quite a lot in digitalization platforms that allow us to improve the voyage, I would say, the bone optimization, which takes into account a number of big data aspects such as the weather, current, temperature of the sea. All those little aspects have an impact on consumption. In the past, we could not take all of them into account because we didn't have the technology. We continue to develop our technology. The good news is when it works on these supermodern ships, we can also apply that technology to older ships, allowing us to improve the consumption of all vessels thanks to that and maybe other hardware equipment that we are constantly testing.

Chris Robertson, Analyst

Got it. Super helpful. Thank you very much. I'll turn it over.

Operator, Operator

Our next question comes from Chris Tsung from Webber Research & Advisory.

Chris Tsung, Analyst

Good afternoon. Thank you for sharing the analogy about American wedding; it was very helpful. I just wanted to make sure I fully understood it. With regards to the February arbitration, that's solely on Frontline's ability to terminate this combination agreement, is that the marriage analogy you were using?

Hugo De Stoop, CEO

I don't know if it's that. I think that you look at the contract and what clauses should continue to exist for the time being, as I've said, until there is a judgment on the fundamental right or wrong of terminating the contract and the damages that come with it. It's really, as I said, that the guy cannot sell the house because if the judge were to award the house to the wife a year later, the house is no longer there, and there is a new owner in it. So it’s very, very delicate.

Chris Tsung, Analyst

I see. Just moving on past the arbitration. On your traffic light, I was just curious: what would it take for the UI to turn from green a shallow to fully green?

Hugo De Stoop, CEO

Well, the supply is the new buildings, but also the recycling. To turn it green, we would need to see a lot more recycling because when you look at the age profile, we should have seen a lot more recycling. Now we all know why that did not happen. First of all, the rate environment has improved. So obviously, now maybe less than last year. Should we expect it? Secondly, that was a reason pointed out earlier in this call: if everyone is watching the order book and sees that very few orders will be placed for the reasons already explained, it is likely that ships will stay longer in operation. Otherwise, you’re really going to have a squeeze. Last but not least, for a pretty long time, there was a bit of a cash squeeze within the cash buyers, who are the recyclers of those vessels. When you have a VLCC, it’s a lot of money you need to pay in advance for recycling and selling the scrap metal. There was an additional barrier. The traffic light will continue to be green amber as long as we do not see more recycling.

Chris Tsung, Analyst

Understood. Thank you for the color. That's it for me. I'll turn it over.

Operator, Operator

Our next question comes from Matthew Horan from Citigroup.

Chris Wetherbee, Analyst

It's Chris Wetherbee. Hugo, I think you've been really helpful kind of laying out your view here. I guess maybe what I don't know that we've heard this morning, though, is sort of management’s view on what the future of the business should be. I understand we have the ruling coming up next week about damages and how things might ultimately play out. I don't know that that necessarily—I guess maybe the question is: what do you guys want to do with the business, sort of thinking bigger picture, taking a step back from this potential ruling and thinking about the direction of Euronav from an M&A perspective? Is that still something that is attractive to you, understanding that maybe the deal we’ve been talking about can't get done? I just want to get a better sense of where the heads are from management, as opposed to some of the technicalities about rulings and various things about this pending transaction.

Hugo De Stoop, CEO

That question is extremely refreshing, Chris. Thank you very much for asking. At Euronav, we—well, first of all, we continue to operate the business. I'm very, very thankful for the remark made in the first question that when you look at the performance, we didn't forget to manage the business. As a matter of fact, we have split a little bit the management team, and some people are entirely focused on the business because that's what matters. We want to continue to deliver as good results as we can. Yes, we believe in consolidation. Absolutely. We believe in growth. Absolutely. We do believe that going forward, the market deserves to be consolidated, and it can be consolidated. There are a number of advantages to consolidate the market. To a certain extent, we've been successful there—not only because of what we have done in the past but also more recently because the pool has grown in numbers. It is probably something you guys do not monitor in much detail; when you look at the evolution of the pool, we have had many owners with many vessels, and those same owners have the capacity to add even more vessels. So there is definitely a mandate for the pool to go out and get those fleets or even ships outside to put them into a pool because we believe that is fundamental for the business. As far as Euronav is concerned, we will continue to believe that bigger is better. We do believe there are economies here. We can service our clients, who themselves are becoming bigger and bigger, better if one day you can have a one-stop shop for your transportation needs, which would be best, and that's a bit what we're trying to do together with the pool, continuing to be a big member there. So yes, in short, if you were to ask the management of this company and the current board; let's not forget the board is setting the strategy together with management. The ideas continue to grow, to find alternatives. If you cannot marry this beautiful lady, let's find someone else and make a happy family.

Chris Wetherbee, Analyst

Thanks for your perspective.

Operator, Operator

The next question is a follow-up from Thijs Berkelder from ABN AMRO.

Thijs Berkelder, Analyst

Yes, coming back—maybe a repeat—but I also want to thank you for the great execution in Q4, of course. And it really is busy; you cannot distribute more dividends right now. Coming back on your statements on the arbitration from Euronav's perspective, I would say the main focus is on getting the assets within Frontline frozen for you? Or is the main focus on getting frozen on your dividend payments? Or is it basically a combination of the two?

Hugo De Stoop, CEO

It's a combination of many things, to be honest. That's why we cannot here on this call, in a public platform, say much more about it. I apologize for it because I wish I could answer. We need to be a little bit patient. It seems that some people are looking at this like Netflix; from time to time, you need to wait until the next step is all produced to be able to watch it.

Thijs Berkelder, Analyst

Now fully agree, but you started to mention the merge, etc. The only cases where I know that the husband and wife come back together again when they find out that a baby was created—so then the next question is: has a baby already been created? But probably not.

Hugo De Stoop, CEO

I don't know what you mean by that, and let’s stop short with that analysis. Otherwise, people would get lost in translation. I was trying to use a simple example. I understand it may not have been such a good idea.

Thijs Berkelder, Analyst

Okay, thank you.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Hugo De Stoop for any closing remarks.

Hugo De Stoop, CEO

Well, I just wanted to thank everyone for attending our earnings call. Yes, hopefully, we will speak soon together, and certainly, the next few days will be important. So stay tuned. Thank you very much.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.