CMB.TECH NV Ordinary Shares

Good morning and welcome to the Euronav second quarter 2021 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw from the question queue, please press star then two. We ask that you limit yourself to one question and one follow-up. Please note that this event is being recorded. I would now like to turn the conference over to Brian Gallagher, Head of Investor Relations. Please go ahead.

Thank you. Good morning and afternoon to everyone, and thanks for joining Euronav's Q2 2021 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, 3rd April to August 2021, 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 companies with the SEC, which are available free of charge on SEC's website at www.sec.gov and our own company's website at www.uranav.com. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement and the company undertakes no obligation to publicly update or revise any forward-looking statements. Actual results may differ materially from those forward-looking statements. Please take a moment to read our State Partner Statements on page 2 of the slide presentation. I will now pass over to Chief Executive Hugo Destuc to start with the agenda slide on slide 3.

Hugo. Thank you, Brian. Welcome to our call today. As usual, I will firstly run through the Q2 highlights and some comments on our current capital allocation strategy. This is to simultaneously rejuvenate our fleet and earnings potential, but also investing in the latest technology to enable Euronav to be at the forefront of decarbonization of the tanker sector. Lever, our CFO, will then run through a snapshot of our financing before Brian, our Head of Investor Relations, will then look at the current themes in the tanker market before I return again to discuss in more details our investment strategy and outlook for the tanker sector. So, turning to slide 4 and the highlight page. We said in early May that the first quarter was the toughest freight markets we had had in recent years. I'm afraid to admit that factually, Q2 has proven equally, if not more, challenging. As anticipated, recovery in freight rates did not materialize. Put simply, during Q2, there was too much tonnage, chasing too few available cargoes. The members of OPEC Plus have increased this has not been enough to gain traction in terms of reducing the oversupply of tonnage in the VLCC but also in the Suezmax spot market. The result has seen a Q2 delivering freight rates to levels not seen in the last decades. Euronav will nevertheless distribute a $0.03 dividend per share to reward patient shareholders. Despite these current headwinds, there are some positive signals. Both onshore inventory and offshore levels have been drawn back to pre-COVID levels. OPEC Plus has signaled output rises of 2 million barrels per day between now and the end of the year. Finally, the high scrap steel prices have translated into some reciting in the last three months, especially in the VLCC segment, where five VLCCs were demolished. and recycle, but also in the spheres max segment, where three spheres max exited the world field. With that, I will pass over to our CFO, Lieve Lager, to walk through the financial highlights. Lieve, over to you.

Thank you, Hugo. It has been a challenging quarter as your comments highlighted. Euronet's focus is to maintain our capital strength, which we illustrate on slide 5. Looking back over the previous cycle on slide five, our leverage has remained below our stated objective of 50% with our liquidity building during stronger freight markets in 2020. Our investment in new technology, which Hugo will cover later, has increased leverage and reduced liquidity, but well within our self-imposed limits. Liquidity is now just over $900 million, with our dry docking program 60% complete at the halfway point of the year. I will now pass on to Brian, our Head of Investor Relations, to run through some market slides.

Thank you, Leva. We spent some time on the last call going through the impact of the illicit trade that we identified, in particular from Iran. Exports, as you can see from slide six, looks to continue to rise throughout Q2. These are cargoes, remember, which are not available to the global commercial fleet. This continues to be a drag on the wider recovery and the tanker market in our view. Moving on to slide seven, we look more detailed, look at recycling. What is pleasing to report, that the VLCC with cycling has actually begun to start in earnest, and we've seen 12 VLCCs exiting over 12 months to the end of July, but only four Suezmats have also exited over this same period. This is behind where the annual analyst forecasts were expecting this number to be, and this is surprising given the very high steel prices we've had throughout 2020-21. What is very clear in older tonnage, which is being resold into the second-hand market rather than being recycled, With some encouraging data points in our market then, why has the freight pricing background remained so challenging? We try to give some more insight on this in slide eight. Slide eight selects three key markets for the VLCC and series max sector. Firstly, the core five OPEC nations based in the Middle East. Secondly, the U.S. shale sector. And lastly, Russia. If we look at these individually, we can see the production on the left-hand side of the slide you see on slide eight has looked pretty good, only since Spain rises in production since February. However, if we look to the right-hand side of the slide on slide eight, the picture is far more mixed. Exports as a percentage of production have continued to fall with exports in a range of between 18 and 90 million barrels per day. Traction in freight rates can only really gain once we see exports follow the same trajectory as production growth. This helps explain the short-term picture, but there are robust grounds for optimism beyond that, in that we would expect the export pattern to eventually follow that of the production increases that we've seen. On this encouraging theme, we look further in more detail on slide nine. After some initial wrangling, OPEC Plus in early July outlined plans to steadily increase production by 2 million barrels per day overall between August of this year and the end of 2021. As the previous slide indicated, production rises do not always translate into barrel-for-barrel increases in exports, but with global onshore inventory levels back at below five-year level averages, then this production should start to translate into higher levels of cargoes available. Indeed, the ratio of available VOCC to available cargoes peaked in early June, according to Bloomberg data, and has fallen since. Looking further out, beyond the end of this year and into the medium term, 6 million barrels per day of additional barrels, we do believe will be required from the four key production areas to get back to pre-COVID levels of output. Remember, 1 million barrels per day roughly translates on an annualised basis to demand for 30 BLCCs. Overall, this medium term picture provides plenty of scope for improvements and support for the tanker market over the coming quarters. Looking beyond that on slide 10, we look at 10 mile growth, which is forecast by Clarkson's and most agencies to rebound further in 2021. And then again in 2022, as emerging market nations take up the baton of demand and consumption recovery, slide 10 shows. The tanker market has already adjusted itself by reducing capacity by slowing the speed that vessels are transporting cargoes at, partly as bunker costs have also risen, but also due to the lack of cargoes. Should this discipline be maintained and tonne mile growth materialise along this pattern in slide 10, then perhaps consumption growth of 100 million barrels per day that we last saw in Q4 of 2019 will not be required to return the tanker market to equilibrium. Tanker speeds and freight rates have a very strong correlation of 62% since 2016, so if we were to see the fleet speed up and increase capacity, it would be in response to a higher level of cargoes. With that, I will now pass it back to Chief Executive Hugo de Stoep to highlight our recent investments for the future and our outlook for the coming few quarters. Hugo, back over to you.

Thanks, Ryan. Banker shipping markets are volatile, cyclical and normally seasonal. 2020 was an extraordinary year from many different angles and 2021 has so far and unfortunately met our expectations in terms of poor rate environment. The Euronet platform has been designed to cope with all kinds of markets and our capital allocation approach is dynamic and moves in tune with the cyclicality of our markets. We believe that we need to have a strong balance sheet and a decent amount of liquidity that provide both strength, but also, and maybe more importantly, optionality during the difficult times of the cycle. Such balance sheet is often built during the good times, but looking back over the past 18 months, we've been active in all facets of our capital allocation as slide nine illustrates. Cash dividends has been strong during the upper part of the cycle with nearly 350 million returned to our shareholders. and nearly $120 million returned via share buybacks. This is the most progressive return amongst our peer group on a comparable per capita basis. Yet, over the same period of time, the balance sheet has retained its strength with leverage below target thresholds and a third of our funding no sustainability linked. The past two quarters, we've been active in securing future investments to ensure the age of our field is reduced, with more modern, less consuming assets, which will therefore improve the earning potential. In addition, those assets provide a degree of flexibility when it comes to future propulsion and fuel technologies. But you may wonder why now and why ammonia and or LNG. So let's move to slide 12. We are first and foremost a service provider, and we will always look at what our clients want. Without any addition, those ships are already the most economical tankers produced or ever produced, but they are also ready to be converted into either LNG or soon into ammonia-fueled vessels. LNG reduces already a lot the CO2 emissions and is a technology that's available now, but it's still expensive, so we need customer support to justify this investment. Ammonia is not ready, but yards, engine manufacturers, classification societies are working hard to develop this technology, which should be ready by 2025 for both new buildings and retrofits. Slide 11 shows that ammonia from tank to propeller will reduce emissions between 93% and 100% compared to today's bunker fuel, and therefore this is a technology we believe will be one of the winning fuels in the future. Being involved in the development of those technologies, which is unusual for a ship owner should provide Euronav with a competitive technical, but also strategic advantage. And we're not putting all of our eggs into one fuel basket. We don't believe there will be one outright winner, but we will remain flexible going forward. And these ships allows us to remain flexible. Turning to slide 13. So why invest now at this stage of the cycle? Historically, Euronav invested on a counter-cyclical basis, most obviously in 2014-2017, when we undertook transactions to expand our platform by 50% in terms of vessel count. Those times when freight rates were at loss-making levels and consensus outlook was very challenging for the upcoming quarters. Over the past year or so, we have taken delivery of four new EcoVLCCs and taken over contracts or filled abandoned slots or even older, before the three Eco VLCCs and five series max due to delivery now over the next two and a half years. So with the latest technology and the capability to add either LNG dual fuel or ammonia provided all piece of the ammonia puzzle fall into the right place. This is why we've signed a joint development program. This GDP as we call it, have been signed with our technical partners in Hyundai for the next three years. And this should assist the development of the technology itself, ammonia dual fuel vessels, and all should be achieved within the capacity of our balance sheet. Leverage remaining below our threshold, target of 50%, and supported by the actual all-forward sale of over 10 older ships in the past 18 months, recycling 150 million capital back into the latest technology. Why now? Firstly, the slide on screen attempts to show the crowded landscape we viewed as operators. Yard capacity to construct large tankers such as VLCC or Suezmax is now largely constrained until around late 2024 or beginning 2025. given the surge in container and dry bulk orders over the past six months, but also LNG carriers. Secondly, operational regulation will start to bite from 2023 with the EXI and carbon intensity regulations making all the tonnage obsolete or far less preferred as they will hit the bottom 20% of emission league tables. Also, the recent EU carbon trading scheme will add further pressure to reduce emissions, and reward those with lower emitting fleet. Lastly, commercial pressure we believe are already starting to grow as banks, investors, and other stakeholders are increasingly vocal and determined to see the urbanization and emission reduction strategy reflected in affirmative action being taken by ship owners. Euronav is comfortable in the position we have taken so far, and I'm sure there will be additional questions in the Q&A shortly. So let's now move on to slide 14, which is the final slide. This is the usual traffic light system that we have had for a number of years. As we said in our press release today, Q2 has been a static quarter following a depressed Q1. The immediate part of the cycle remains challenging and likely to stay so until we either see a crude oil demand recovery or a sharper reduction of the feed, which would require a decent amount of ships to be recycled. Nevertheless, the demand for oil should improve seasonally. On average, demand increases by 1.7 million barrels between the summer and the winter of the northern hemisphere. So, as Brian said, the seasonal raise of demand coupled with reduced speed of the world could already move the rates up by the end of the year or beginning of next. On the supply side, you will have noticed that we have downgraded the vessel supply column as recycling has simply not occurred on a level we would have expected given other supporting factors. The other factors remain unchanged. That concludes our remarks. Thank you for your attention, and I'm now pleased to pass it back to the operator for a Q&A session. Thank you.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw from the question queue, please press star then 2. We ask that you limit yourself to one question and one follow-up. The first question is from John Chappell of Evercore. Please go ahead.

Thank you. Good afternoon.

Hi, John.

First question for you. I think the timing of the next evolution that you laid out makes a ton of sense. And as it relates to a source of funds, you know, it feels like there's been a disconnect between second-hand asset values. The leases are quoted. Maybe there's just not a lot of activity. and underlying rates and share prices. I know you've recycled, sold, disposed of a fair amount of your older fleet, but you still have a handful that are over 10 years old. Are there any more plans to use this kind of recycling, so to speak, of selling older ships into a strong underlying S&P market to fund some more of your next stage of evolution fleet growth?

Well, let me first say that we don't need to do that, so it's not an obligation. But you're absolutely right that when we see the evolution of the values compared to the freight market or compared to a share price, there is clearly a disconnect and one should definitely take the opportunity if those opportunities exist because the market is very thin. So the volume of vessels that are being exchanged, certainly in the categories that you mentioned, which is 10 years old, is very thin. There's been a lot of exchange vessels in the very old categories, i.e. 18, 19, 20 years. Unfortunately, we know why and where those vessels have gone, and mostly that is for the illicit trade, which is at the heart of the problem that we have. And then on the new building or resale of contract front, there's been also a fair amount of exchange. But in the sort of middle-age 10 years, the volume is rather thin. Nevertheless, we're looking at every opportunity that we can find in the market. And on the Suezmax side, we do have some ladies that are hitting sweet spots where there could be interest being developed by ownership owners.

Okay, great. Thank you. And, Brian, my follow-up for you, page 8 is really interesting. And I'm just wondering, you know, those three regions you've highlighted here, the U.S. inventories are not going up. I'm assuming that a lot of the Middle Eastern countries, Saudi especially, are using some of their increased output for direct cooling generation during their summer months. And I guess Russia is probably not maybe as transparent as some of the other Western countries. Do you feel like as this outfit continues to rise, either there's going to be a seasonal component of the Middle East exits this summer or something related to U.S. exports where there's going to be this relief valve where the production automatically turns into export and tanker demand and even with potential catch-up after lagging a little bit through the last few months?

Yes, I think that's a very good point, Jonathan, and I certainly would echo those commentary. I think that's what we've seen with the the Middle East, and we could deliberately pick those five Middle East exporters as the core drivers, and they've definitely been using that increased production for their own, as you say, domestic uses. But I think there's definitely something like Penta or Snap within the system that we would anticipate coming through at some point. Obviously, with the sort of data for today from the IEA suggesting that July has sort of moved backwards in terms of demand, that it's going to be a little bit further out. But yes, that's definitely there. the theme we wanted to get across, because I think there has been a disconnect from investors engagement we've had that we've all seen the production numbers, but it's not been translated into increased cargoes. And I think you're absolutely right that there will be a snapback at some point. Of course, when that will happen, we would like to think we'll be sticking half of this year into maybe into Q4. But, yeah, I think you've explained it better than I can with the charts, just to illustrate that. that background that we think will change at some point. And of course, it is encouraging to have OPEC plus at least committing to have regular increases in those production numbers between now and the year end.

Okay. Thank you, Brian. Thanks, Peter.

The next question is from Chris Weatherby of Citigroup. Please go ahead.

Yeah, thanks. Thanks for taking the question. sort of the new emissions and propulsion systems and fuels as you think forward here. Where do yards stand in terms of preferences if they have one, and if you could talk a little bit about what you think the return profiles of these vessels might look like relative to traditional fuel vessels?

That's a very good question. It's probably too early to tell. I mean, the vessels that we have booked right now have the capability of being converted into vessels that can burn LNG and ammonia until we sort of decide that they should be converted. And that could be before there are specific deliveries. They will be deemed as conventional vessels, and so the return should be fairly the same. the amount of money that you have to invest in order to have that flexibility is relatively conservative. We're talking about a million, million and a half, which anyway, compared to what we dare to call zero-net specs, I mean, part of it would have been spent anyway. What do we do exactly there? First and foremost, we're talking about reinforcement of the deck, where the potential tankers that will hold either the LNG or the ammonia and its different weight for those specific tanks will be located. The second part that we're looking at is the piping system so that whenever we would decide to put those tanks on the deck, the piping system would already be there so that we don't have to open the ship like a camp. leading to the engine room and then of course in parallel there is quite a lot of development on the engine themselves and you may have noticed on my introductory remarks that in fact the yards but more specifically the engine manufacturers be it MAN or be it Watsila are looking at development of new engines as well as retrofits and both technologies should be ready at approximately the same time so If you have an engine today and it has the sort of minimum features to be converted, the conversion will be possible at a later stage. The amount of capital that you will need to spend in order to do those conversions is still unknown. Of course, we know what it costs to do that on an energy vessel, and there are a lot of similarities. So it should be between 10 and 15 million at the beginning, and I think that we would only do that if we had a contract. And the reason why we believe that being an early adopter will provide a competitive advantage is because we have a feeling that there will be a race between At some point, but certainly as of 2023, to reduce the emissions for our clients. So as I mentioned earlier in the call, we are customer driven. So whatever the customer wants, we should be able to produce. And that's exactly what we anticipate will happen on those vessels or the next generation.

Okay, that's very helpful. I appreciate that color. And then just as a follow-up, I wanted to come back to scrapping for a moment, that sort of slide, that's the downgrade on the red light, you know, green light, yellow light slide that you have here. So I guess I'm curious, what's embedded in your expectations for the back half of the year in terms of scrapping and then, you know, deep potentially change to either hit those numbers or maybe see an acceleration in scrapping, looking to get people off the bench and do it.

I wish I had a crystal ball or I wish someone would listen to my prayers. I think that we are all surprised that more than 50 ships basically which should have been scrapped are still trading and we have explained in the last call, so I'm not going to repeat what we said in the last call, that pretty much all of them have been identified in those illicit trades. The way they circumvent the rules is quite astonishing, but it is what it is, and I don't think that at Eurona we can do anything about it. The way we look at the second half is the following. We believe that there is a certain capacity that can do these trades, and we are probably at the limit, so we don't see another 50 shifts of that same age profile going into those freight because they are not, they won't be necessary to transport the Iranian or the Venezuelan crude oil. So we think that we are almost at the end of that capacity and therefore any ship that is facing a dry dock, any ship that is not earning simply because they are put at the back of the queue and the owner decides, should decide what to do with their ship it's likely to go to the scrapyard. So the second half will be a mix of sort of a natural scrap profile that we have predicted and should have happened already, but we're not talking about the same ships. We're talking about new ships arriving to the same age profile. And then, of course, if there is a change in the Iranian sanctions imposed by the U.S., that should open the floodgate for ships to be recycled. And there we would be... we would be surprised if we wouldn't see a number of the ships that are today trading not rushing into those recycling yards because the capacity there is constrained. And so we believe that owners would be very, very quick to snap the opportunity at the current scrap price, which are the highest that we have seen in more than 15 years.

That's great, Keller. I appreciate it. Thanks for your time.

Thank you.

The next question is from Magnus Fehr of H.C. Wainwright.

Please go ahead. Yeah, good afternoon. Just had a question on the fleet and how you feel about the fleet going forward as far as being fuel compliant. You mentioned that you need support to develop fuel compliant vessels. You have taken steps now to invest in the new generation vessels. How do you balance that? you know, being too early and, you know, holding on to some of these older vessels that are likely to be big cash generators if we get an up cycle here in the next two, three years. Because I think we're probably likely to have another down cycle before 2030. So just curious, how do you, you know, balance that investment in the new ships to meet these goals and also not giving up the cash generation capability of the older ships?

Yeah. When you look at what we've sold, I think that this was not a surprise to the market. I mean, we're talking about forward sailing in the form of sailing leased back with no purchase obligation on some vessels. And they will be re-delivered to their owners when they reach 15 years of age. And when you look at the way Euronav positions itself as a quality operator, the ships that are more than 15 years of age, regardless of their emissions, have always been trading in a different segment with different clients. And so that's not where we're positioning ourselves. So generally speaking, between 15 and 17 and a half, which is between two surveys, we're looking at selling the vessels. And as I said at the beginning, from time to time, we forward sale vessels because we believe there is a good opportunity to do that. As far as the new buildings are concerned, it was a mixed bag of opportunistic acquisition. You know that we have taken contracts that were abandoned by some owners who couldn't fulfill their obligations. The same for some slots. And then as we were busy contemplating the landscape, we thought that the fact that there are very, very few slots available until end of 2024, beginning of 2025, and that we are more likely to see a continuous demand from containers, LNG, dry bulkers, meant that it was a little bit more opportunistic. And then we add this layer of flexibility on the new technologies so that we could convert them. So I guess what you have to look at is, regardless of the emissions, what we have done should not be a surprise to many people, maybe with the exception that Euronav is not It did not build a reputation for being busy at the yard, but we also need to be realistic and flexible in that approach. And then when you look only or purely at the emissions, we are recycling all the tonnage against new tonnage, which is anyway outperforming from an emission and therefore consumption perspective. So earning potential on a normal market or on a market that is influenced by emissions is secured. with the capability of doing even more on the emission front. Okay, thank you. We will continue to do that. And when you speak about another dip before 2030, yes, the market is cyclical. And I guess that we have always had to balance what do we get rich when the values are very high versus what we retain. And so I don't think that this philosophy should change and it will be the same going forward.

All right, thank you. And my follow-up is, you know, so, you know, you've invested quite a bit here in the last, you know, two years in new vessels. Do you feel like over the next two, three years, you need more support from the charters or the auto companies to build new vessels that comply with the new regulations? Or would you continue to do opportunistic purchases?

I think that everything we do need to be either strategic or opportunistic. I think that we have done what I would say is strategic in the sense that it's fleet rejuvenation for the reason that I just explained. I mean, it just makes a lot of sense, especially from a value perspective, but also, as we said, I mean, a modern vessel would consume 30 or 35 percent less than an 11, 12 years old vessel. If we do have support from our customers, we will always be there to render the service. And we have mentioned that in previous calls. We're not at all against energy. We just believe that it's a technology that might be a little bit more risky given the amount of money that you have to invest from without having a contract. We participate to various standards organized by Shell and Total. We felt that the return were not big enough for us to to cover this premium that we had to pay for the technology. There was also a lot of technical details that maybe you guys are not aware of, but the vessels ordered by Total compared to the ones ordered by Shell, it's a different energy technology. It's low pressure versus high pressure. It has its pros and cons. So now the market has stabilized. The price of the new building is going up, but the price of the premium on technology is going down. So let's see what the customers need. But from what I read in the press or even in the specialist press, it seems that a lot of the oil majors, a lot of our customers are busy scratching their head on how to meet those lower emission requirements. So, you know, they can always come to us or come to the market and we will always be there to analyze whether it's worth building a specific ship for what they want. or whether we prefer to pass and continue being independent.

Great. Thank you. Here you go. Thank you, Magnus.

The next question is from Randy Givens of Jefferies. Please go ahead.

Howdy, everyone. How's it going? Hey, Randy. How are you? Good. So I guess looking at your fleet and chartering strategies, You have a handful of vessels on relatively medium to long-term charters, but a pretty small amount, right, relative to the size of your fleet. So what are your thoughts or plans for chartering out tonnage? And if the rates are still too low, any appetite to charter in tonnage today?

It's a question we must ask ourselves on a daily basis. But let me start with this. I would say with the beginning. So when you are in a high-rate environment, like we were in 2020, you have the choice of enjoying, say, $100,000 a day versus chartering out at $60,000 a day. So you must make the decision of do I forego earnings today in order to protect And you will remember that you can only protect six months or maximum one year going forward. Or do I indeed remain on the stock market? And you know that it's going to be cyclical and you know that it's going to be super rich at the high point and quite painful in the low point. And I guess that we have looked at many opportunities. We have taken a handful of charters. You're absolutely correct. Most of them have been re-delivered. They were between six and nine months contract. And so today, we are left with only one year CC TCR and then five or six years max TCR. Right now, the rates for TC are just too low. So they just guarantee you to make a loss. And most of the time, the charters will ask for one or two years option. So you're at the level that is better than the spot rate. That sounds difficult. but it's still not profitable. And on top of that, you're giving away a lot of optionality. So we don't feel it is the right time now to do more on the TC front. As far as time charter in is concerned, we have taken two Suezmax. I believe it was, what, four or five months ago. We are looking into the market, but it's true that what people ask is different than what we want. And for some reason, we're not like the big traders who can insist on optionality. It seems that when an owner TC out his vessels to another owner, the conditions that he can accept are very different than when he charges out to a real client or to a real end user. And that's maybe because there is a relationship behind it or maybe because there are multiple TC in the portfolio that they are negotiating. So at the moment, quite frankly, there is not many opportunities on one side or the other, ITC or TCOs, but we continue to watch the market very carefully.

Got it. All right, sir. And then I guess the last question for me, is it fair to assume the dividends will remain at around $0.03 a share, even with negative earnings for sure in 3Q and possibly 4Q, or will the primary return of capital... be share repurchases eventually.

Well, we have dedicated a slide on that and obviously we've done dividends, we've done share buyback, we've done further capital investments and that's capital allocation. I think that it's part of the strategy and I explained that in the preliminary remark that every part of the cycle but also every thought that management has on the future will have an influence on what we do. You know, we have a track record of what we've been listing in 2005, so 17 years, as far as Euronext is concerned, six years as far as New York is concerned, and I think people can see for themselves what we've done with the capital. You know, I prefer to, for instance, buy back my shares, 118 million worth of shares last year than just doing that right now. Why? Because once you've bought back the shares, then there's more dividends for the remaining shares. So I think that the order in which we did it was good. If you ask me, if you ask us, maybe we should have done a little bit more share buyback last year and a little bit less dividends. because then it would have been even better for the current shareholders. But I guess that tax allocation is what it is, and I think that you have to entrust management to do the best they can with the capital.

Got it. Understood. And the $0.03 dividend, is that a new minimum, or how do you think about that? Is that a quarterly, go quarter by quarter?

Yeah, it's not a new minimum. So we had six – sorry, we always have one, always. For six or seven years, we've had $0.12 per year. We were able to distribute dividends, and now we are able to distribute full dividends. So it's the same policy, and going forward, we believe that it's a very small amount of money, and we will try to maintain for as long as we can.

Got it. Yeah. And it was $0.06 semi-annual for a while there, and then you went quarterly. All right. Well, thanks so much. You're welcome.

The next question is from Omar Natta of Clarkson. Please go ahead.

Thank you. Hi, Hugo. Just wanted to follow up on Randy's. Yeah, hi. Just to follow up on Randy's question about the capital returns and whatnot. Obviously, you know, there have been real signs of a recovery. But as you mentioned, you know, the near term is a bit iffy and cloudy overall. I know last year you were a bit more aggressive with the share buybacks, taking advantage of a discounted stock price relative to NAB. And now here you've actually got NAB. That's probably a little bit more solidified just based off of market activity. So I just wanted to think, you know, as you think about this market here over the next three to six months, do you see yourself being more active, more aggressive on the buybacks? or maybe just taking a step back and focusing on either liquidity, bringing those dry docs forward, or thinking about the future. Any updated thoughts there?

Well, you know, I want to say I don't really have further comments. I think we are opportunistic, obviously. As I just mentioned, I mean, I prefer to do buyback last year versus this year, simply because everybody benefits already last year, but also this year on that and in the future. We don't really look at discount to NAV, even though we continue to be frustrated about where the share price is trading, because I don't believe that buyback is a good way to close the gap. It closes the gap when you are busy doing it. But in the long term, it usually doesn't close the gap, and we've seen that. I mean, even spending 120 million, yes, we had a much lower discount to NAV when we were doing the program, and the minute we stopped it, we found ourselves getting the same discount or even bigger discount. So I think that you're buying back your shares for the long term, not for a discount to NAV, which is fluctuating according to the values of the investors, etc., And the long term means that there are more dividends, more earnings per share for the shareholders that continue to be shareholders of the company. You know, going forward, I cannot tell you anything else than what I just mentioned. We will continue to watch what we can do with the capital we are generating. It's true that we've been very busy. We've been very busy distributing dividends, buying back, investing in quite a decent amount of money. I mean, we're almost talking about a billion, of course. A lot of that will be levered, but nevertheless, almost a billion investment for the next two and a half years. So it's not insignificant. And we are happy about the three ways we have spent the capital for shareholders, as we believe they will create a lot of shareholder value at the time of doing that or in the future.

Thanks, Igor. That's clear. I just wanted to get maybe just a little bit more emphasis on that. And maybe just as a follow-up, either for you, Hugo, or for Brian, as you mentioned, the spot market has kind of really settled into a bit of a malaise here recently. And you mentioned the Middle East having some higher cargo counts that have since kind of eased. So I just wanted to get a sense on sort of export cargos from what you're seeing on the Atlantic side, whether it's from the U.S. or West Africa. Any color you can give in relation to how that VLCC market has developed here over the past three months? in comparison to the Middle East.

Brian, do you want to go ahead with that?

No, absolutely, yeah. I mean, Omar, it is a good question. We're seeing a little bit more increase than we've seen in terms of U.S. imports, which is offset, as Jonathan Chappelle said earlier, with regard to some of the volatility we've seen in some of the U.S. exports that tended to sort of net off against each other. And I did mention in the remarks that the excess level of ships in the Middle East, which is still, what, 40%, 45% of the marketplace of VLCCs, has actually very, very slightly improved in terms of that excess capacity. But it's still very much on a fitful basis. I think, you know, what we've seen from the IEA today is very reflective of the market over the last three months in that, as they say, you know, June had a nice surge in demand, an increase in the amount of available supply and therefore cargoes. And then July has reversed that with obviously some of the Delta variants we've seen and the restrictions that have come through there. So I think in a nutshell, yes, we're seeing pockets of this growth, but it's not being sort of followed through and sustained. And unfortunately, that's been the holding pattern we've been in now for a while. And we're going to have to, I think, continue to adjust to that. Like you say, it is a malaise and it looks like it's going to probably persist for, at least the rest of this quarter. But, yeah, pockets of growth. I think U.S. imports have shown some encouraging signs, both from the Middle East and from West Africa. But, again, then it's been offset elsewhere. So we do need, as you said earlier, we need the aid to be sustainable and also to be more uniform across the various trading patterns.

Yeah, thanks, Brian. Yeah, it seems fits and starts. Okay, I appreciate the caller. I'll let Turner over. Thanks.

The next question is from Chris Sung of Weber Research and Advisory. Please go ahead.

Good afternoon, Hugo. How are you? Very well, and you? Good, thanks. I just wanted to ask about the optional third VLCC that you guys exercised back in July. How much was that for?

It was the same prize, as a matter of fact.

It was 93.4.

93.4 million.

Okay, so that coupled with the three COS maxes, five total, leads to about a new building program of almost $600 million with $900 million of current liquidity. Just wanted to get a sense of timing around the cash flow. When will you guys have to pay for the vessels on delivery and also... It sounded like earlier that they were all going to be financed by your balance sheet, but is there any consideration of taking on additional debt

So indeed, first of all, your first question, Chris, on the payment schedule. Indeed, most of the amounts are due to be paid at delivery. 50 to 60% is due to be paid on delivery. And then in terms of financing, indeed, we are looking there to finance and find a good momentum in the market. So for the first ones now coming on the water, Q1 2022. This is currently work in progress and then the next will follow in 2022 to be delivered in 2023 and 2024.

And usually the financing ratio is 65% but when you're talking about new buildings easier to get 65% we're also looking at ECA type of financing which one more time are available for new buildings and not necessarily for second-hand purchases in the market. So that's maybe not an advantage.

Great, great. And maybe just for my follow-up, just turning back to slide 10 that Brian covered with regards to oil staining and its impact on TANMO. I guess I wanted to understand, presumably there's like a floor, or I guess at what speeds would it make sense for the fleet to vault into this? Can you go down to like half of this, or are we near that level? Just trying to get a sense of how, you know, the tonnage can . Sure.

Well, Chris, I mean, the speeds are, they've only been measured by Clarksons, I think, since 2010 on a monthly basis. And these are the lowest speeds that we've seen since those records were begun. So, just to illustrate that we have seen the capacity response. But it's also just to shine a light on the fact that we do expect ton mile growth, as most observers and Clarksons do, for 21. And then we expect, again, all the agencies are suggesting that ton mile growth will then have another leg up during 22, which will be, as I said before, the bathroom being passed, really, with 21 and the early 22 recovery being more of an OECD situation with those countries with high vaccination rates and then hopefully giving way to longer ton miles. as the emerging markets come through. But just to try and draw a picture for investors that, you know, our crystal ball is as fuzzy as anyone else's at the moment. But I think there's a very big belief amongst investors that we need to get back to Q4 levels of consumption, Q4 2019, that is, before we can see any traction. And we're just trying to point out the fact that there are a lot of multiple factors impacting our marketplace. And these are two variables which would be very important when we start to see some traction coming in freight rates. So that's the reason for putting that there, that we do see a bit of a two-stage recovery in terms of the ton mile story, but also not to be too concerned if capacity is going to come back a little bit because the fleet will speed up. As I said before, since 2016, if you strip out some of the volatility of 2020, there's about a 62% correlation between speed and freight rates, and that meant perfect sense if you think about it, that we see the fleet speeding up in response to better freight rates. So it's just trying to paint that picture, to be aware that it isn't just a simple calculation that we need to get consumption up to a certain level. There are multiple factors involved in the tanker market, as always.

Okay, great. Thanks, Brian, for the color. Thanks for the time. That's it for me. I'll turn it over.

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

Well, just to say thank you very much to everybody to listen in the second quarter earnings call and look forward to talk to you next time with hopefully a little bit more positive news. Thank you. Bye-bye.

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