CMB.TECH NV Ordinary Shares

Hello, and welcome to the URNF Q1 2023 Earnings Conference Call. All participants will be on the Sonomi 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 your question, please press star, then two. Please note, today's event is being recorded. I would now like to turn the conference over to your host today, Brian Gallagher. Mr. Gallagher, please go ahead.

Thank you. Good morning and afternoon to everyone, and thanks for joining Euronav's Q1 2023 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, the 11th of May, 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 at www.sec.gov and on our own company's website at www.euronav.com. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and the company undertakes no obligation to publicly update or revise any forward-looking statements. Actual results may differ materially from these forward-looking statements. Please take a moment to read our safe harbour statement on page 2 of this slide presentation. I will now pass over the Chief Executive, Hugo de Stoop, to start with the content slide. On slide 3, Hugo, over to you.

Thank you, Brian, and good morning or afternoon to wherever you are, and welcome to our call. I will run through the Q1 highlights before passing on to Liv Log or CFO to give you the key financial figures. Brian Gallagher, our head of IR and research, will then run you through three key factors within the current tanker market trends before I return to summarize the outlook. Moving on to the next slide. It was a very good quarter for Euronav and one where the freight market was especially strong. What was unusual is that the market got stronger as the quarter developed, which is counter-seasonal drive compared to what we are used to see in the first quarter, where typically the market starts to abate as the spring is approaching. Indeed, the month of March brought the highest US max and second highest rates for VLCCs since 1990. This combined to drive Suezmax rates higher than VLCC rates underpinned by strong demand from China and better ton miles across the tanker spectrum. This situation has reserved somewhat in Q2 with rates softening now and VLCC rates superior to those in Suezmax, but averages rates in Q2 are highly elevated in both absolute terms and for the time of the year when we would have expected seasonality to pull rates downwards much earlier. With a new supervisory board shortly in place and looking at both the strong company balance sheet and visibility on positive medium-term fundamentals, a higher return to shareholders payers has been proposed, which will see Euronav investors benefiting from a final dividend for the full year 2022 of $1.1 and a Q1 dividend of $0.70. Both payables in Q2, which means that a total of $1.8 per share will be distributed to our shareholders in the coming weeks. I will now pass over to Lieve to run you through the financials. Lieve, over to you.

Thanks, Hugo. Taking Hugo's point further, the Euronav capital base is very strong with over $900 million in cash liquidity. Leverage falling again in Q1 to just below 43% and robust cash generation coming from our fleet and benefiting from the repositioning we have executed in the past two years. We have again taken advantage of higher values for older tonnage and retained capacity for more should we decide to do so. With that, I will now pass it back to you, Brian, to give some thoughts on the current market cycle.

Thank you, Liva. The order book has gained ample attention amongst investors in recent months. One of the key visible points of reference the tanker sector has is the very, very low level, historically, the order book currently sits at. This is shown on the left-hand side of slide nine. This is below even a replacement level of 5%, assuming uniform build and a tanker life of 20 years. However, there has been some signs of life and some overdue contracting of new crew tankers, mainly in the smaller segments, but including series max in recent months. This was to be expected given the strong fundamentals and the fact that practically no vessels have been ordered since Q3 2021. The right hand chart on slide 9 might look dramatic, but remember we are looking at around 10 unconfirmed orders of Suezmax on a base of over 1500 Suezmax and VLCC units globally. There is also further context that is required and we give this in slide 10 with two further points to make. On slide 10, you can see that firstly, Suezmax price inflation has not been as rapid as that we have seen in the VLCC sector. Hence, on a relative basis, there still is attraction from the Suezmax space. With regulatory change coming in, but adoption of new fuels slower than expected, owners are likely looking at vessels to have a longer use for life. Secondly, let's also remember who is ordering these ships. There are no speculative orders in the order book. The mix is a sensible one of public owners like Euronav, respected longer-term private and scale owners, largely in the Greek arena, and also national owners who are investing on a strategic basis. It was unusual to see such a dearth of orders from Q3 2021, but even with this recent uptick, if it is fulfilled, these vessels will not hit the water until another 24 to 36 months. So now turning to the demand side of the equation on slide 11. On slide 11, you can see that China has reopened and Euron have assumed barrels purchased for economic recovery and for stockpiling over the last six months. It remains volatile with a record month for March, followed by a more fallow April. However, the trajectory of recovery looks well established, and also some of this growth is being fed by Atlantic barrels. It is interesting to see the number of VLCC cargoes leaving the U.S. Gulf Coast has continued to grow even after the strategic petroleum reserve barrels were all moved earlier in 2022. With that, we retain our very, very positive medium-term view on the sector, and I'll now pass over to Chief Executive Hugo de Stoop to give some more medium-term thoughts on the cycle and the current traffic light outlook. Hugo, over to you.

Thanks, Brian. Very good topics. Summing up, then, the fundamentals are supportive, but short-term, some headwinds are emerging. New bill costs and incoming regulations are capping supply despite recent contracting. The global fleet age gives some encouragement that either vessels will exit the mainstream fleet via recycling or exit via the shadow or dark fleet. After five consecutive quarters upgrading the sector on our five key drivers, we today downgrade our supply on the back of the OPEC cuts announced recently. Whilst we do not believe that all of these cuts will be enacted or even delivered, It provides a headwind at a seasonal point of the year when we would expect refinery maintenance programs and move into summer months to reduce demand in any case. That has happened and impacted freight rates in the very short term, but the fundamentals continue to remain supportive and freight rates remain profitable. Our business is in very solid shape, supported by strong finance, organic growth from our own order book of vessels, due to be delivered and a strong shareholder focus to return the cash generated from our platform as quickly as possible. With that, I will hand it back to the operator.

Yes, thank you. At this time, we will begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you use your speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble the roster. And the first question comes from John Chappelle with Evercore ISI.

Thank you. Good afternoon. Hugo, if I could start with something that's not fundamental, just maybe clarification, the AGM next week. I think there's some confusion from some of my conversations that there's still a question around the board construct. Just to be clear, the board is all set per the meeting in March, correct? And then the second part of that is the agenda for the AGM, which you laid out in the press release, regarding the strategic direction. What do you anticipate to come from that, from the strategic direction of the company outside of the capital allocation?

Hi, John. Thank you very much for your question. Yes, it's a little bit confusing, maybe a little bit technical, too. The meeting that we had in March was a special general meeting of shareholders. So that's something that can be called for specific reasons, and we all know where it came from. And you saw some change to the board. The first change was that the two main shareholders appointed two each non-independent directors. And so the board went from five to seven, because at the same time, two of the then current independent directors were dismissed. Next week, we have our annual general meeting, of which the date is set in our article of association. So every year, it's around the same date. And that is usually when directors are appointed, reappointed, newly appointed, etc. And there is no proposal to dismiss anyone, obviously. So when you look a little bit more in detail, there is a proposal to appoint two new additional independents, against which two of the current independents are not asking to renew their mandate. So the board composition will continue to be seven members, of which you have four representing the two parties. well, non-independent, therefore representing the two core shareholders, and three independent, which is the minimum that the company needs to have as per the Articulate Association, but also as per Belgian corporate governance rule, et cetera, et cetera. And after that, I think that there is going to be a lot of stability, but also clarity, I think we need to go through this meeting before being able to answer the second part of your question. But you can already see that the company is doing very well. I think the performance is very good. I think that the return to shareholders, which is very important for all the shareholders and the analysts that are on this call, is unquestionable in the sense that we will continue to be very, very generous when the cash generation is such as it was in the first quarter and likely to be in the second quarter. And as you know, we believe that it's going to be a multi-year cycle, up cycle. So from that point of view, I think that everybody can be satisfied that that part, which is a very important part, follow its course and it's a continuation of what we have done in the past.

That's super helpful. I appreciate that, Tito. Just a quick follow-up, I think to Brian, probably. Hugo, you mentioned the downgrade on the traffic lights and on the OPEC production, which makes complete sense. But in your press release, you noted that, you know, most of the growth is coming from Asia, and therefore the substitution barrels from the Atlantic Basin, the ton-mile impact of that may offset. Any quantitative views on what the ton-mile impact from that substitution would have vis-à-vis the one million or so million barrels of cut on total ton-mile demand?

Hi John, it's Brian here. Yeah, it's always difficult because as we've been writing this, obviously there's been quite a dynamic background in terms of the OPEC announcements and obviously those are starting to sort of feed through months to date. It's hard to really pin a proper number down, but we think the impact of that million barrels will be 50% because the tonne miles will offset. The difficulty we have in giving sort of precise guidance on that is that a lot of the Middle East barrels are still being very, very difficult to ascertain exactly where they're moving from and where they're moving to. We've been surprised that, for instance, the Middle East has not been more aggressive or assertive in exporting to Europe to replace the Russian barrels. And the Russian barrels themselves continue to be not seeing any production cuts or export cuts. So, yeah, I would say to put a number on the number you've posed to us, sort of 50% of that will be driven, absorbed by 10 miles. But as you know, it's a very dynamic background and the next three or four months will give us a lot more clarity.

Yeah, absolutely. I appreciate that. Thank you, Brian. Thanks, Peter. Thank you.

Thank you. And the next question comes from Chris Weatherby, the Citi Group.

Hey, thanks. Good morning, guys. Maybe I was hoping to kind of see if you could elaborate a little bit on sort of the fleet plans, kind of as we start to see some of the board discussions and sort of ease and we can maybe be more focused strategically going forward. I guess any thoughts as you think about the fleet in terms of whether there's the opportunity for M&A, large-scale S&P activity, or if it's just going to continue to be sort of your typical pattern through the cycle of buying strategically and selling when you need to.

It's a good question. I think that clarity will probably come A little bit later, as I said, probably after the AGM, once the board is finally composed and is stable for the next couple of years. Having said that, if it was business as usual, I would say that we have done what we were supposed to do, i.e. waiting for the values to go up to sell the older part of the fleet. And remember, last year we sold nine vessels. In the first quarter, we're selling another one. In the second quarter, we are selling the VLCC that will replace the FSOC. So we certainly not stand still, standing still. I think on the new building opportunities, we've been very active in the last 18 months. I guess that at this point in time, we feel that VLCC values, new building, are too high. They've gone higher than the evolution has gone higher than on the SUSEMAX. On the Suez Wax, we may still find some opportunities. It's obviously a category of vessel that is built in many more yards than the VLCC, and hence you may find from time to time opportunities. We certainly scrutinize the market in looking at every single deal possible. It's also the part of the fleet that is a little bit older, and that's why we have been more active and we are probably likely to be more active for those two reasons, opportunities and also the fact that the fleet Average age is a little bit older than on the VOCC side. But as you know, this is a cyclical market, the values are cyclical, and we are slowly but surely reaching values where we don't believe that value, that it will be value creative. As far as M&A are concerned, I think it's fair to say that at the moment, we're not looking at any files specifically. I mean, we were obviously very busy last year, but unfortunately, We were not able to conclude. And going forward, I think that you need to be a little bit more patient, and I'm sure that we will be able to clarify sort of the longer-term strategy of the company in the coming weeks or months.

Okay. That's a helpful answer. I appreciate that. And I guess if I could go to the red light, green light chart and just think about the demand for oil specifically as you think about sort of the macro dynamics playing out here. No change there, which I think is understandable. Just wanted to get your sense of what you think the potential incremental changes that you might see. It seems like China maybe is sort of emerging a little bit from what has been a weaker period, but we do see some potential consumer-led headwinds in a couple of the more developed end markets like the U.S. and Europe. I'm kind of curious as you think about the demand dynamics that plays out for 2023.

Hi, Chris. It's Brian again. I think you've answered the question better than I can. I think what you've said there is very fair. I think it's a crucial swing factor. As a lot of the banks and in particular the agencies like the IEA and the EIA focused on, it is really all about China. I think we feel a little bit more comfortable and confident in the China story in that we believe that they started to buy and we've seen them buying for a strategic reserve criteria. And if the oil price remains the calm and low, as we've seen very actively in the last four or five years, the Chinese are the most aggressive and most assertive buyers on lower prices. So we feel that that's reasonably well underpinned, that it's both strategic and consumer recovery reasons that will underpin the Chinese side of things. What is uncertain is that a lot of the economic data is indicating that the Western world in particular is slowing in the consumption. Some of the recent data points in U.S. sort of diesel and refinery production are also quite concerning. That's where the focus is. I think we feel China is more robust than I think a lot of the other parts of the market are. So it will depend on the developed world, I think, rather than the developing.

Okay. That's helpful. I appreciate your time. Thank you. Thank you. Thank you.

And the next question comes from Omar Nata with Jefferies.

Thank you. Hey, guys. Good afternoon. Just wanted to ask about the market. You obviously referenced the near-term risks, and we've seen the BLCCs coming off here in the past couple of weeks fairly aggressively, although Suez maxes are moving in the opposite direction, getting stronger. I know it's short-term volatility, but just wanted to see from your perspective what's been driving that divergence here recently, and also you think that divergence can continue like we've seen for the past year plus as opposed to what we've seen in prior cycles?

I think there are two elements in your question. I would definitely agree that the fairly aggressive trend that we are seeing in the VLCC is part of the volatility of the market. We always try to look at the past and whenever we are on our way up in an upcycle, what we call multi-upcycle, you do have this kind of volatility. And it's certainly not with the experience that we have in the house that we are panicking and suddenly calling the market off. I think that we look at the fundamentals. We look at the general trends. And what we have seen so far this year, it leads us to believe that we continue to be correct in our assessment of the next couple of years. So nothing strange. I mean, from time to time you do have, you know, a concentration of the Chinese coming into the market and then the market will aggressively go up or exactly the opposite, suddenly they disappear. And I think that they are trying and very often successfully being very clever about it. As far as the difference between Serious Max and VLCC is concerned, well, obviously, the Russia-Ukraine conflict had an impact on those trades and continues to have an impact on the smaller size like we have rarely seen before. There has been a rebalance because you remember, we were in a place where Serious Max were earning a lot more than LR2 or Aframix were earning a lot more than than their bigger brother and sisters. So there is a rebalancing, but no doubt it's not a straight line either. So you do have a little bit of volatility, and I think that if you look at averages over a longer period of time, we believe that VLCC will earn more than the Suezmax, but the differential between the two segments that we have observed in the past may be narrowing. because of this specific situation created by Russia-Ukraine conflict.

Okay.

And I guess presumably does that play a part then in, as you mentioned earlier, the interest that you're seeing or that you're having in Suez Maxis? Or is it more purely just the age factor you were referencing?

No, it's more the age factor. I mean, you buy a vessel for 20 years and we don't believe that the current situation will last 20 years. We certainly hope that it will not. So, no, the major reason why we are more looking into the Suezmax is twofold. First, because we believe that the price we're seeing at the yards is still sort of affordable. I mean, it's getting very expensive, but it's not quite there yet. And secondly, as far as Euronav is concerned, our average age on the Suezmax fleet is a little bit older than the VLCC, so it makes sense to continue to renew that part of the fleet rather than the VLCC. And by the way, we continue to believe that those are the two segments where we want to be active.

Okay. Thanks, Hugo. And just one tiny follow-up, because I wanted to ask about the Suezmax interest, and I was going to ask if that was more focused on modern second-hand ships or new buildings. It sounds like you're looking at new buildings. What kind of delivery window are we looking at if we were to place something today?

So we saw one opportunity for delivery still in 25, but everything else that we are seeing at the moment is delivery in 26. We, for one or another reason, we decided to pass on the opportunity in 25, you know, not because of the delivery date, but more because of the specification of the ships and other factors. The markets, I mean, the shipyards that we are interested in have announced that they're fully booked until 26. And the only reason why you would potentially find one or two slots here and there in 25 is because an owner doesn't lift an option, probably in another segment, probably in another segment. And suddenly you have an opportunity that comes your way. And I think that companies like Euronav, and we're certainly not the only one there, but we have the ability to move very, very fast. So we can be shown a deal and take a decision in 48, 72 hours, whereas maybe in other type of companies, smaller shops or where the governance is a little bit more difficult, they're not able to pick up those opportunities because the decision process is too slow. I think that this is something that we absolutely want to retain. I'm 100% sure that we'll continue to retain with our two strong shareholders. They are entrepreneurs at heart, and they are able and have demonstrated that they can take decisions extremely quickly. So I'm very happy that this is the case because this is the best way to grab the opportunities that will arise out there. Great.

That sounds promising. Thanks, Hugo. I'll turn it over. Thank you.

Thank you. And the next question comes from Fred Amorgadio with Clarkson Securities.

Hi, guys. Hey, Fred. Yeah, I'd like to talk about the risk appetite. You know, there's been some large swings in the oil price recently. I see tanker equities jump up and down in much the same fashion, I guess, so Maybe you could give us an idea, you know, from your perspective, of course, how people in the physical shipping market, like the charters and the owners, how are they behaving right now in terms of sentiment? You know, are they feeling just as jumpy as equity investors apparently do? Or, you know, how would you characterize the sentiment among the guys actually buying charter ships?

It's a good question, but it's a relatively complex question. Fundamentally, I don't think that the mentality has changed, because you do have people who have to buy the oil. You know, they have their programs, they depend on an oil major, refinery, what have you, and they know what they can sell, and therefore they need to get the feedstock in place. And so that will not change their attitude, their appetite. Obviously, as I've just described, how some part of this market is behaving, they can be opportunistic and concentrate their requirement for transportation or their fee stock in one or another fashion in order to take advantage of a volatile market, and that's very smart. I think that the only part of the market which may be a little bit more sentimental or opportunistically driven by those high volatility that we are seeing at the moment, and I agree that it's more volatile than it used to be, are the traders. And I think that the traders are acting as traders. I mean, they must be opportunistic. They must spot the arbitrage, and they are doing that very well. And some of them are also active in trading shifts for longer term. I think we have put in our press release that that market is was more active than before. And I guess from the conversation that we are having, that most of those opportunities are coming indeed from the trading house, spotting an opportunity for longer TC at a big discount to the spot market, probably the spot market of yesterday, maybe not today, but because they see the same fundamentals as the one we are seeing. I'm sorry to repeat that for the third time in this call, multi-year cycle where the order book is extremely thin and that's a little bit the North Star for us, the ship owners. And therefore, if you are there for the long run and you want to make money but do not want to own a ship for 20 years like us, then it is natural that you're going to try to get something with two, three years and then optional years, which is also are always a very great way to play for activities to have as many options as you can. And that's very much what we're seeing.

Yeah. I guess the owners look more on the supply side of the order book. And a lot of investors are maybe overly focused on the demand side that are influenced by temporary factors perhaps. Sorry, go ahead.

Yeah, go ahead. No, it's always a little bit surprising, I would say, that the investors are so focused on the demand because, after all, the supply can be dynamic. I mean, we have enough old ships, and as we said, either they get recycled or they go into the dark fleet knowing that the dark fleet or whatever qualification you want to put there has limited capacity. So if the rates come off and the period over which they come off is sufficiently long, then obviously you do have a reaction and you do see all the ships going to either the recycling yard or that dark leaf, which is a trend that has emerged in the last two years or something. But that's also the reason why we're not particularly worried about the demand because you do have this sort of knock-on effect and this possibility. It's not like if we had a very modern fleet. I mean, remember, the last time we had a little bit the same sentiment about a multi-year cycle was 2003, 2004. But when we came towards the end of that cycle in 2008, because of financial crisis, obviously a black swan and predictable, the order book was more than 50% what was on the water. Today, we are at the start of the cycle. We're seeing that there's a number of reasons why owners are not rushing themselves to the shipyards to order more. It takes time. It's very expensive. There is uncertainty about the technology. So I think that the order book where it is, the ability for the order book to grow massively and the prospect that we have on oil demands, means that, yeah, it is looking good. But obviously, it is shipping, it's going to be volatile, and there will be events that are totally unpredictable and that we're not thinking about right now. But even if they occur, there are remedies. Indeed.

Thank you.

You're welcome. Thank you. And the next question comes from Ben Nolan with Stifel.

Thanks. Hey, guys. I wanted to come back to, Hugo, you talked about sort of looking at some Sue's Banks new buildings and deciding to pass on it. But the idea of ordering, and you just were sort of talking about the risks behind it, and there are many, but I'm curious how you think about the residual value risk. I mean, if you look at, let's say, a Suez Max today, it costs about 50% more than it ordinarily would, and you don't get delivery of it until 2026, and there's technological issues and all of these other things. How do you get comfortable, because obviously you're looking at a possible order, how do you get comfortable that you can pay a price that is well in excess of where it normally would be and not taking undue risk with respect to the residual value of the asset.

I'm not sure that – I mean, thanks for your question. I'm not sure I agree with the fact that it's 50% higher. I think that, you know, a cheap SUSEMax is probably $67, $68, $70 million. Today, if we order, we are probably – 81, 82 or something like that. So I don't think we are that far and this is absolutely not the same situation in VLCC space where we're probably at 130 whereas a good price would be sort of 79, 80. That would be the bottom that we've seen in the last probably 10 years or something like that. So there is that discrepancy that I've described earlier. Secondly, residual value is a great question and the answer is That is, when you have a platform like Eurona with many, many ships, you don't put all your eggs in the same basket. And today, what we are trying and gradually doing, and we have started that with all the new buildings, I would say in the last close to 36 months, is to have a degree of preparation for potential retrofits. And you have seen different trends. I mean, there was the LNG, dual-fuel LNG trend. That's probably more complicated to prepare because it is more costly to use energy and the retrofit will certainly be far more expensive than if you build it as a dual fuel. But then the next two trends that have emerged is ammonia. It was a little bit high, but it didn't exist. And so people were very excited that it was going to come probably a little bit faster than it does or than it did. We believe that in our segment, it's not going to be available before 26, potentially even 27. And then we have moved on to the next trend, which was methanol. I think that that trend was very much launched by Maersk. And now they have invested massively into the production of the fuel because let's not forget that there is the technology, the engine. But there is also the supply of the fuel and has to be the green fuel if you want to meet and be serious about the requirement of the future and the reduction of carbon emissions. So at Euronav, that's very much the stance that we are taking. So we are not suddenly ordering, you know, 20 ships of a dual fuel certain technology and then be left a little bit in the dark. We are ordering ships one by one, two by two, and every time we are trying to prepare them as much as possible for a potential retrofit, and therefore we are cautious about the potential residual value risk that you described.

Okay. So more of a just dipping your toe in kind of an approach. I understand that. Well, two hopefully pretty quick questions. One, just with respect to expenses and Obviously, it's been a whole lot going on over the last nine months. But how should we think about things like T&A going forward? Was it a little bit elevated given everything that was going on and it should ease down? Or is this just sort of the impact of inflation? And then also, and then I'll be done, could you talk a little bit about the FSO and Yemen? And first of all, I really do appreciate what you guys are doing as a citizen of the world. But what needs to happen there, and just maybe outline that situation a little bit more.

Yeah, so first part of the question, yes, definitely a very special year, and obviously when you're busy with not only a big transaction but also a very complex one, and we're the first one to admit that it was more complex than just a pure acquisition like we've done in the past. You're going to run legal fees and investment bank fees, which are normal for this kind of transaction, but obviously exceptional. Hence, the disappointment that we cannot go to the finish line because it's a little bit wasted money, even though we have learned a great deal out of it. The GNA should go back to where it was before, except that you are absolutely right. It is. There has been some inflation, certainly in the salaries for the personnel, and that is true for on-foe personnel, but also on-board vessels, which, by the way, doesn't appear in G&A. I mean, that's in OPEX, obviously. I think if you take a figure like 16, 16.5, million per quarter, you should be right with any exception or expense that I just described. But for this year, we're not foreseeing much of that. So that's the guidance that I can give you today. So hopefully I've answered that part of the question. Then on the FSO Safer, or better said, the replacement of the FSO Safer, So the UN has organized funding and their ambition is to acquire a vessel that we have been able to provide. We have also accepted to retrofit the vessel so that it is an FSO and not just a regular tanker. We went to dry dock. We did that. We are selling the vessel at market value and we are adding the cost of the retrofit to it. So we are being paid for that. I don't think there is any loss for the shareholders. And quite frankly, today's values are quite attractive. What we're doing in addition to that is operating the vessel. So obviously we do have experience in tankers. We do have experience in FSO. We do have experience in transshipment. We are not the only one there because Smith is there for for the delicate operation which will take place after we have transferred all the oil onto the vessel. We will continue to operate and train people in the month after that has been transferred and local people, the local oil company. And after that, the ship will be theirs because the UN will give it to them, if I understand the structure well. and they will be operated by the local company, and Euronav will have finished its work. And so it's obviously a good operation from both sides. I mean, first of all, I think financially it's a good deal. But where we were surprised is that we were the only operator willing to do it. And I think from that perspective, obviously, you need to have the experience, the knowledge, but you also need with the willingness, you can choose from different opportunities. And we thought that this one deserves to be picked up by a company like Euronav because we do believe that doing something for the company is great, doing something for the company and at the same time for society at large, if I can use that term, is even better. And we have received a huge degree of enthusiasm from the people working at Euronav. And the volunteers that want to do the operation, we were very surprised because a lot of people wanted to contribute and wanted to be there to do it. So from that perspective, we're very, very happy.

All right. Thank you.

Thank you. And the next question comes from Chris Sung with Weber Research.

Hey, good afternoon, Hugo. How are you? Yeah, very well. And you? Good. Good. Thank you. I just wanted to talk about your dividend for a second. I believe your policy is at 80% of net income, but just thinking about this, at least one of your competitors have committed to paying out a higher ratio of their net income. Is this something that you guys are thinking of or perhaps willing to entertain?

To be frank with you, we don't very often look at what the competition is doing. I think that at Euronav, we look at our own and we are trying to do what is best or what we believe is best for the company and its stakeholders in general, shareholder, obviously, primary concern when we think about returning cash to the shareholders. I think that our policy is very well written. If you go to our website, 80% is a little bit the guidance. That's what we've tried to apply all the time. You know, the last short up cycle that we had in 2020, we split that between dividends and share buyback. Today, we are at the start of the cycle. We focus on dividends. Every quarter will have its own sort of decision process. I think we came out with a very strong outlook from 2022, so that's why we are adding a very generous layer of dividend, the 1.1 as a final dividend. And I know that we are a little bit of a specific animal because, in fact, at Euronav, we have five opportunities to distribute dividends, whereas other companies, it's only a quarterly basis. So there are four opportunities, but okay, it is what it is. And quite frankly, I suppose that the shareholders are happy about that. And then, indeed, when you look at the first quarter result, it corresponds to 80%. It could be more. It could be less. It depends, you know, what we have in the capex. It depends where the leverage is. The leverage is in a very, very good position, so we have no problem paying those two dividends. It's a couple of elements, and the 80% is only there to sort of guide people but we can deviate from it, and more often than not, have we deviated on the upside rather than the downside. If you ask me whether we would go to a policy of paying out 100%, I don't think that's reasonable in the sense that you need to check facts and circumstances at the time of deciding what it is, and that's the role of the supervisory board and the management. to see where you apply your capital, where you allocate your capital, and what we believe creates the most value for shareholders.

Great. That all makes sense. Thanks for that, Kohler. And maybe just a follow-up to just the dividend process question for me. Just trying to make sense of this. Coupon 32, I think it was $1.10, and Coupon 34 is So I'm just curious, what was 3.33?

So indeed, to answer your question, there is a split. A split has been made on the 1.10 to optimize the distribution to the shareholders. And one part is a kind of closing dividend, and then we have a part linked to what we call out-of-issuance premium, which is a good tax-friendly system for our shareholders. And this is the distribution split we can make based on our balance sheet. It enhance a bit these two different parts. which is mainly important for the Belgian shareholders.

Or the retail in general, because in Belgium, the withholding tax is 30%. You pay it when you distribute a dividend. You don't pay it when it's a distribution out of your share premium, which is very much the same as a capital decrease, so that maybe you're more familiar with that technique. As far as the shareholders is concerned, They don't need to take any additional action. They receive the money. On the one system, they receive growth for growth, and on the other system, i.e., the dividend, they receive growth for net. For the institutional shareholders, it doesn't change much because they don't have to pay withholding tax. They have different tax systems. So it's very much to take care of the retail, but the retail is not insignificant at Euronews. So whenever we can use those services, we will.

Okay. Yeah, no, that's helpful. And perhaps if I can squeeze one final one in, just hate to do this, but I asked about the arbitration, that pending one I think was lingering during your last call. Any notable dates on the horizon that we should be on the lookout for?

Yes, it's a slow process. I mean, personally, I was a bit disappointed that sort of the private justice doesn't go faster than the regular justice. But indeed, we're talking about 2024 and probably towards the end, I mean, Q3, Q4 2024. It's true that there is a number of steps that needs to be taken. And it starts with the appointment of You know, two arbitrators, one for each size, and then those two arbitrators will appoint what they call the president of the arbitration office or desk. After that, you have to submit a file, submit your claim. You need to evaluate, you know, the damages or the amount of claim that you're claiming to the other side. So I don't think we're going to speak much about it until we have something tangible to share with the marketer. As you know, our philosophy is to really treat this arbitration as, okay, one side believes they have the right to do that, the other side believes they didn't. Why don't we ask someone to arbitrate between the two sides and it will be what it will be? I don't want to dismiss it, but I also don't want to be talking about it quarter after quarter. It is what it is. We will know, unfortunately, in more than one year's time. And we will let you know if there are any development in between, but likely not. And so be patient and, yeah, make your own guess about it.

Appreciate it.

Thank you.

Thank you.

Thank you. And the next question comes from Greg Willis with BTIG.

Hey, hey, thank you and good afternoon, everybody. And thanks for taking my questions. Hugo, you know, and I think you were touching on it a little bit around the divergence between, you know, the Suez Maxes and the VLCCs. Any thoughts around how much of the, you know, vessels trading in the dark fleet are helping Suez Maxes outperform, i.e., I imagine it's a lot harder for a VLCC to trade in the dark fleet than maybe a Suezmax, but I'm just kind of curious if you have any thoughts around that.

Maybe I can start, and I'm sure Brian can compliment me. Let's go back a little bit in time, and let's not forget that the dark fleet VLCC, the VLCC side of dark fleet, sorry, was much bigger before the emergence of the Ukraine-Russia conflict. That's because they were busy trading in Iran and busy trading in Venezuela. And so that was already what we call the illicit fleet because the sanctions are very different there than they are in the sanctions that we have applied or that the world has applied against Russia. If you look at Russia, then obviously that's a place where a lot of Afromax and Suezmax were trading out and probably very little VLCC. That's because the distance was very short. I mean, most of the oil was going to Europe, a little bit to the States, but not very long distance. And that does make sense. And obviously now that they have to do many more miles, you know, going around the world to deliver the oil to new clients and clients that are willing to buy the oil from Russia, it would make sense to see more VLCCs. At the moment, you need to go through it and leave a little bit of time for the market to completely adapt. At the moment, it is Suezmax and Aframax which are going into And I'm not sure we can call it dark feet because it's another animal than the one we have seen in trading Iranian crude oil. Here you have a cap. If you're below the cap, you can trade. At Euronav, we have decided not to trade for a number of complications and also internal policy. But again, if you are below the cap, and quite frankly, when you look at the oil price, I don't think that we were ever in a market where the cap had to be applied. There is always a discount on Russian crude and a further discount because now the freight is a little bit more elevated. So a lot of people are capable of doing that. Once they do it, generally speaking, they stay in that specific trade because of insurance, because of finances, because of a number of people who don't want ships to go from one side of the market to the other side. So at the moment, that's what we're seeing. Many more Suez Max and Afro Max have been added to this particular, yeah, darker side of the fleet. But the VLCC that were there remain there. They probably continue to do Iran and Venezuela. And going forward, because of the distance, you may see more transshipment. You may see more VLCCs involved in that trade. But that's not the case yet at the moment.

Okay, super helpful. Thank you for the time.

Thank you.

Thank you. And the next question comes from with ABM AMRO.

Yeah. Good afternoon and good morning to the US. with the results coming back on the dividend policy. I thought your dividend pre-deal policy was 80% of net profit but excluding one-offs. Now it's 80% including one-offs or 100% of ex-one-off profit. Is there a special reason for the 100% ex-one-offs and follow-up there is more than 100% allowed in Belgium? Second question is on minimal or not total, but it can maybe give us a bit of explanation on Belgian inflation impact on your Belgian cost base. And third question on the salvage operation in Yemen. Can we expect some kind of a book profit related to that project?

Yeah. Thank you, Thijs. Thank you for your questions. It's a little bit technical. So on dividend, let's first start what we can and cannot do in Belgium. So in Belgium, you need to look at the statutory balance sheet, not the consolidated balance sheet. And as long as you have the reserve to pay a dividend, you can pay up to your reserve. So the statutory balance sheet, because of our model, where the vast majority of the vessels are on the statutory balance sheets of Belgium. Then obviously when the market is generous, we generate a lot of profit there. And then for the few vessels that are in subsidiaries, this is the case for the FSO, this is the case for the Oceania and a small number of ships, the bareboats. There we need obviously to dividend stream from the subsidiaries to the statutory balance sheet. So overall, when you look at the statutory balance sheet, you have the limit that we can pay, but this is dynamic because every quarter that balance sheet will increase by the net profits that are being accrued. That's the limit and it's the only limit. The second part of the question is, okay, we had specifically a dividend policy where we excluded the capital gains. I think that that policy is still in place, but we can make exceptions. And why did we make exceptions this time around? It's simply because when you look at the amount of capital gains that we have generated last year, around 100 million, What we're generating now, it's because the values have, you know, literally exploded compared to the book values. And so the reason why in the past we were completely excluding them is because that's the money that we wanted to reinvest into new building programs and or from time to time secondhand modern ships acquisitions. But now it's almost too much, especially at the time where, as you've heard at the beginning of this phone call, we believe that values have gone through, as far as new building contracts are concerned, through numbers, through amounts that seem excessive, definitely on the VLCC, maybe still a few opportunities on the Suezmax, but there is no reason for us at this point in time especially because we also have done quite a lot of activity in the new building programs. If you look at the last two, three years and the values at which we bought, there is definitely something that we could return to the shareholders. Then, of course, the last point is that we always state our leverage in terms of book value. I just spoke about the market value. So if you look at the leverage of the company compared to the market value, so loan to value, to market value, then we are definitely in a territory where we can be generous and we can reward our shareholders. So all of these elements are being looked at by the board, and then a decision is taken, and I think everybody was very supportive of the decision that was made at that time. Second question is inflation. I think in Belgium, core inflation was close to 10.5%, maybe even 11% in 2022. It's down to around 5% right now. So I think we have left the peak and hopefully we're not going to have a second year like that. How does it affect overhead? Well, only a portion of the offices are in Belgium. As you know, we have offices in Greece, we have offices in London, we have an office in Singapore, etc., etc. So the element that affects Belgium is indeed the inflation on salaries because in Belgium it's an automatic indexation of salaries to the core inflation number that is produced by the government. So last year people indeed had an increase of salary at the end of the year of around 10%. You can clearly see what the impact is there. I don't think that at the end of the day it's much different in the rest of the world. I think that all over the place people have to increase salaries anywhere between 5% and 10%. So that's where we are. Let's also not forget that Belgium is not the most expensive place to operate a shipping company. I think the people living in London, New York, or Singapore are starting off a base that is already much more elevated than Belgium. So we are not very worried about that. In terms of the FSO Safer, can you elaborate a little bit on your question? What exactly do you want to know? You want to know the capital gain on that ship? If I'm not mistaken.

Exactly. So, Thijs, indeed, I understood you were interested to understand the capital gain. So, to be concluded finally, but seen from today and the price we had at the top of our mind, it should end again in the order of magnitude $20 million. Yeah.

And you remember that ship was not an owned ship. It was a ship that we had sold under a sale and lease back program. So we already sold the ship one time. Thankfully, we had put an option. That option was in the money, and so the capital gain generated is the difference between the option that we had and the market price at which we are selling the vessel to this program of the UN.

Okay, clear.

Thanks.

You're welcome.

Thank you. And then I stress a consequential model with INJ.

Yeah, good morning. Good afternoon, everyone. Two questions from my side. If I look at the graphs, you see, let me say, the prices of VLCs have gone up materially. And for Suezmax, still the same level, maybe related to the low number of orders. But let me say, if there's some money ordering in Suezmax, it must be much higher than it was. And I miss somewhat logic here because the demand for Suez Max is higher than it has been for many, many years, I think. So maybe you can explain the difference in price development between the new builds of fuel CCs against the Suez Max, what we can see now. And the second question is about the spectrum. Let me say we have discussed the new builds, but what is on the other end? So I can imagine that people are not willing to... to scrap their vessels, but at a certain day, your vessels are too old to handle, and regulations are also playing a role. So maybe you can elaborate somewhat on the development in that market.

Well, I'll go with the first part. In terms of what we're just trying to show on the chart is exactly what Hugo was talking about earlier, and that the prices for VOCCs have accelerated higher and at a faster rate than those in series max. And so when we're looking at those new build opportunities, as rare as they are, we're much more focused on the Suezmax space because the price development has been more excessive in the VLCC space. That's what our chart is just showing. They obviously correlate quite closely, but the VLCCs on a per unit basis have increased more than the Suezmax. On the second part, I mean, I think it's reasonably clear and obvious in that the Suezmax, what we're seeing move in, those ships that are getting over certain ages. It's interesting, we're now beginning to see, as a lot of the commentary was alluding to earlier this year, is that this Dark Fleet is pretty unregulated. And in the last, what, 10 days, we've seen an incident where a Suez Max has caught fire in the Far East, which was doing a lot of this, was exclusively doing this Dark Fleet. So we're seeing the Dark Fleet growing because those ships, there's a very strong pipeline, as you know, of ships in that older age spectrum. And so there's effectively a two-tier market. We're obviously operating in the legitimate market where we're not seeing that supply pressure because the ships are leaving that particular segment.

And maybe just to add to what Brian is saying, most or majority of the so-called dark fleets is unregulated. So even classification societies may not issue the certificate, but it doesn't matter. I mean, we certainly monitored that even before the Russian-Ukraine conflict in the trade with Iran and Venezuela. It is something that is also emerging in this case, even though you do have a number of legitimate owners who decide to carry Russian oil under the specific sanction, i.e. under the price cap and are able to demonstrate. So you can see that it's less regulated, if I may put it this way. Some of it is not regulated. Some of it is less regulated, attract less attention. Maybe the standards are different. And just to come back on the question, because it's fact that today, Suezmax has not increased in value as much as VLCC. And I don't think we do have the answer because we're not a shipyard and we're not putting the tax price on it. So I suspect that it is first and foremost a question of what the yard wants to build. And the yards are definitely in a luxurious position today because their order book is full and obviously is full of many, many different types of ships, but particularly LNG carriers and containers. Those are ships that, from an added value perspective, from a shipyard, is more interesting to build than a tanker. So they are likely to make more money. And secondly, it's really a question of space. So it takes less space and it takes a little bit less time to build the Suez Max. And so if you want to sort of squeeze a Suez Max between two LNG car or two sort of mid-sized 13,000, 14,000 TU container ships, I'm not going to say it's easy, but it's definitely possible. If you want to suddenly squeeze a VLCC, then you need to move many more things around. And the fact is that the shipyards, they want to maintain their know-how on how to build ships and tankers. And so they really want to see at least a few tanker being built every year so that the people who are specialized in that continue to keep their knowledge and continue to be busy. So that's a little bit more specific to a shipyard desire. And therefore, if they really want to have this type of ship built, they will make sure that the price continues to be attractive. And I think it's less the case for VLCC at the moment. That's why they have let it go to a level where they can make as much money as they would on another type of ship.

Okay, thank you. But my final question is then, how large is the Dark Fleet in your view? Have you any idea?

But we, you know, our idea are simply the one that we read in the market. There are a number of other analysts or even specific people specialized in monitoring that.

And they are talking about 150 or... Yes, I mean, there are a lot of numbers flying around here as always. But if we take someone like Vortex who've done the numbers, they think there's been in total number of tankers, all sizes, 740. That's all sizes? All sizes. As Hugo said, you're exactly right. You're looking in that roughly 100 sort of territory from our segments and our categories, which is sort of getting on, as we've said, consistently. I've done presentations in the past, you know, somewhere between 7% and 10% of both the series max and VLCC fleets.

I'm sure if you want to send us an email, we can send you some of the report that we have seen and certainly the ones that we believe are more serious than others. Very happy to share that information offline with you.

Thank you.

Thanks a lot.

Thank you. And this concludes both the question and answer session as well as the call. The conference has now concluded. Thank you for attending today's presentation. We now disconnect your lines.