Euronav(EURN) - 2018 Q4 - Annual Report

PART I Identity of Directors, Senior Management and Advisers This section is not applicable as per the report - The report states that this item is not applicable[28] Offer Statistics and Expected Timetable This section is not applicable as per the report - The report states that this item is not applicable[29] Key Information This section provides selected consolidated financial and operating data for the five years ended December 31, 2018, and outlines significant risks associated with the company's industry, operations, and recent merger Selected Financial Data The company's financial performance shows significant volatility, with a net loss of $110.1 million in 2018 compared to a profit of $1.4 million in 2017, reflecting a challenging tanker market and the impact of the Gener8 merger Consolidated Statement of Profit or Loss Data (2014-2018) | Indicator | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue (USD thousands) | 600,024 | 513,368 | 684,265 | 846,507 | 473,985 | | Result from operating activities (USD thousands) | (74,578) | 13,406 | 208,220 | 351,972 | 11,527 | | Profit (loss) for the period (USD thousands) | (110,070) | 1,383 | 204,049 | 350,301 | (45,797) | | Basic earnings per share (USD) | (0.57) | 0.01 | 1.29 | 2.25 | (0.39) | | Dividends per share declared (USD) | 0.12 | 0.12 | 0.77 | 1.69 | — | Consolidated Statement of Financial Position Data (at Period End) | Indicator | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Total assets (USD thousands) | 4,127,351 | 2,810,973 | 3,046,911 | | Total bank loans (USD thousands) | 1,560,002 | 701,091 | 1,085,562 | | Total equity (USD thousands) | 2,260,523 | 1,846,361 | 1,887,956 | Fleet Operational Data (2018 vs 2017) | Vessel Type | Metric | 2018 | 2017 | | :--- | :--- | :--- | :--- | | VLCCs | Average number of vessels | 38 | 31 | | | Daily TCE charter rates (USD) | 24,073 | 29,827 | | Suezmaxes | Average number of vessels | 23 | 19 | | | Daily TCE charter rates (USD) | 17,557 | 19,144 | EBITDA and Adjusted EBITDA (Unaudited) | Metric (USD thousands) | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | EBITDA | 231,513 | 273,452 | 475,005 | | Adjusted EBITDA | 254,816 | 294,467 | 503,453 | Risk Factors This section details numerous risks facing the company, categorized into industry-wide, company-specific, merger-related, and investment-related risks Information on the Company This section provides a comprehensive overview of Euronav, detailing its history, business operations, fleet composition, chartering strategy, and the competitive and regulatory landscape History and Development of the Company Euronav NV, incorporated in Belgium in 2003, became a leading independent crude tanker operator following its merger with Gener8 Maritime Inc. on June 12, 2018 - The merger with Gener8 Maritime Inc. closed on June 12, 2018, making Gener8 a wholly-owned subsidiary and establishing Euronav as a leading global independent crude tanker operator[293][294] - The company's ordinary shares are listed on both the NYSE and Euronext Brussels under the ticker symbol "EURN"[292] Business Overview Euronav is an integrated provider of international crude oil shipping and storage, operating a modern fleet of primarily VLCC and Suezmax tankers with a mixed chartering strategy - As of April 15, 2019, Euronav owned or operated a modern fleet of 74 vessels, including 43 VLCCs, 2 V-plus vessels, 27 Suezmax vessels, and 2 FSO vessels (owned through 50/50 joint ventures)[296] - The company pursues a mixed chartering strategy, employing vessels on the spot market (including 42 vessels in the TI Pool), on long-term charters (5 vessels), and long-term FSO service contracts (2 vessels) as of April 15, 2019[298] - Key 2018 corporate activities included the merger with Gener8, the sale of six VLCCs to International Seaways for $434 million, the acquisition of the V-Plus vessel 'Oceania', and the delivery of four newbuild Suezmax vessels, which commenced seven-year time charters[302][303][304][307] Organizational Structure Euronav NV is a Belgian company that owns its vessel fleet directly, through wholly-owned subsidiaries, or through 50%-owned joint ventures, with subsidiaries and vessels flagged across various jurisdictions - The company owns its vessels directly at the parent level, through wholly-owned subsidiaries, or jointly through 50%-owned subsidiaries[552] - Vessels are flagged in Belgium, the Marshall Islands, France, Panama, Liberia, and Greece[552] Property, Plants and Equipment The company's primary assets are its vessels, and it leases office space in key locations rather than owning real estate property - The company owns no properties other than its vessels and leases office space in various jurisdictions[554] Operating and Financial Review and Prospects This section analyzes the company's financial condition and results of operations, detailing factors affecting performance, critical accounting policies, liquidity, capital resources, and market trends Operating Results The operating results show a significant downturn in 2018, with a net loss of $110.1 million, driven by higher expenses following the Gener8 merger and lower charter rates Operating Results Comparison (2018 vs. 2017) | Metric (USD thousands) | 2018 | 2017 | % Change | | :--- | :--- | :--- | :--- | | Total shipping revenues | 604,799 | 518,270 | 17% | | Voyage expenses and commissions | (141,416) | (62,035) | 128% | | Vessel operating expenses | (185,790) | (150,427) | 24% | | General and administrative expenses | (66,232) | (46,868) | 41% | | Net finance expenses | (74,389) | (43,463) | 71% | | Profit (Loss) for the period | (110,070) | 1,383 | N/A | - The increase in general and administrative expenses in 2018 was mainly due to the Gener8 merger, including an $8.9 million increase in staff costs (due to higher FTE count and severance payments) and a $7.4 million increase in legal and other fees[653] Liquidity and Capital Resources The company's liquidity is managed through cash from operations and extensive credit facilities, with total indebtedness surging to $1.87 billion in 2018 due to the Gener8 merger, while remaining compliant with financial covenants Liquidity and Indebtedness (as of Dec 31) | Metric (USD millions) | 2018 | 2017 | | :--- | :--- | :--- | | Cash and cash equivalents | 173.1 | 143.6 | | Total Indebtedness | 1,866.8 | 964.6 | | Available committed secured revolving credit facilities | 438.9 | 547.4 | - Net cash from operating activities dropped significantly to $0.8 million in 2018 from $211.3 million in 2017, reflecting challenging market conditions[702] - The company's debt agreements contain financial covenants requiring it to maintain minimum liquidity (e.g., at least $50.0 million or 5% of total debt), a minimum cash balance ($30.0 million), and a ratio of stockholders' equity to total assets of at least 30%, with which the company was in compliance as of December 31, 2018[729][736] Trend Information The tanker market outlook is influenced by strong global oil demand growth, increasing voyage distances, and expected moderation of vessel supply due to high scrapping rates driven by upcoming regulatory changes - Global oil demand growth is forecasted to be strong at 1.42 million barrels per day in 2019[740] - A key trend boosting tanker demand is the increase in long-haul trades, such as crude exports from the US Gulf to China and the Far East[741] - Vessel supply growth is expected to be tempered by continued high levels of scrapping, encouraged by upcoming costly regulatory requirements like the Ballast Water Management convention and IMO 2020 sulfur cap[742] Contractual Obligations As of December 31, 2018, the company had total contractual obligations of $1.90 billion, primarily related to long-term bank loan facilities with significant payments scheduled over the next five years Contractual Obligations as of December 31, 2018 (USD thousands) | Obligation Type | Total | 2019 | 2020 | 2021 | 2022 | 2023+ | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term bank loan facilities | 1,572,467 | 138,537 | 157,693 | 273,332 | 340,807 | 662,098 | | Long-term debt obligations | 150,000 | — | — | — | 150,000 | — | | Operating leases (vessels) | 95,524 | 32,120 | 32,208 | 31,196 | — | — | | Total Contractual Obligations | 1,903,112 | 235,212 | 194,442 | 308,691 | 494,696 | 670,071 | Directors, Senior Management and Employees This section provides details on the company's leadership, compensation, board structure, and employees, highlighting a key leadership transition and the total employee count of approximately 2,900 at year-end 2018 Directors and Senior Management The report lists the members of the Board of Directors and Executive Officers, noting a significant upcoming CEO transition from Patrick Rodgers to Hugo De Stoop in the second quarter of 2019 - A leadership transition is underway, with CEO Patrick Rodgers set to step down in Q2 2019 and be succeeded by CFO Hugo De Stoop[752][761][762] Compensation For the year ended December 31, 2018, aggregate compensation for executive officers (excluding the CEO) was EUR 2.09 million, while the CEO's compensation was EUR 2.58 million, and non-executive directors received EUR 1.03 million 2018 Compensation Summary | Recipient Group | Compensation (EUR) | | :--- | :--- | | Executive Officers (excl. CEO) | 2,085,700 | | Chief Executive Officer (CEO) | 2,581,831 | | Non-Executive Directors | 1,034,583 | Board Practices The Board of Directors consists of seven members, five of whom are independent, and has established three key committees: Audit and Risk, Corporate Governance and Nomination, and Remuneration - The Board of Directors has seven members, with five being independent[771] - Key board committees include the Audit and Risk Committee, Corporate Governance and Nomination Committee, and Remuneration Committee[771] Employees As of December 31, 2018, Euronav employed approximately 2,900 people, comprising around 200 onshore staff and 2,700 seagoing officers and crew members - The company employed approximately 2,900 people at the end of 2018, comprising ~200 onshore employees and ~2,700 seagoing personnel[774] Share Ownership and Equity Incentive Plans This subsection details various equity incentive plans for key management and employees, including stock option plans, Long-Term Incentive Plans (LTIPs) with options and Restricted Stock Units (RSUs), and a transaction-based incentive plan related to the Gener8 merger - The company has multiple share-based payment arrangements, including a 2013 stock option plan and Long-Term Incentive Plans (LTIPs) for 2015, 2016, 2017, and 2018[775][778][780][782][785] - A transaction-based incentive plan with 1,200,000 phantom stock units was granted to key employees, with vesting tied to achieving specific share price targets ranging from $12 to $18[787] Major Shareholders and Related Party Transactions This section identifies the company's major shareholders and describes transactions with related parties, including joint venture loan agreements, guarantees, and office leases with affiliated entities Major Shareholders As of April 15, 2019, the company's major shareholders included Châteauban SA with an 8.39% stake and Mr. Marc Saverys with a 6.97% stake, while the company itself held 1.53% as treasury shares Major Shareholders as of April 15, 2019 | Shareholder | Percentage Ownership | | :--- | :--- | | Châteauban SA | 8.39% | | Mr. Marc Saverys | 6.97% | | Euronav (treasury shares) | 1.53% | Related Party Transactions The company engages in transactions with related parties, including its joint ventures and entities affiliated with major shareholders, such as providing guarantees for credit facilities and leasing office space - The company subleases office space in London to Tankers (UK) Agencies Limited, a joint venture with International Seaways (INSW)[801] - Euronav leases its office space in Belgium from Reslea N.V., an entity jointly controlled by CMB (an affiliate of a major shareholder) and Exmar[1574] Financial Information This section refers to the detailed consolidated financial statements provided in Item 18, confirms no significant legal proceedings are underway, and outlines the company's capital allocation and dividend policy Consolidated Statements and Other Financial Information This subsection states that the company is not involved in any significant legal proceedings and details its dividend policy, which targets a minimum fixed dividend of at least $0.12 per share per year - The company is not involved in any legal proceedings expected to have a significant effect on its business or financial position[804] - The current dividend policy is to pay a minimum fixed dividend of at least $0.12 per share per year, subject to Board discretion based on financial health and earnings visibility[808][811] - Additional income beyond the fixed dividend may be allocated to further cash dividends, share buybacks, accelerated debt amortization, or accretive vessel acquisitions[808][811] Offer and The Listing This section provides details about the company's share capital and the markets where its shares are traded, specifically the Euronext Brussels and the New York Stock Exchange (NYSE) - The company's ordinary shares trade on the NYSE and Euronext Brussels under the symbol "EURN"[818][821] - As of April 15, 2019, the company had 220,024,713 ordinary shares outstanding[817] Additional Information This section covers key corporate information, including a summary of the Articles of Association, material contracts, exchange controls, and a detailed discussion of U.S. and Belgian tax considerations Memorandum and Articles of Association Euronav is a public limited liability company under Belgian law, with its Articles of Association outlining corporate purpose, director terms, shareholder meeting requirements, preferential subscription rights, and certain anti-takeover provisions - The company is a public limited liability company (naamloze vennootschap / société anonyme) incorporated under Belgian law[827] - Existing shareholders have a preferential right to subscribe to new shares, convertible bonds, or warrants in the event of a capital increase for cash, though this right can be limited or canceled by the company[849][850] - The Articles of Association contain anti-takeover provisions, including the Board of Directors' authorization to increase the company's capital or buy back its own shares[855][856] Material Contracts The company entered into a registration rights agreement on January 28, 2015, with affiliates of former Chairman Peter Livanos and current shareholder Marc Saverys, granting them demand and piggyback registration rights for their ordinary shares - A registration rights agreement from January 2015 provides major shareholders (Ceres and Saverco affiliates) with the right to require the company to file registration statements for the sale of their shares[860][861] Taxation This section analyzes the material U.S. federal and Belgian income tax consequences, noting Euronav expects to be exempt from U.S. federal income tax on its U.S.-source shipping income and operates under the Belgian tonnage tax regime - The company expects to be exempt from U.S. federal income tax on its U.S.-source shipping income, relying on the U.S.-Belgium income tax treaty or Section 883 of the U.S. Internal Revenue Code[869][870] - The company does not believe it will be treated as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, based on its position that income from chartering activities constitutes services income, not passive rental income[897] - Dividends are generally subject to a 30% Belgian withholding tax, although this rate can be reduced to 15%, 5%, or 0% for qualifying U.S. taxpayers under the U.S.-Belgium Tax Treaty[917][921] - The company's taxable income in Belgium is determined on a lump-sum basis under the Belgian tonnage tax regime, rather than on its accounting results[982] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate, currency, credit, and significant tanker market risks; a one percentage point increase in LIBOR would have increased 2018 interest expense by approximately $8.5 million, while a $1,000 per day change in spot tanker rates would have impacted profit or loss by $19.3 million - A one percentage point increase in LIBOR would have increased the company's interest expense for the year ended December 31, 2018, by approximately $8.5 million[999] - The company is exposed to currency risk as about 12.8% of its total operating expenses in 2018 were incurred in Euros; a 10% strengthening of the Euro against the USD would have decreased profit by $7.9 million[1000] - The company has significant exposure to tanker market volatility; a $1,000 per day change in spot tanker freight rates for its VLCC and Suezmax fleet would have impacted the 2018 profit or loss by $19.3 million[1002] Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2018, with the assessment of internal controls excluding the recently acquired Gener8 Maritime Inc. - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2018[1008] - Management assessed the company's internal controls over financial reporting as effective as of December 31, 2018; this assessment excluded the internal controls of Gener8 Maritime Inc., which was acquired during 2018[1010][1073] - There were no material changes in internal controls over financial reporting during the period covered by the annual report[1012] Corporate Governance and Other Information This section covers various corporate governance and disclosure items, including audit committee financial expert identification, code of ethics adoption, fees paid to the principal accountant, equity securities repurchased, and differences between Belgian and NYSE corporate governance practices Principal Accounting Fees and Services The company's principal accountant is KPMG, and total fees paid to KPMG for 2018 amounted to $1.34 million, a significant increase from $900,415 in 2017 Fees Paid to Principal Accountant (KPMG) | Fee Type (in U.S. dollars) | 2018 | 2017 | | :--- | :--- | :--- | | Audit fees | 1,006,077 | 870,324 | | Audit-related fees | 313,180 | 7,987 | | Taxation fees | 6,180 | 22,104 | | All other fees | 10,076 | — | | Total | 1,335,513 | 900,415 | Purchases of Equity Securities by the Issuer In December 2018, the company repurchased a total of 545,486 of its own shares for approximately $3.96 million on the open market - The company repurchased 545,486 of its own shares in December 2018 for a total price of $3,955,376[1022] Corporate Governance As a Belgian foreign private issuer, Euronav follows Belgian corporate governance practices, which differ from NYSE standards for U.S. companies in areas such as director independence and shareholder approval for securities issuances - As a foreign private issuer, the company follows Belgian corporate governance practices, which differ from NYSE listing standards for U.S. companies[1025] - Key differences include director independence standards for certain committees (excluding the Audit Committee, which is compliant with U.S. rules), shareholder approval for securities issuances, and proxy solicitation rules[1026][1027][1028][1030] Financial Statements This section contains the company's audited consolidated financial statements for the years ended December 31, 2018, 2017, and 2016, prepared in accordance with IFRS, including the independent auditor's report and detailed notes Consolidated Financial Statements The audited consolidated financial statements present the company's financial position, performance, and cash flows, reflecting total assets of $4.13 billion and a net loss of $110.1 million in 2018, significantly impacted by the Gener8 merger Consolidated Statement of Financial Position (as of Dec 31) | (USD thousands) | 2018 | 2017 | | :--- | :--- | :--- | | Total Assets | 4,127,351 | 2,810,973 | | Total Equity | 2,260,523 | 1,846,361 | | Total Liabilities | 1,866,828 | 964,612 | Consolidated Statement of Profit or Loss (Year Ended Dec 31) | (USD thousands) | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Revenue | 600,024 | 513,368 | 684,265 | | Result from Operating Activities | (74,578) | 13,406 | 208,220 | | Profit (Loss) for the Period | (110,070) | 1,383 | 204,049 | Consolidated Statement of Cash Flows (Year Ended Dec 31) | (USD thousands) | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | 841 | 211,295 | 438,202 | | Net cash from investing activities | 190,042 | (40,242) | (100,615) | | Net cash from financing activities | (160,165) | (234,976) | (261,160) | Notes to the Consolidated Financial Statements The notes provide detailed explanations of accounting policies and financial figures, covering IFRS adoption, segment reporting, the Gener8 business combination resulting in a bargain purchase gain, and details on debt facilities and share-based payment plans - The company adopted IFRS 15 (Revenue) and IFRS 9 (Financial Instruments) on January 1, 2018; the primary impact of IFRS 15 was changing revenue recognition for spot voyages from a discharge-to-discharge to a load-to-discharge basis[1113][1132][1138] - The merger with Gener8 Maritime Inc. on June 12, 2018, was accounted for as a business combination; the fair value of net assets acquired ($576.5 million) exceeded the consideration transferred ($553.4 million), resulting in a bargain purchase gain of $23.1 million[1624][1632][1638] - The company's two main operating segments are Tankers and FSO; the Tankers segment generated $600.0 million in revenue in 2018, while the FSO segment (proportionally consolidated for segment reporting) generated $49.2 million[1329][1336]