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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
[ ] | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
[X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the fiscal year ended December 31, 2022 |
OR
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from _________________ to _________________ |
OR
[ ] | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
Date of event requiring this shell company report _________________ |
Commission file number 001-36810
EURONAV NV | ||
(Exact name of Registrant as specified in its charter) |
(Translation of Registrant's name into English) |
Belgium | ||
(Jurisdiction of incorporation or organization) |
De Gerlachekaai 20, 2000 Antwerpen, Belgium | ||
(Address of principal executive offices) |
Hugo De Stoop, Tel: +32-3-247-44-11, management@euronav.com, De Gerlachekaai 20, 2000 Antwerpen, Belgium | ||
(Name, Telephone, E-mail and/or Facsimile, and address of Company Contact Person) |
Securities registered or to be registered pursuant to section 12(b) of the Act.
Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||
Ordinary Shares, no par value | EURN | New York Stock Exchange |
Securities registered or to be registered pursuant to section 12(g) of the Act.
NONE | ||
(Title of class) |
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
NONE | ||
(Title of class) |
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.
220,024,713 Ordinary Shares (of which 18,241,181 Treasury Shares), no par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes | X | No |
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes | No | X |
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes | X | No | ||||||||||||
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes | X | No |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company.. See the definitions of "large accelerated filer","accelerated filer", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x | Accelerated filer ☐ | Non-accelerated filer ☐ | Emerging growth company ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report: x
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP |
X | International Financial Reporting Standards as issued by the International Accounting Standards Board |
Other |
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 | Item 18 |
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes | No | X |
TABLE OF CONTENTS
Page | ||||||||
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS SUMMARY
Matters discussed in this report may constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts.
We desire to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are including this cautionary statement in connection therewith. This report and any other written or oral statements made by us or on our behalf may include forward-looking statements, which reflect our current views with respect to future events and financial performance, and are not intended to give any assurance as to future results. When used in this document, the words “believe,” “expect,” “anticipate,” “estimate,” “intend,” “seek”, “plan,” “target,” “project,” “potential”, “continue”, “contemplate”, “possible”, “likely,” “may,” “might”, “will,” “would,” “could” and similar expressions, terms, or phrases may identify forward-looking statements.
These forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about the business and our future financial results and readers should not place undue reliance on them. The forward-looking statements in this report are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management’s examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections.
In addition to important factors and matters discussed elsewhere in this report, and in the documents incorporated by reference herein, important factors that, in our view, could cause our actual results and developments to differ materially from those discussed in the forward-looking statements include:
•The strength of world economies, including the central bank policies intended to combat overall inflation and rising interest rates, and adverse fluctuations of foreign exchange rates;
•General market conditions, including the market for crude oil and for our vessels, significant fluctuations in charter rates, spot charter rates and vessel values (including residual values and steel prices);
•The state of the global financial markets which may adversely impact availability of additional financing and refinancing at rates and on terms acceptable to us, as well as our ability to obtain such, or to comply with the restrictive and other covenants in our financing arrangements, or to obtain hedging instruments at reasonable costs;
•Our ability to secure available and future grants and subsidies;
•Our business strategy and other plans and objectives for growth and future operations, including planned and unplanned capital expenditures, or failure to execute on our strategy to procure low sulfur fuel oil at reasonable prices and the associated commodity risk;
•Our ability to generate cash to meet our debt service and other obligations;
•Our levels of operating and maintenance costs, including fuel and bunker costs, drydocking and insurance costs;
•Potential liability from pending or future litigations;
•Environmental, Social and Governance (ESG) expectations of investors, banks and other stakeholders and related costs of compliance with our ESG targets and objectives, and in particular failure to meet our targets under our decarbonization strategy and failure to find and execute on related partnerships;
•Our dependence on key personnel and the availability of skilled workers, including seafarers, and the related labor costs;
•The failure to protect our information systems against security breaches, or the failure or unavailability of these systems for a significant period of time, as a result of cyber-attacks which may disrupt our business operations, and our inability to secure cyber-insurance at reasonable costs;
•The length and severity of pandemics such as the coronavirus (COVID-19), and governmental response thereto, including its impacts across our business on demand for our vessels, our global operations, counterparty risk as well as its disruption to the global economy;
•General domestic and international geopolitical conditions, including trade tensions between China and the United States, trade wars and disagreements between oil producing countries, including illicit crude oil trades;
•The shift from oil towards other energy sources such as electricity, natural gas, liquefied natural gas, hydrogen or other fuels for which there would be no need for maritime transportation;
•Technology and product risk including those associated with energy transition, fleet/systems rejuvenation to alternative propulsion, and availability of green fuel at strategic locations;
•International sanctions, embargoes, import and export restrictions, nationalizations, piracy, terrorist attacks and armed conflicts, including those taken in connection with the ongoing conflict between Russia and Ukraine, and the ability of governments to provide enforcement or protection measures thereof;
•Any non-compliance with the U.S. Foreign Corrupt Practices Act of 1977 or FCPA, or other applicable regulations relating to bribery;
•The impact of the discontinuance of the London Interbank Offered Rate, or LIBOR, after June 30, 2023 on any of our debt that reference LIBOR;
•Potential disruption of shipping routes due to accidents, environmental factors (such as severe weather events at sea or at port locations), political events, public health threats, international hostilities including the ongoing developments in the Ukraine region, acts by terrorists or acts of piracy on ocean-going vessels;
•Vessel breakdowns and instances of off-hire;
•The supply of and demand for vessels comparable to ours, including against the background of possibly accelerated climate change transition worldwide which would have an accelerated negative effect on the demand for oil and thus maritime transportation of crude oil;
•Reputational risks, including related to climate change and the nature of our business, and our inability to adapt our business model in the face of any rapid decline in oil consumption;
•Compliance with governmental, tax (including carbon related), environmental (including emissions reductions) and safety regulations and regimes and related costs;
•Potential liability from future litigations related to claims raised by public-interest organizations or activism with regard to failure to adapt to or mitigate climate impact;
•Increased cost of capital or limiting access to funding due to EU Taxonomy or relevant territorial taxonomy regulations;
•Any non-compliance with existing environmental regulations such as but not limited to (i) the amendments by the International Maritime Organization, the United Nations agency for maritime safety and the prevention of pollution by vessels, or IMO, (the amendments hereinafter referred to as IMO 2020), to Annex VI to the International Convention for the Prevention of Pollution from Ships, 1973, as modified by the Protocol of 1978 relating thereto, collectively referred to as MARPOL 73/78 and herein as MARPOL, which reduced the maximum amount of sulfur that vessels may emit into the air as from January 1, 2020; (ii) the International Convention for the Control and Management of Ships’ Ballast Water and Sediments or BWM which applies to us as of September 2019; (iii) the EC Fit-for-55 regulation and specifically with EU Emission Trading Schemes Maritime and FuelEU Maritime; (iv) the European Ship Recycling regulation for large commercial seagoing vessels flying the flag of a European Union or EU, Member State which forces shipowners to recycle their vessels only in safe and sound vessel recycling facilities included in the European List of ship recycling facilities which is applicable as of January 1, 2019;
•New environmental regulations and restrictions, whether at a global level stipulated by the International Maritime Organization, and/or imposed by regional or national authorities such as the European Union or individual countries;
•Our incorporation under the laws of Belgium and the different rights to relief that may be available compared to other countries, including the United States;
•Treatment of the Company as a “passive foreign investment company” by U.S. tax authorities;
•The failure of counterparties to fully perform their contracts with us, and in particular our ability to obtain indemnities from customers;
•Adequacy of insurance coverage;
•Changes in laws, treaties or regulations;
•The inability of our subsidiaries to declare or pay dividends; and
•The losses from derivative instruments.
These factors and the other risk factors described in this annual report and other reports that we furnish or file with the U.S. Securities and Exchange Commission or the SEC, are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, there can be no assurance that actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. These forward-looking statements are made only as of the date of this annual report. These forward-looking statements are not guarantees of our future performance, and actual results and developments may vary materially from those projected in the forward-looking statements. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation, and specifically decline any obligation, except as required by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
Throughout this report, all references to "Euronav", the "Company", "we", "our", and "us" refer to Euronav NV and its subsidiaries and all references to “Euronav NV” refer to Euronav NV and not to its subsidiaries. Unless otherwise indicated, all references to "U.S. dollars", "USD", "dollars", "US$" and "$" in this annual report are to the lawful currency of the United States of America and references to "Euro", "EUR", and "€" are to the lawful currency of Belgium.
We refer to our "U.S. Shares" as those shares of Euronav with no par value that are reflected in the U.S. component of our share register, or the U.S. Register, that is maintained by Computershare Trust Company N.A, or Computershare, our U.S. transfer agent and registrar, and are formatted for trading on the New York Stock Exchange, or the NYSE. The U.S. Shares are identified by CUSIP B38564 108. We refer to our "Belgian Shares" as those shares of Euronav with no par value that are reflected in the Belgian component of our share register, or the Belgian Register, that is maintained by De Interprofessionele Effectendeposito- en Girokas (CIK) NV (acting under the commercial name Euroclear Belgium), or Euroclear Belgium, our agent, and are formatted for trading on Euronext Brussels. The Belgian Shares are identified by ISIN BE0003816338. Our U.S. Shares and our Belgian Shares taken together are collectively referred to as our "ordinary shares." For further discussion of the maintenance of our share register, please see "Item 10. Additional Information —B. Memorandum and Coordinated Articles of Association—Share Register."
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Investing in our securities involves risk. We expect to be exposed to some or all of the risks described below in our future operations. Risks to us include, but are not limited to, the risk factors described below. Any of the risk factors described below could affect our business operations and have a material adverse effect on our business activities, financial condition, results of operations and prospects and cause the value of our shares to decline. Moreover, if and to the extent that any of the risks described below materialize, they may occur in combination with other risks which would compound the adverse effect of such risks on our business activities, financial condition, results of operations and prospects. Investors in our securities could lose all or part of their investment. You should carefully consider the following information in conjunction with "Risk Factors Summary" provided earlier in this report and the other information contained or incorporated by reference in this report. The sequence in which the risk factors are presented below is not indicative of their likelihood of occurrence or of the potential magnitude of their financial consequence.
Risks Relating to our Business
The tanker industry is cyclical and volatile, which may lead to reductions and volatility in charter rates, vessel values, earnings and available cash flow.
The tanker industry is both cyclical and volatile in terms of charter rates and profitability. We expect continued volatility in market rates for our vessels in the foreseeable future with a consequent effect on our short- and medium-term liquidity.
Fluctuations in charter rates and vessel values result from changes in the supply and demand for tanker capacity caused by changes in the supply and demand for oil and oil products. The carrying values of our vessels or our floating, storage and offloading (FSO) vessels may not represent their fair market values or the amount that could be obtained by selling the
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vessels at any point in time since the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings.
We evaluate the carrying amounts of our vessels to determine if events have occurred that would require an impairment of their carrying amounts. The recoverable amount of vessels is reviewed based on events and changes in circumstances that would indicate that the carrying amount of the assets might not be recovered. The review for potential impairment indicators and, if necessary, projection of future cash flows related to the vessels is complex and requires us to make various estimates relating to, among other things, vessel values, future freight rates, earnings from the vessels, discount rates, residual values and economic life of vessels. Many of these items have historically experienced volatility and both charter rates and vessel values tend to be cyclical. Declines in charter rates, vessel values and other market deterioration could cause us to incur impairment charges.
In general, the factors affecting the supply and demand for tankers are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable. A worsening of current global economic conditions may cause tanker charter rates to decline and thereby adversely affect our ability to charter or re-charter our vessels and any renewal or replacement charters that we enter into, may not be sufficient to allow us to operate our vessels profitably. In addition, the conflict in Ukraine is disrupting energy production and trade patterns, including shipping in the Black Sea and elsewhere, and its impact on energy prices and tanker rates, which initially have increased, is uncertain.
The main factors that influence demand for tanker capacity include:
•Supply of and demand for oil and petroleum products;
•Changes in the consumption of oil and petroleum products due to availability of new, alternative energy sources or changes in the price of oil and petroleum products relative to other energy sources or other factors making consumption of oil and petroleum products less attractive;
•Increases in the production of oil in areas linked by pipelines to consuming areas, the extension of existing or the development of new pipeline systems in markets we may serve or the conversion of existing non-oil pipelines to oil pipelines in those markets;
•Regional availability of refining capacity and inventories compared to geographies of oil production regions;
•National policies regarding strategic oil inventories (including if strategic reserves are set at a lower level in the future as oil decreases in the energy mix);
•Global and regional economic and political conditions and developments, armed conflicts including the conflict between Russia and Ukraine, terrorist activities, trade wars, public health threats, tariffs embargoes, illicit trades of crude oil and strikes;
•Currency exchange rates, most importantly versus USD;
•Changing trade patterns and the distance over which the oil and the oil products are to be moved by sea;
•Changes in seaborne and other transportation patterns, including shifts in transportation demand between crude oil and refined oil products and the distance they are transported by sea;
•Changes in governmental or maritime self-regulatory organizations’ rules and regulations or actions taken by regulatory authorities;
•Environmental and other legal and regulatory developments;
•Developments in international trade, including those relating to the imposition of tariffs; and
•International sanctions, embargoes, import and export restrictions, nationalizations and wars.
The factors that influence the supply of tanker capacity include:
•The demand for alternative energy resources;
•The number of newbuilding orders and deliveries, including slippage in deliveries, as may be impacted by the availability of financing for shipping activity;
•The degree of recycling of older vessels, depending, among other things, on recycling rates and international recycling regulations;
•Oil product imbalances (affecting the level of trading activity) and developments in international trade;
•The number of conversions of tankers to other uses;
•Business disruptions, including supply chain issues, due to natural or other disasters, or otherwise;
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•The number of vessels that are out of service, laid up, dry-docked or used as storage units or blocked in port or canal congestions; and
•Environmental concerns and uncertainty around new regulations in relation to amongst others new technologies which may delay the ordering of new vessels.
We anticipate that the future demand for our tankers will be dependent upon economic growth in the world’s economies, seasonal and regional changes in demand, changes in the capacity of the global tanker fleet and the sources and supply of oil and petroleum products to be transported by sea. Given the number of new tankers currently on order with shipyards, the capacity of the global tanker fleet seems likely to increase and there can be no assurance as to the timing or extent of future economic growth. Adverse economic, political, social or other developments could have a material adverse effect on our business and operating results.
Furthermore, the conflict in Ukraine combined with inflationary pressures and/or supply chain disruptions across most major economies have negatively impacted certain of the countries in which we operate in and may lead to a global economic slowdown, which might in turn adversely affect demand for our vessels. In particular, the conflict in Ukraine and related sanctions measures imposed against Russia has and is disrupting energy production and trade patterns, including shipping in the Black Sea and elsewhere, and has impacted fuel prices. Notably, various jurisdictions have imposed sanctions against Russia directly targeting the maritime transport of goods originating from Russia, such as of oil products. Such measures, and the response of targeted jurisdictions to them, have disrupted trade patterns of certain of the goods which we transport and have correspondingly impacted charter rates for the transport of such goods. As the number of jurisdictions imposing sanctions upon Russia grows and/or the nature of sanctions being imposed evolves, the charter rates we are able to obtain could begin to weaken.
Declines in oil and natural gas prices or decreases in demand for oil and natural gas for an extended period of time, or market expectations of potential decreases in these prices and demand, could negatively affect our future growth in the tanker and offshore sector. Sustained periods of low oil and natural gas prices typically result in reduced exploration and extraction because oil and natural gas companies’ capital expenditure budgets are subject to cash flow from such activities and are therefore sensitive to changes in energy prices. Sustained periods of high oil prices on the other hand may be destructive for demand. These changes in commodity prices can have a material effect on demand for our services, and periods of low demand can cause excess vessel supply and intensify the competition in the industry, which often results in vessels, particularly older and less technologically advanced vessels, being idle for long periods of time. We cannot predict the future level of demand for our services or future conditions of the oil and natural gas industry. Any decrease in exploration, development or production expenditures by oil and natural gas companies or decrease in the demand for oil and natural gas could reduce our revenues and materially harm our business, results of operations and cash available for distribution (see also “Peak Oil” below).
A substantial portion of our revenue is derived from a limited number of customers and the loss of any of these customers could result in a significant loss of revenues and cash flow.
We currently derive a substantial portion of our revenue from a limited number of customers. For the year ended December 31, 2022, Valero Energy Corporation, or Valero, accounted for 8% of our total revenues in our tankers segment. In addition, our only FSO customer for both of our FSOs as of December 31, 2022, was North Oil Company, which accounted for 5% of our revenues as of such date. All of our charter agreements have fixed terms, but may be terminated early due to certain events, such as a charterer’s failure to make charter payments to us because of financial inability, disagreements with us or otherwise.
In addition, a charterer may exercise its right to terminate the charter if, among other things:
•The vessel suffers a total loss or is damaged beyond repair;
•We default on our obligations under the charter, including prolonged periods of vessel off-hire;
•War, sanctions, or hostilities significantly disrupt the free trade of the vessel;
•The vessel is requisitioned by any governmental authority; or
•A prolonged force majeure event occurs, such as war, piracy, terrorism, global pandemic or political unrest, which prevents the chartering of the vessel, in each case in accordance with the terms and conditions of the respective charter.
In addition, the charter payments we receive may be reduced if the vessel does not perform according to certain contractual specifications. such as if average vessel speed falls below the speed we have guaranteed or if the amount of fuel consumed
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to power the vessel exceeds the guaranteed amount. Additionally, compensation under our FSO service contracts is based on daily performance and/or availability of each FSO in accordance with the requirements specified in the applicable FSO service contracts. The charter payments we receive under our FSO service contracts may be reduced or suspended (as applicable) if the vessel is idle, but available for operation, or if a force majeure event occurs, or we may not be entitled to receive charter payments if the FSO is taken out of service for maintenance for an extended period, or the charter may be terminated if these events continue for an extended period. In addition, our FSO service contracts have day rates that are fixed over the contract term. In order to mitigate the effects of inflation on revenues from these term contracts, our FSO service contracts include yearly escalation provisions. These provisions are designed to compensate us for certain cost increases, including wages, insurance and maintenance costs. However, actual cost increases may result from events or conditions that do not cause correlative changes to the applicable escalation provisions.
If any of our charters are terminated, we may be unable to re-deploy the related vessel on terms as favorable to us as our current charters, or at all. We are exposed to changes in the spot market rates associated with the deployment of our vessels. If we are unable to re-deploy a vessel for which the charter has been terminated, we will not receive any revenues from that vessel and we may be required to pay ongoing expenses necessary to maintain the vessel in proper operating condition. Any of these factors may decrease our revenue and cash flows. Further, the loss of any of our charterers, charters or vessels, or a decline in charter hire under any of our charters, could have a material adverse effect on our business, results of operations, financial condition and ability to pay dividends, if any, to our shareholders.
We are dependent on spot charterers and any decreases in spot charter rates in the future may adversely affect our earnings and ability to pay dividends.
As of December 31, 2022, 15 of our vessels were employed directly in the spot market, 38 of our vessels were employed in the Tankers International (TI) Pool, in which we were a founding member in 2000, and ten of our vessels, including the two FSO vessels, were employed on long-term charters.
We will be exposed to prevailing charter rates in the crude tanker sectors when these vessels’ existing charters expire, and to the extent the counterparties to our fixed-rate charter contracts fail to honor their obligations to us. We will also enter into spot charters in the future. The spot charter market may fluctuate significantly based upon tanker and oil supply and demand. The successful operation of our vessels in the competitive spot charter market depends on, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling in ballast to pick up cargo. When the current charters for our fleet expire or are terminated, it may not be possible to re-charter these vessels at similar rates, or at all, or to secure charters for any vessels we agree to acquire at similarly profitable rates, or at all. As a result, we may have to accept lower rates or experience off hire time for our vessels, which would adversely impact our revenues, results of operations and financial condition.
The spot market is very volatile and there have been and will be periods when spot charter rates decline below the operating cost of vessels. If future spot charter rates decline, we may be unable to operate our vessels trading in the spot market profitably, meet our obligations, including payments on indebtedness, or pay dividends in the future. Furthermore, as charter rates for spot charters are fixed for a single voyage which may last up to several weeks, during periods in which spot charter rates are rising, we will generally experience delays in realizing the benefits from such increases.
We continuously evaluate potential transactions that we believe will be accretive to earnings, enhance shareholder value or are in the best interests of the Company.
We continuously evaluate potential transactions, such as business combinations, as well as the acquisition of vessels or related businesses, the expansion of our operations, repayment of existing debt, share repurchases, short term investments or other transactions, that we believe will be accretive to earnings, enhance shareholder value or are in the best interest of the Company. The diversion of management’s attention, any delays or difficulties encountered in connection with a potential transaction, the failure to realize any or all of the anticipated benefits of the transaction or the ability to close such transaction within the time periods anticipated may have material adverse effect on our business, results of operations, financial condition and ability to pay dividends, if any, to our shareholders.
Potential organizational changes may impact us, potentially resulting in loss of business and the loss of key employees or declines in employee productivity. Uncertainties associated with any senior management transitions could lead to concerns from current and potential third parties with whom we do business, any of which could hurt our business prospects. Turnover in key leadership positions within the Company, or any failure to successfully integrate key new hires or promoted employees, may adversely impact our ability to manage the Company efficiently and effectively, could be disruptive and distracting to management and may lead to additional departures of existing personnel, any of which could have a material adverse effect on our business, operating results, financial results and internal controls over financial reporting.
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Our business is affected by macroeconomic conditions, including rising inflation, interest rates, market volatility, economic uncertainty and supply chain constraints.
Various macroeconomic factors could adversely affect our business and the results of our operations and financial condition, including changes in inflation, interest rates and overall economic conditions and uncertainties such as those resulting from the current and future conditions in the global financial markets. For instance, inflation has negatively impacted us by increasing our labor costs, through higher wages and higher interest rates, and operating costs. Supply chain constraints have led to higher inflation, which if sustained could have a negative impact on our product development and operations. If inflation or other factors were to significantly increase, our business operations may be negatively affected. Interest rates, the liquidity of the credit markets and the volatility of the capital markets could also affect the operation of our business and our ability to raise capital on favorable terms, or at all, in order to fund our operations. Increased inflation, including rising prices for items, such as fuel, parts and components, freight, packaging, supplies, labor and energy increases the Company’s operating costs. The Company does not currently use financial derivatives to hedge against volatility in commodity prices. The Company uses market prices for materials, fuel, parts and components. The Company may be unable to pass these rising costs onto its customers. To mitigate this exposure, the Company attempts to include cost escalation clauses in its longer-term marine transportation contracts whereby certain costs, including fuel, can largely be passed through to its customers. Results of operations and margin performance can be negatively affected if the Company is unable to mitigate the impact of these cost increases through contractual means and is unable to increase prices to sufficiently offset the effect of these cost increases.
Increasing scrutiny and changing expectations from investors, lenders and other market participants with respect to our Environmental, Social and Governance (ESG) policies may impose additional costs on us or expose us to additional risks.
Companies across all industries are facing increasing scrutiny relating to their ESG policies. Investor advocacy groups, certain institutional investors, investment funds, lenders and other market participants are increasingly focused on ESG practices, especially as they relate to the environment, health and safety, diversity, labor conditions and human rights in recent years, and have placed increasing importance on the implications and social costs of their investments.
In February 2021, the Acting Chair of the SEC issued a statement directing the Division of Corporation Finance to enhance its focus on climate-related disclosure in public company filings and in March 2021 the SEC announced the creation of a Climate and ESG Task Force in the Division of Enforcement (Task Force). The Task Force’s goal is to develop initiatives to proactively identify ESG-related misconduct consistent with increased investor reliance on climate and ESG-related disclosure and investment. To implement the Task Force’s purpose, the SEC has taken several enforcement actions, with the first enforcement action taking place in May 2022, and promulgated new rules. On March 21, 2022, the SEC proposed that all public companies are to include extensive climate-related information in their SEC filings. On May 25, 2022, SEC proposed a second set of rules aiming to curb the practice of "greenwashing" (i.e., making unfounded claims about one's ESG efforts) and would add proposed amendments to rules and reporting forms that apply to registered investment companies and advisers, advisers exempt from registration, and business development companies. These proposed sets of rules are not effective as of the date of this annual report.
The increased focus and activism related to ESG and similar matters may hinder access to capital, as investors and lenders may decide to reallocate capital or to not commit capital as a result of their assessment of a company’s ESG practices. Failure to adapt to or comply with evolving investor, lender or other industry shareholder expectations and standards or the perception of not responding appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, may damage such a company’s reputation or stock price, resulting in direct or indirect material and adverse effects on the company’s business and financial condition.
The increase in shareholder proposals submitted on environmental matters and, in particular, climate-related proposals in recent years indicates that we may face increasing pressures from investors, lenders and other market participants, who are increasingly focused on climate change, to prioritize sustainable energy practices, reduce our carbon footprint and promote sustainability. As a result, we may be required to implement more stringent ESG procedures or standards so that our existing and future investors and lenders remain invested in us and make further investments in us, especially given the highly focused and specific trade of crude oil transportation in which we are engaged. If we do not meet these standards, our business and/or our ability to access capital could be harmed.
Additionally, certain investors and lenders may exclude oil transport companies, such as us, from their investing portfolios altogether due to environmental, social and governance factors. These limitations in both the debt and equity capital markets may affect our ability to grow as our plans for growth may include accessing the equity and debt capital markets. If those markets are unavailable, or if we are unable to access alternative means of financing on acceptable terms, or at all, we may
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be unable to implement our business strategy, which would have a material adverse effect on our financial condition and results of operations and impair our ability to service our indebtedness. Further, it is likely that we will incur additional costs and require additional resources to implement, monitor, report and comply with wide ranging ESG requirements. Members of the investment community are also increasing their focus on ESG disclosures, including disclosures related to greenhouse gases and climate change in the energy industry in particular, and diversity and inclusion initiatives and governance standards among companies more generally. As a result, we may face increasing pressure regarding our ESG disclosures. The occurrence of any of the foregoing could have a material adverse effect on our business and financial condition.
Moreover, from time to time, in alignment with our sustainability priorities, we aim at establishing and publicly announce goals and commitments in respect of certain ESG items, such as shipping decarbonization. While we may create and publish voluntary disclosures regarding ESG matters from time to time, many of the statements in those voluntary disclosures are based on hypothetical expectations and assumptions that may or may not be representative of current or actual risks or events or forecasts of expected risks or events, including the costs associated therewith. Such expectations and assumptions are necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack of an established standardized approach to identifying, measuring and reporting on many ESG matters. If we fail to achieve or improperly report on our progress toward achieving our environmental goals and commitments, the resulting negative publicity could adversely affect our reputation and/or our access to capital.
Finally, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters. Such ratings are used by some investors to inform their investment and voting decisions. Unfavorable ESG ratings and recent activism directed at shifting funding away from companies with fossil fuel-related assets could lead to increased negative investor sentiment toward us and our industry and to the diversion of investment to other, non-fossil fuel markets, which could have a negative impact on our access to and costs of capital.
Servicing our current or future indebtedness limits funds available for other purposes and if we cannot service our debt, we may lose our vessels.
We had $1,795.6 million and $1,807.9 million of indebtedness as of December 31, 2022 and December 31, 2021 respectively, and expect to incur additional indebtedness as we further expand our fleet. Borrowing under our credit facilities are secured by our vessels and certain of our and our vessel-owning subsidiaries’ bank accounts and if we cannot service our debt, we may lose our vessels or certain of our pledged accounts. Borrowings under our credit facilities and other debt agreements requires us to dedicate a part of our cash flow from operations to paying interest and principal on our indebtedness. These payments limit funds available for working capital, capital expenditures and other purposes, including further equity or debt financing in the future. Amounts borrowed under our credit facilities bear interest at variable rates.
Increases in prevailing rates could increase the amounts that we would have to pay to our lenders, even though the outstanding principal amount remains the same and our net income and cash flows would decrease. We expect our earnings and cash flow to vary from year to year due to the cyclical nature of the tanker industry. If we do not generate or reserve enough cash flow from operations to enable us to satisfy our short-term or medium- to long-term liquidity requirements or to otherwise satisfy our debt obligations, we may have to undertake alternative financing plans, which could dilute shareholders or negatively impact our financial results.
However, these alternative financing plans, if necessary, may not be sufficient to allow us to meet our debt obligations. If we are unable to meet our debt obligations or if some other default occurs under our credit facilities, our lenders could elect to declare that our debt, totally or partially, together with accrued interest and fees, to be immediately due and payable and proceed against the collateral vessels securing that debt even though the majority of the proceeds used to purchase the collateral vessels did not come from our credit facilities.
Our agreements governing our indebtedness also impose certain operating and financial restrictions on us, mainly to ensure that the market value of the mortgaged vessel under the applicable credit facility does not fall below a certain percentage of the outstanding amount of the loan, which we refer to as the asset coverage ratio, which means that the facility size of the vessel loans can be reduced if the value of the collateralized vessels falls under a certain percentage of the outstanding amount under that loan, as a result of which a repayment in the same amount may be required. In addition, certain of our credit facilities will require us to satisfy certain financial covenants, which require us to, among other things, maintain:
•An amount of current assets, which may include undrawn amount of any committed revolving credit facilities and credit lines having a maturity of more than one year, that, on a consolidated basis, exceeds our current liabilities;
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•An aggregate amount of cash, cash equivalents and available aggregate undrawn amounts of any committed loan of at least $50.0 million or 5% of our total indebtedness (excluding guarantees), depending on the applicable loan facility, whichever is greater;
•An aggregate cash balance of at least $30.0 million; and
•A ratio of stockholders’ equity to total assets of at least 30%.
In general, the operating restrictions that are contained in our credit facilities may prohibit or otherwise limit our ability to, among other things:
•Effect changes in management of our vessels;
•Transfer or sell or otherwise dispose of all or a substantial portion of our assets;
•Declare and pay dividends if there is or will be, as a result of the dividend, an event of default or breach of a loan covenant; and
•Incur additional indebtedness.
A violation of any of our financial covenants or operating restrictions contained in our credit facilities may constitute an event of default under our credit facilities, which, unless cured within the grace period set forth under the applicable credit facility, if applicable, or waived or modified by our lenders, provides our lenders with the right to, among other things, require us to post additional collateral, enhance our equity and liquidity, increase our interest payments, pay down our indebtedness to a level where we are in compliance with our loan covenants, sell vessels in our fleet, reclassify our indebtedness as current liabilities and accelerate our indebtedness and foreclose their liens on our vessels and the other assets securing the credit facilities, which would impair our ability to continue to conduct our business. Furthermore, certain of our credit facilities contain a cross-default provision that may be triggered by a default under one of our other credit facilities, or those of our 50%-owned joint ventures.
As of December 31, 2022, and as of the date of this annual report, we were in compliance with the financial covenants contained and other restrictions in our debt agreements.
We depend on our executive officers and employees, and the loss of their services could, in the short term, have a material adverse effect on our business, results and financial condition.
We depend on the efforts, knowledge, skill, reputations and business contacts of our executive officers and other key employees. Accordingly, our success will depend on the continued service of these individuals. We may experience departures of senior executive officers and other key employees, and we cannot predict the impact that any of their departures would have on our ability to achieve our financial objectives. The loss of the services of any of them could, in the short term, have a material adverse effect on our business, results of operations and financial condition.
Rising fuel prices may adversely affect our profits.
Since we primarily employ our vessels in the spot market, we expect that fuel will typically be the largest expense in our shipping operations for our vessels. The cost of fuel, including the fuel efficiency or capability to use lower priced fuel, can also be an important factor considered by charterers in negotiating charter rates. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, such as the ongoing conflict between Russia and Ukraine, supply and demand for oil and gas, actions by the Organization of the Petroleum Exporting Countries (OPEC), and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Fuel may therefore become much more expensive in the future and we might not be able to fully recover this increased cost through our charter rates.
Fuel is also a significant, if not the largest, expense in our shipping operations when vessels are operated on the spot market under voyage charter. As a result, an increase in the price of fuel beyond our expectations may adversely affect our profitability at the time of charter negotiation. Further, fuel has become much more expensive as a result of regulations mandating a reduction in sulfur emissions to 0.5% as of January 2020, which may reduce the profitability and competitiveness of our business versus other forms of transportation, such as truck or rail. Other future regulations may have a similar impact.
Due to the risk within the market, and the self-sanctioning of Russian oil flows, the price of marine fuels has increased and will continue to be high for the foreseeable future due to Russia supplying bunker markets with 20% of the global fuel demand in HSFO, VLSFO and MGO markets. Bunker prices have increased significantly during 2021 and have continued
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rising during 2022. Prices for very low sulfur fuel oil, or VLSFO, in Singapore started at around $415 per metric ton in January 2021 and reached $620 per metric ton by the end of December 2021, an increase of about 50%. The price of VLSFO has increased significantly as a result of the conflict in Ukraine and, indicatively, the price for VLSFO in Singapore reached approximately $1,100 per metric ton in July 2022, but has since decreased. As of February 9, 2023, the price of VLSFO in Singapore was approximately $656 per metric ton but uncertainty regarding its future direction remains. These price increases will negatively impact the cost structure of the vessels making it more expensive to ship freight on long haul voyages.
With the exception of 12 VLCC vessels and four Suezmax vessels, none of our vessels are equipped with scrubbers and as of January 1, 2020 we have transitioned to burning IMO compliant fuels. We continue to evaluate different options in complying with IMO and other rules and regulations and continue to work closely with suppliers and producers of both scrubbers and alternative mechanisms. We currently procure physical low sulfur fuel oil directly on the wholesale market with a view to secure availability of qualitative compliant fuel and to capture volatility in prices between high sulfur and low sulfur fuel oil. The procurement of large quantities of low sulfur fuel oil implies a commodity price risk because of fluctuations in price between the time of purchase and consumption. Whilst we may implement financial strategies with a view to limiting this risk, we cannot give assurance that such strategies will be successful in which case we could sustain significant losses which could have a material impact on our business, financial condition, results of operation and cash flow. The storage of and onward consumption on our vessels of the procured commodity may require us to blend, co-mingle or otherwise combine, handle or manipulate such commodities which implies certain operational risks that may result in loss of or damage to the procured commodities or the vessels and their machinery.
We rely on our information systems to conduct our business, and failure to protect these systems against security breaches could adversely affect our business and results of operations. Additionally, if these systems fail or become unavailable for any significant period of time, our business could be harmed.
The safety and security of our vessels and efficient operation of our business, including processing, transmitting and storing electronic and financial information, depend on computer hardware and software systems, which are increasingly vulnerable to security breaches and other disruptions. Our vessels rely on information systems for a significant part of their operations, including navigation, provision of services, propulsion, machinery management, power control, communications and cargo management. A disruption to the information system of any of our vessels could lead to, among other things, incorrect routing, collision, grounding and propulsion failure.
Beyond our vessels, we experience threats to our data and systems, including malware and computer virus attacks, internet network scans, systems failures and disruptions. A cyberattack that bypasses our IT security systems, causing an IT security breach, could lead to a material disruption of our IT systems and adversely impact our daily operations and cause the loss of sensitive information, including our own proprietary information and that of our customers, suppliers and employees. Such losses could harm our reputation and result in competitive disadvantages, litigation, regulatory enforcement actions, lost revenues, additional costs and liability. While we devote substantial resources to maintaining adequate levels of cybersecurity, our resources and technical sophistication may not be adequate to prevent all types of cyberattacks.
We rely on industry accepted security and control frameworks and technology to securely maintain confidential and proprietary information and personal data maintained on our information systems. However, these measures and technology may not adequately prevent security breaches. In addition, the unavailability of the information systems or the failure of these systems to perform as anticipated for any reason could disrupt our business and could result in decreased performance and increased operating costs, causing our business and results of operations to suffer. Any significant interruption or failure of our information systems or any significant breach of security could adversely affect our business, results of operations and financial condition, as well as our cash flows. Furthermore, as from May 25, 2018, data breaches on personal data as defined in the General Data Protection Regulation 2016/679 (EU), could lead to administrative fines up to €20 million or up to 4% of the total worldwide annual turnover of the company, whichever is higher.
Moreover, cyberattacks against the Ukrainian government and other countries in the region have been reported in connection with the ongoing conflict between Russia and Ukraine. To the extent such attacks have collateral effects on global critical infrastructure or financial institutions, such developments could adversely affect our business, operating results and financial condition. It is difficult to assess the likelihood of such threat and any potential impact at this time.
Further, in March 2022, the SEC proposed amendments to its rules on cybersecurity risk management, strategy, governance, and incident disclosure. The proposed amendments, if adopted, would require us to report material cybersecurity incidents involving our information systems and periodic reporting regarding our policies and procedures to identify and manage cybersecurity risks, amongst other disclosures
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In the highly competitive international market, we may not be able to compete effectively for charters.
Our vessels are employed in a highly competitive market that is capital intensive. Competition arises from other vessel owners, including major oil companies, national oil companies or companies linked to authorities of oil producing or importing countries, as well as independent tanker companies which may all have substantially greater resources than us. Competition for the transportation of crude oil and other petroleum products depends on price, location, size, age, condition and the acceptability of the vessel operator to the charterer. Competitors with greater resources could enter and operate larger tanker fleets through consolidations or acquisitions, and may be able to offer more competitive prices and fleets. We believe that because ownership of the world tanker fleet is highly fragmented, however, no single vessel owner is able to influence charter rates.
We are subject to certain risks with respect to our counterparties and failure of our counterparties to meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.
We have entered into, and may enter in the future, various contracts, including shipbuilding contracts or long-term contracts such as the FSO vessels operating offshore Qatar, credit facilities, insurance agreements, voyage and time charter agreements and other agreements associated with the operation of our vessels. Such agreements subject us to counterparty risks.
Euronav has established a detailed counterparty risk policy to set forth processes for avoiding, monitoring, mitigating and effectively managing the risk of default through a credit limit system that restricts the exposure Euronav may have on any single counterparty, as well as other mitigating measures. Counterparty limits are monitored periodically and are calculated taking into account a range of factors that govern the approval of all counterparties, including an assessment of the counterparty’s financial soundness and financial ratings (if any), reputation, compliance and regulatory/legal risk based on current and prospective risk to earnings or assets arising from violations by the counterparty of, or nonconformance with, international sanction lists (such as OFAC, UK Sanctions and Anti-Money Laundering Act, EU Sanction List), laws, rules, regulations, prescribed practices, internal policies and procedures, or ethical standards.
Notwithstanding these measures, the ability and willingness of each of our counterparties to perform its payment and other obligations under a contract with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the maritime and offshore industries, the overall financial condition of the counterparty, charter rates received for specific types of vessels, the supply and demand for commodities, such as oil and other petroleum products, work stoppages or other labor disturbances, including as a result of the outbreak of COVID-19 and various expenses. Should a counterparty fail to honor its obligations under any such contract or attempt to renegotiate our agreements, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations, cash flows, ability to pay dividends to holders of our ordinary shares in the amounts anticipated or at all and compliance with covenants in our secured loan agreements.
In addition, in depressed market conditions, our charterers and customers may no longer need a vessel that is currently under charter or contract or may be able to obtain a comparable vessel at lower rates. As a result, charterers and customers may seek to renegotiate the terms of their existing charter agreements or avoid their obligations under those contracts.
The current state of the global financial markets and current economic conditions may adversely impact our results of operation, financial condition, cash flows, ability to obtain financing or refinance our existing and future credit facilities on acceptable terms, which may negatively impact our business.
Global financial markets and economic conditions have been disrupted and volatile at times over the past decade, including in 2020, 2021 and 2022 as a result of the COVID-19 pandemic and the ongoing conflict between Russia and Ukraine. While the global economy had improved in recent years, the outbreak of COVID-19 dramatically disrupted the global economy. Economic growth is expected to slow, including due to supply-chain disruption, the recent surge in inflation and related actions by central banks and geopolitical conditions, with a significant risk of recession in many parts of the worlds in the near term. Credit markets and the debt and equity capital markets have been distressed and the uncertainty surrounding the future of the global credit markets has resulted in reduced access to credit worldwide, particularly for the shipping industry. These issues, along with significant write-offs in the financial services sector, the re-pricing of credit risk and the uncertain economic conditions, have made, and may continue to make, it difficult to obtain additional financing. The current state of global financial markets and current economic conditions might adversely impact our ability to issue additional equity at prices that will not be dilutive to our existing shareholders or preclude us from issuing equity at all. Economic conditions may also adversely affect the market price of our ordinary shares.
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Also, as a result of concerns about the stability of financial markets generally, and the solvency of counterparties specifically, the availability and cost of obtaining money from the public and private equity and debt markets has become more difficult. Many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at all or on terms similar to current debt, and reduced, and in some cases ceased, to provide funding to borrowers and other market participants, including equity and debt investors, and some have been unwilling to invest on attractive terms or even at all. Due to these factors, we cannot be certain that financing will be available if needed and to the extent required, or that we will be able to refinance our existing and future credit facilities, on acceptable terms or at all. If financing or refinancing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due or we may be unable to enhance our existing business, complete additional vessel acquisitions or otherwise take advantage of business opportunities as they arise.
Further, in 2019, a number of leading lenders to the shipping industry and other industry participants announced a global framework by which financial institutions can assess the climate alignment of their ship finance portfolios, called the Poseidon Principles, and additional lenders have subsequently announced their intention to adhere to such principles. If the ships in our fleet are deemed not to satisfy the emissions and other sustainability standards contemplated by the Poseidon Principles, to which we are a participant, the availability and cost of bank financing for such vessels may be adversely affected.
If economic conditions throughout the world decline, this will impede our results of operations, financial condition and cash flows.
There has historically been a strong link between the development of the world economy and demand for energy, including oil and gas. An extended period of deterioration in the outlook for the world economy could reduce the overall demand for oil and gas and for our services. Such changes could adversely affect our results of operations and cash flows.
Cargo volumes remained below 2019 levels for most of 2022 as a result of restrictions on economic activity and a consequent reduction in both the demand for crude and the supply of export cargoes attributable to the Omicron variant of COVID-19 as well as the implementation of the G7 price cap on Russian crude oil exports. We cannot guarantee a recovery in freight rate and market activity as a result of the highly unpredictable nature of the COVID-19 pandemic. Please also see “The continuing effects of the COVID-19 pandemic and other outbreaks of epidemic and pandemic diseases and governmental responses thereto could materially and adversely affect our business, financial condition, and results of operations.” We face risks attendant to changes in economic environments, changes in margins or interest rates, changes in sanctions regimes and trade restrictions imposed by governments especially as implemented in response to the invasion of Ukraine. We face risk in changing government regulations, and instability in the banking and securities markets around the world, among other factors. Major market disruptions may adversely affect our business or impair our ability to borrow amounts under our credit facilities or any future financial arrangements. In the absence of available financing, we also may be unable to take advantage of business opportunities or respond to competitive pressures.
Continuing concerns over COVID-19, inflation, rising interest rates, energy costs, geopolitical issues, including acts of war and the availability and cost of credit have contributed to increased volatility and diminished expectations for the economy and the markets going forward. These factors, combined with volatile oil prices, declining business and consumer confidence, have precipitated fears of a possible economic recession. Domestic and international equity markets continue to experience heightened volatility and turmoil. The weakness in the global economy has caused, and may continue to cause, a decrease in worldwide demand for certain goods and, thus, shipping.
An economic slowdown or changes in the economic and political environment in the Asia Pacific region could have a material adverse effect on our business, financial condition and results of operations.
We anticipate a significant number of the port calls made by our vessels will continue to involve loading or discharging operations in ports in the Asia Pacific region. As a result, any negative changes in economic conditions in any Asia Pacific country, particularly in China, may have a material adverse effect on our business, financial condition and results of operations, as well as our future prospects.
We cannot assure you that the Chinese economy will not experience a significant contraction in the future. Furthermore, there is a rising threat of a Chinese financial crisis resulting from massive personal and corporate indebtedness and “trade wars”. In recent years, China and the United States have implemented certain increasingly protective trade measures with continuing trade tensions, including significant tariff increases, between these countries. Although the United States and China successfully reached an interim trade deal in January of 2020 that de-escalated the trade tensions with both sides rolling back tariffs, the extent to which the trade deal will be successfully implemented is unpredictable. A decrease in the level of imports to and exports from China could adversely affect our business, operating results and financial condition.
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If there is an economic slowdown in the Asia Pacific region, especially in China, it may have a negative effect on us. In recent history, China has had one of the world's fastest growing economies in terms of gross domestic product, or GDP, which had a significant impact on shipping demand. The growth rate of China’s GDP for the year ended December 31, 2022, however, is estimated to be around 3.0%, down from the growth rate of 8.1% for the year ended December 31, 2021. Following the emergence of the COVID-19, China experienced reduced industrial activity with temporary closures of factories and other facilities, labor shortages and restrictions on travel. As such, China and other countries in the Asia Pacific region may continue to experience slowed or even negative economic growth in the future. Our financial condition and results of operations, as well as our future prospects, would likely be impeded by an economic downturn in any of these countries.
Also, several initiatives are underway in China with a view to reduce their dependency on (foreign) oil, such as the Net Zero 2060 initiative and development of shale oil on their own territory, which could impact the need for oil transportation services. The method by which China attempts to achieve carbon neutrality by 2060, and any attendant reduction in the demand for oil, petroleum and related products, could have a material adverse effect on our business, cash flows and results of operations.
In addition, President Xi Jinping committed his country to achieving carbon neutrality by 2060 at the UN General Assembly despite that carbon emissions are currently a prominent part of China’s economic and industrial structure as it relies heavily on nonrenewable energy sources, generally lacks energy efficiency, and has a rapidly growing energy demand. Depending on how China attempts to achieve carbon neutrality by 2060, including through the reduction in the use of oil, an overall increase in the use of nonrenewable energy as part of the energy consumption mix and through other means, any reduction in the demand for oil and oil products and our tanker vessels could have a material adverse effect on our business, cash flows and results of operations.
The Chinese government may adopt policies that favor domestic oil tanker companies and may hinder our ability to compete with them effectively. For example, China imposes a tax for non-resident international transportation enterprises engaged in the provision of services of passengers or cargo, among other items, in and out of China using their own, chartered or leased vessels. The regulation may subject international transportation companies to Chinese enterprise income tax on profits generated from international transportation services passing through Chinese ports. This tax or similar regulations, such as the recently promoted environmental taxes on coal, by China may result in an increase in the cost of raw materials imported to China and the risks associated with importing raw materials to China, as well as a decrease in any raw materials shipped from our charterers to China. This could have an adverse impact on our charterers’ business, operating results and financial condition and could thereby affect their ability to make timely charter hire payments to us and to renew and increase the number of their time charters with us.
Our business is affected by macroeconomic conditions, including rising inflation, interest rates, market volatility, economic uncertainty, and supply chain constraints.
There has historically been a strong link between the development of the world economy and demand for energy, including oil and gas. An extended period of deterioration in the outlook for the world economy could reduce the overall demand for oil and gas and for our services. While market conditions have improved, continued adverse and developing economic and governmental factors, together with the concurrent volatility in charter rates and vessel values, may have a material adverse effect on our results of operations, financial condition and cash flows, and could cause the price of our ordinary shares to decline.
Our ability to secure funding is dependent on well-functioning capital markets and on an appetite to provide funding to the shipping industry. At present, capital markets are well-functioning and funding is available for the shipping industry. However, if global economic conditions worsen or lenders for any reason decide not to provide debt financing to us, we may not be able to secure additional financing to the extent required, on acceptable terms or at all. If additional financing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due, or we may be unable to enhance our existing business, complete additional vessel acquisitions or otherwise take advantage of business opportunities as they arise. Relatedly, certain banks have reduced or ceased lending for oil cargoes, which could have an adverse economic impact on our customers.
Various macroeconomic factors could adversely affect our business and the results of our operations and financial condition, including changes in inflation, interest rates and overall economic conditions and uncertainties such as those resulting from the current and future conditions in the global financial markets. For instance, inflation has negatively impacted us by increasing our labor costs, through higher wages and higher interest rates, and operating costs. Supply chain constraints have led to higher inflation, which if sustained could have a negative impact on our product development and
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operations. If inflation or other factors were to significantly increase, our business operations may be negatively affected. Interest rates, the liquidity of the credit markets and the volatility of the capital markets could also affect the operation of our business and our ability to raise capital on favorable terms, or at all, in order to fund our operations.
A shift in consumer demand from oil towards other energy sources may have a material adverse effect on our business.
A significant portion of our earnings are related to the oil industry and our lack of diversification will potentially affect the demand for our vessels. We rely almost exclusively on the cash flows generated from charters for our vessels that operate in the tanker sector of the shipping industry. Due to our lack of diversification, adverse developments in the tanker shipping industry have a significantly greater impact on our financial condition and results of operations than if we maintained more diverse assets or lines of business. Adverse developments in the tanker business could therefore reduce our ability to meet our payment obligations and our profitability.
A shift in or disruption of the consumer demand from oil towards other energy resources such as electricity, natural gas, liquefied natural gas or hydrogen will potentially affect the demand for our tankers. A shift from the use of internal combustion engine vehicles to electric vehicles may also reduce the demand for oil. These factors could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
“Peak oil” is the year when the maximum rate of extraction of oil is reached. Recent forecasts of “peak oil” range from the late 2020s to 2040, depending on economics and how governments respond to global warming. OPEC maintains that demand for oil will plateau around 2040, despite transition toward other energy sources. Irrespective of “peak oil”, the continuing shift in consumer demand from oil towards other energy resources such as wind energy, solar energy, hydrogen energy or nuclear energy, which appears to be accelerating as a result of the COVID pandemic, as well shifts in government commitments and support for energy transition programs, may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Changes to trade patterns for oil and oil products may have a material adverse effect on our business.
Seaborne trading and distribution patterns are primarily influenced by the relative advantage of the various sources of production, locations of consumption, pricing differentials and seasonality. Changes to the trade patterns of oil and oil products may have a significant negative or positive impact on the ton-mile and therefore the demand for our tankers. This could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Lack of technological innovation to meet quality and efficiency requirements could reduce our charter hire income and the value of our vessels.
Our customers, in particular those in the oil industry, have a high and increasing focus on quality and compliance standards with their suppliers across the entire supply chain, including the shipping and transportation segment. Our continued compliance with these standards and quality requirements is vital for our operations. The charter hire rates and the value and operational life of a vessel are determined by a number of factors including the vessel’s efficiency, operational flexibility and physical life. Efficiency includes speed, fuel economy and the ability to load and discharge cargo quickly. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals and straits. The length of a vessel’s physical life is related to its original design and construction, its maintenance and the impact of the stress of operations. More technologically advanced tankers have been built, since our vessels were constructed and tankers with further advancements may be built that are even more efficient or more flexible or have longer physical lives, including new vessels powered by alternative fuels or which are otherwise perceived as more environmentally friendly by charterers. We face competition from companies with more modern vessels with more fuel efficient designs than our vessels, and if new tankers carriers are built that are more efficient or more flexible or have longer physical lives than the current eco vessels, competition from the current eco vessels and any more technologically advanced vessels could adversely affect the amount of charter hire payments we receive for our vessels and the resale value of our vessels could significantly decrease. In these circumstances, we may also be forced to charter our vessels to less creditworthy charterers, either because the oil majors and other top tier charters will not charter older and less technologically advanced vessels or will only charter such vessels at lower contracted charter rates than we are able to obtain from these less creditworthy, second tier charterers. Similarly, technologically advanced vessels are needed to comply with environmental laws, the investment, in which along with the foregoing, could have a material adverse effect on our results of operations, charter hire payments, resale value of vessels, cash flows financial condition and ability to pay dividends.
Newbuilding projects are subject to risks that could cause delays, cost overruns or cancellation of our newbuilding contracts.
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As of December 31, 2022, we currently have eight vessels under construction. These construction projects are subject to risks of delay or cost overruns inherent in any large construction project from numerous factors, including shortages of equipment, materials or skilled labor, unscheduled delays in the delivery of ordered materials and equipment or shipyard construction, failure of equipment to meet quality and/or performance standards, financial or operating difficulties experienced by equipment vendors or the shipyard, unanticipated actual or purported change orders, inability to obtain required permits or approvals, unanticipated cost increases between order and delivery, design or engineering changes and work stoppages and other labor disputes, public health threats, adverse weather conditions or any other potential events of force majeure. Significant cost overruns or delays could adversely affect our financial position, results of operations and cash flows. Additionally, failure to complete a project on time may result in the delay of revenue from that vessel.
If for any reason we default under any of our newbuilding contracts, or otherwise fail to take delivery of our newbuilding vessels, we would be prevented from realizing potential revenues from such vessels, we could also lose all or a portion of our investment, including any installment payments made, and we could be liable for penalties and damages under such contracts. as well as suffer reputational damage.
In addition, in the event a shipyard does not perform under its contract, we may lose all or part of our investment, which would have a material adverse effect on our results of operations, financial condition and cash flows.
If our vessels call on ports located in countries or territories that are the subject of sanctions or embargoes imposed by the U.S. government, the European Union, the United Nations, or other applicable governmental authorities, it could lead to monetary fines or other penalties and adversely affect our reputation and the market for our ordinary shares.
Although no vessels owned or operated by us have called on ports located in countries or territories that are the subject of country-wide or territory-wide comprehensive sanctions and/or embargoes imposed by the U.S. government, the European Union, or other applicable governmental authorities (Sanctioned Jurisdictions) in violation of sanctions or embargo laws during 2022, and we endeavor to take precautions reasonably designed to mitigate such risks, it is possible that, in the future, our vessels may carry cargo from or call on ports in Sanctioned Jurisdictions on charterers’ instructions and/or without our consent. If such activities result in violation of applicable sanctions or embargo laws, we could be subject to monetary fines, penalties, suspension of our license to operate or other sanctions, and our reputation and the market for our ordinary shares could adversely affected.
U.S. sanctions exist under a strict liability regime. A party need not know it is violating sanctions and need not intend to violate sanctions to be liable. We could be subject to monetary fines, penalties, or other sanctions for violating applicable sanctions or embargo laws even in circumstances where our conduct, or the conduct of a charterer, is consistent with our sanctions-related policies, unintentional or inadvertent.
The laws and regulations of these different jurisdictions vary in their application, and do not all apply to the same covered persons or proscribe the same activities. In addition, the sanctions and embargo laws and regulations of each jurisdiction may be amended to increase or reduce the restrictions they impose over time, and the lists of persons and entities designated under these laws and regulations are amended frequently. Moreover, most sanctions regimes provide that entities owned or controlled by the persons or entities designated in such lists are also subject to sanctions. The U.S. and EU both have enacted new sanctions programs in recent years. Additional countries or territories, as well as additional persons or entities within or affiliated with those countries or territories, have, and in the future will, become the target of sanctions. These require us to be diligent in ensuring our compliance with sanctions laws. Further, the U.S. has increased its focus on sanctions enforcement with respect to the shipping sector. Current or future counterparties of ours may be or become affiliated with persons or entities that are now or may in the future be the subject of sanctions imposed by the U.S. Government, the European Union, and/or other international bodies. If we determine that such sanctions or embargoes require us to terminate existing or future contracts to which we, or our subsidiaries are a party or if we are found to be in violation of such applicable sanctions or embargoes, we could face monetary fines, we may suffer reputational harm and our results of operations may be adversely affected.
As a result of Russia’s actions in Ukraine, the U.S., EU and United Kingdom, together with numerous other countries, have imposed significant sanctions on persons and entities associated with Russia and Belarus, as well as comprehensive sanctions on certain areas within the Donbas region of Ukraine, and such sanctions apply to entities owned or controlled by such designated persons or entities. These sanctions adversely affect our ability to operate in the region and also restrict parties whose cargo we may carry. Sanctions against Russia have also placed significant prohibitions on the maritime transportation of seaborne Russian oil, the importation of certain Russian energy products and other goods, and new investments in the Russian Federation. These sanctions further limit the scope of permissible operations including the maintenance of our vessels and the services provided to our vessels and crew while operating in these regions, and cargo we
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may carry. We may also encounter potential contractual disputes with charterers and insurers due to the various sanctions targeting Russian interests and Russian cargo.
Beginning in February of 2022, President Biden and several European leaders announced various economic sanctions against Russia in connection with the aforementioned conflicts in the Ukraine region, which may adversely impact our business, given Russia’s role as a major global exporter of crude oil and natural gas. Both the EU as well as the United States have implemented sanction programs, which includes prohibitions on the import of certain Russian energy products into the United States, including crude oil, petroleum, petroleum fuels, oils, liquefied natural gas and coal, as well as prohibitions on new investments in Russia, among other restrictions. Furthermore, the EU and the United States has also prohibited a variety of specified services related to the maritime transport of Russian Federation origin crude oil and petroleum products, including trading/commodities brokering, financing, shipping, insurance (including reinsurance and protection and indemnity), flagging, and customs brokering. These prohibitions took effect on December 5, 2022 with respect to the maritime transport of crude oil and took effect on February 5, 2023 with respect to the maritime transport of other petroleum products. An exception exists to permit such services when the price of the seaborne Russian oil does not exceed the relevant price cap; but implementation of this price exception relies on a recordkeeping and attestation process that allows each party in the supply chain of seaborne Russian oil to demonstrate or confirm that oil has been purchased at or below the price cap. Violations of the price cap policy or the risk that information, documentation, or attestations provided by parties in the supply chain are later determined to be false may pose additional risks adversely affecting our business.
Although we believe that we have been in compliance with all applicable sanctions and embargo laws and regulations in 2022, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in reputational damages, fines, penalties or other sanctions that could severely impact our ability to access U.S. capital markets and conduct our business and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us.
Terrorist attacks and international hostilities and instability can affect the tanker industry, which could adversely affect our business.
Terrorist attacks, the outbreak of war, or the existence of international hostilities could damage the world economy, adversely affect the availability of and demand for crude oil and petroleum products and adversely affect both the Company’s ability to charter its vessels and the charter rates payable under any such charters. In addition, Euronav operates in a sector of the economy that is likely to be adversely impacted by the effect of political instability, terrorist or other attacks, war or international hostilities. In the past, political instability has also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region and most recently in the Black Sea in connection with the ongoing conflicts between Russia and the Ukraine.
Recent developments in the Ukraine region and continuing conflicts in the Middle East may lead to additional armed conflicts around the world, which may contribute to further economic instability in the global financial markets and international commerce. Additionally, any escalations between the North Atlantic Treaty Organization countries and Russia could result in retaliation from Russia that could potentially affect the shipping industry.
Our business could also be adversely impacted by trade tariffs, trade embargoes or other economic sanctions that limit trading activities by the United States or other countries against countries in the Middle East, Asia or elsewhere as a result of terrorist attacks, hostilities or diplomatic or political pressures.
These uncertainties could also adversely affect our ability to obtain additional financing or insurance on terms acceptable to us or at all. Any of these occurrences could have a material adverse impact on our operating results, revenues and costs.
These factors could also increase the costs to the Company of conducting its business, particularly crew, insurance and security costs, and prevent or restrict the Company from obtaining insurance coverage, all of which have a material adverse effect on our business, financial condition, results of operations and cash flows.
Maritime claimants could arrest or attach one or more of our vessels, which could interrupt our cash flow.
Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien-holder may enforce its lien by "arresting" or "attaching" a vessel through judicial or foreclosure proceedings. The arrest or attachment of one or more of our vessels could result in a significant loss of earnings for the related off-hire period. In addition, in jurisdictions
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where the "sister ship" theory of liability applies, such as South Africa, a claimant may arrest the vessel which is subject to the claimant's maritime lien and any "associated" vessel, which is any vessel owned or controlled by the same owner. In countries with "sister ship" liability laws, claims might be asserted against us or any of our vessels for liabilities of other vessels that we own. Under some of our present charters, if the vessel is arrested or detained as a result of a claim against us, we may be in default of our charter and the charterer may terminate the charter, which will negatively impact our revenues and cash flows.
The continuing effects of the COVID-19 pandemic and other outbreaks of epidemic and pandemic diseases and governmental responses thereto could materially and adversely affect our business, financial condition, and results of operations.
The COVID-19 pandemic and variants that have emerged have let to numerous actions taken by governments and governmental agencies in an attempt to mitigate its spread, including travel bans, quarantines, and other emergency public health measures, and a number of countries implemented lockdown measures, which resulted in a significant reduction in global economic activity and extreme volatility in the global financial markets. These measures have and will likely continue to cause trade disruptions due to, among other things, the unavailability of personnel, supply chain disruption, interruptions of production, delays in planned strategic projects and closure of businesses and facilities.
In 2022, a resurgence of COVID-19 cases led to China’s government to impose quarantine regulations in certain provinces of China under China’s zero-COVID policy. However, by the end of 2022, many of these measures, including China’s zero-COVID policy, were relaxed. Nonetheless, we cannot predict whether and to what degree emergency public health and other measures will be reinstituted in the event of any resurgence in the COVID-19 virus or any variants thereof. If the COVID-19 pandemic continues on a prolonged basis or becomes more severe, the adverse impact on the global economy and the rate environment for tanker vessels may deteriorate and our operations and cash flows may be negatively impacted. Relatively weak global economic conditions during periods of volatility have and may continue to have a number of adverse consequences for tanker and other shipping sectors, including, among other things:
•Low charter rates, particularly for vessels employed on short-term time charters or in the spot market;
•Decreases in the market value of tanker vessels and limited second-hand market for the sale of vessels;
•Limited financing for vessels;
•Loan covenant defaults; and
•Declaration of bankruptcy by certain vessel operators, vessel owners, shipyards and charterers.
Our business and the shipping industry as a whole may continue to be impacted by a reduced workforce and delays of crew changes as a result of quarantines applicable in several countries and ports, as well as delays in the construction of newbuild vessels, scheduled drydockings, intermediate or special surveys of vessels and scheduled and unscheduled ship repairs and upgrades. In addition, any case of COVID-19 amongst crew, could result in a quarantine period for that vessel and, in turn, loss of charter hire and additional costs.
The ultimate extent to which the COVID-19 pandemic impacts our business, financial condition, and results of operations will depend on future developments, which are highly uncertain, difficult to predict, and subject to change, including, but not limited to, the duration, scope, severity, proliferation of variants and increase in the transmissibility of the virus, its impact on the global economy, actions taken to contain or limit the impact of COVID-19, such as the availability of an effective vaccine or treatment, geographic variation in how countries and states are handling the pandemic, how long current restrictions over travel and economic activity in many countries across the globe remain in place over the course of the pandemic, and how quickly and to what extent normal economic and operating conditions may potentially resume.
Failure of the continued spread of the COVID-19 virus to be controlled, including due to the emergence of variants such as Delta and Omicron, could significantly impact economic activity, and demand for oil and other petroleum products, which could further negatively affect our business, financial condition, results of operations and cashflows.
Effects of the current and any future pandemic may include, among others: deterioration of economic conditions and activity and of demand for oil and other petroleum products; operational disruptions to us (such as but not limited to, crew rotation and crew fatigue) or our customers due to worker health risks and the effects of new regulations, directives or practices implemented in response to the pandemic (such as travel restrictions for individuals and vessels and quarantining and physical distancing); potential delays in (a) the loading and discharging of cargo on or from our vessels, (b) vessel inspections and related certifications by class societies, customers or government agencies and (c) maintenance (including access to spare parts), modifications or repairs to, or drydocking of, our existing vessels due to worker health or other business disruptions; reduced cash flow and financial condition, including potential liquidity constraints; potential reduced
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access to capital as a result of any credit tightening generally or due to continued declines in global financial markets; potential reduced ability to opportunistically sell any of our vessels on the second-hand market, either as a result of a lack of buyers or a general decline in the value of second-hand vessels; potential decreases in the market values of our vessels and any related impairment charges or breaches relating to vessel-to-loan financial covenants; potential disruptions, delays or cancellations in the construction of new vessels, which could reduce our future growth opportunities; potential non-performance by counterparties relying on force majeure clauses and potential deterioration in the financial condition and prospects of our customers, joint venture partners or other business partners.
Volatility of LIBOR and potential changes of the use of LIBOR as a benchmark could affect our profitability, earnings and cash flow.
On March 5, 2021, the U.K. Financial Conduct Authority announced the future cessation or loss of representativeness of LIBOR as currently published by the ICE Benchmark Administration (IBA) with a target date immediately after June 30, 2023. As certain of our current financing agreements have, and our future financing arrangements may have, floating interest rates, typically based on LIBOR, movements in interest rates could negatively affect our financial performance. The publication of U.S. Dollar LIBOR for the one-week and two-month U.S. Dollar LIBOR tenors ceased on December 31, 2021, and the IBA, the administrator of LIBOR, with the support of the United States Federal Reserve and the United Kingdom’s Financial Conduct Authority, announced the publication of all other U.S. Dollar LIBOR tenors will cease on June 30, 2023. The United States Federal Reserve concurrently issued a statement advising banks to cease issuing U.S. Dollar LIBOR instruments after 2021. As such, any new loan agreements we enter into will not use LIBOR as an interest rate, and we will need to transition our existing loan agreements from U.S. Dollar LIBOR to an alternative reference rate prior to June 2023.
In order to manage our exposure to interest rate fluctuations under LIBOR, the Secured Overnight Financing Rate (SOFR) or any other alternative rate, we have and may from time to time use interest rate derivatives to effectively fix some of our floating rate debt obligations. No assurance can however be given that the use of these derivative instruments, if any, may effectively protect us from adverse interest rate movements. The use of interest rate derivatives may affect our results through mark to market valuation of these derivatives. Also, adverse movements in interest rate derivatives may require us to post cash as collateral, which may impact our free cash position. Interest rate derivatives may also be impacted by the transition from LIBOR to SOFR or other alternative rates.
The discontinuation of LIBOR presents a number of risks to our business, including volatility in applicable interest rates among our financing agreements, potential increased borrowing costs for future financing agreements or unavailability of or difficulty in attaining financing, which could in turn have an adverse effect on our profitability, earnings and cash flow.
Variable rate indebtedness could subject us to interest rate risk, which could cause our debt service obligations to increase significantly.
Our credit facilities use variable interest rates and expose us to interest rate risk. If interest rates increase and we are unable to effectively hedge our interest rate risk, our debt service obligations on the variable rate indebtedness would increase even if the amount borrowed remained the same, and our profitability and cash available for servicing our indebtedness would decrease.
Dependence on third party service providers.
The Company currently outsources to third party service providers certain management services of its fleet, including certain aspects of technical, commercial and crew management. In particular, the Company has entered into ship management agreements that assign technical and crew management responsibilities to a third party technical manager for 11% of the Company’s fleet and the Company has transferred commercial management of part of its fleet to the Tankers International Pool or TI Pool.
In such outsourcing arrangements, the Company has transferred direct control over technical, crew and commercial management of the relevant vessels, while maintaining significant oversight and audit rights, and must rely on third party service providers to, among other things:
•Comply with their respective contractual commitments and obligations owed to the Company, including with respect to safety, security, quality, proper crew management and environmental compliance of the operations of the Company’s vessels;
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•Comply with requirements imposed by the U.S. government, the UN and the EU (i) restricting certain transactions and calls on ports located in countries that are subject to sanctions and embargoes and (ii) prohibiting bribery and other corrupt practices;
•Respond to changes in customer demands for the Company’s vessels;
•Obtain supplies and materials necessary for the operation and maintenance of the Company’s vessels;
•Recruit crew members with training, licenses and experience appropriate for the Company's vessels; and
•Mitigate the impact of labor shortages and/or disruptions relating to crews on the Company’s vessels.
The failure of third-party service providers to meet such commitments could lead to legal liability for or other damages to the Company. The third-party service providers the Company has selected may not provide a standard of service comparable to that which the Company would provide for such vessels if the Company directly provided such services. The Company relies on its third-party service providers to comply with applicable law, and a failure by such providers to comply with such laws may subject the Company to liability or damage its reputation even if the Company did not engage in the conduct itself. Furthermore, damage to any such third party’s reputation, relationships or business may reflect on the Company directly or indirectly and could have a material adverse effect on the Company’s reputation and business.
The third-party managers have the right to terminate their agreements. If the third-party manager exercises that right, the Company will be required either to enter into substitute agreements with other third parties or to assume those management duties. The Company may not succeed in negotiating and entering into such agreements with other third parties and, even if it does so, the terms and conditions of such agreements may be less favorable to the Company. Furthermore, if the Company is required to dedicate internal resources to managing its fleet (including, but not limited to, hiring additional qualified personnel or diverting existing resources), that could result in increased costs and reduced efficiency and profitability. Any such changes could result in a temporary loss of customer approvals, could disrupt the Company’s business and have a material adverse effect on the Company’s business, results of operations and financial condition.
Attracting and retaining motivated, well-qualified seagoing personnel is a top priority. In addition to our shore-based personnel, we employ officers and crew members on our owned fleet. In crewing our vessels, we employ certain employees with specialized training who can perform physically demanding work. If our crew are unable to adequately perform, it may negatively impact our business, financial condition or results of operations. This could harm our reputation as a safe and reliable vessel owner and operator.
Risks Relating to Legal and Regulatory Matters
We are subject to complex laws and regulations, including environmental laws and regulations that can increase our liability and adversely affect our business, results of operations and financial condition.
We operate worldwide, where appropriate, through agents or other intermediaries. Compliance with complex local, foreign and U.S. laws and regulations that apply to our international operations increases our cost of doing business. These numerous and sometimes conflicting laws and regulations include, among others, data privacy requirements (in particular the European General Data Protection Regulation, enforceable as from May 25, 2018 and the EU-US Privacy Shield Framework, as adopted by the European Commission on July 12, 2016), labor relations laws, tax laws, anti-competition regulations, import and trade restrictions, export requirements, U.S. laws such as the FCPA and other U.S. federal laws and regulations established by the office of Foreign Asset Control, local laws such as the UK Bribery Act 2010 or other local laws which prohibit corrupt payments to governmental officials or certain payments or remunerations to customers.
Given the high level of complexity of these laws, there is a risk that we, our agent or other intermediaries may inadvertently breach certain provisions thereunder. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs, and prohibitions on the conduct of our business. Violations of laws and regulations also could result in prohibitions on our ability to operate in one or more countries and could materially damage our reputation, our ability to attract and retain employees, or our business, results of operations and financial condition. Furthermore, detecting, investigating and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management. Though we have implemented monitoring procedures and required policies, guidelines, contractual terms and audits, these measures may not prevent or detect failures by our agents or intermediaries regarding compliance.
Our operations are also subject to numerous laws and regulations in the form of international conventions and treaties, national, state and local laws and national and international regulations in force in the jurisdictions in which our vessels operate or are registered, which can significantly affect the ownership and operation of our vessels. Compliance with such
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laws and regulations, where applicable, may require installation of costly equipment or operational changes and may affect the resale value or useful lives of our vessels. We may also incur additional costs in order to comply with other existing and future regulatory obligations, including, but not limited to, costs relating to air emissions including greenhouse gases, the management of ballast waters, maintenance and inspection, development and implementation of emergency procedures and insurance coverage or other financial assurance of our ability to address pollution incidents. Oil spills that occur from time to time may also result in additional legislative or regulatory initiatives that may affect our operations or require us to incur additional expenses to comply with such new laws or regulations.
These costs could have a material adverse effect on our business, results of operations, cash flows and financial condition and our available cash. A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations.
Environmental requirements can also affect the resale value or useful lives of our vessels, could require a reduction in cargo capacity, ship modifications or operational changes or restrictions, could lead to decreased availability of insurance coverage for environmental matters or could result in the denial of access to certain jurisdictional waters or ports or detention in certain ports. Under local, national and foreign laws, as well as international treaties and conventions, we could incur material liabilities, including clean-up obligations and natural resource damages liability, in the event that there is a release of hazardous materials from our vessels or otherwise in connection with our operations. A failure to comply with applicable environmental laws and regulations, or to obtain or maintain necessary environmental permits or approvals, or a non-compliant release of oil could subject us to significant administrative and civil fines and penalties, and other civil or criminal sanctions, remediation costs for natural resource damages, third-party damages, material adverse publicity and, in certain instances, seizure or detention of our vessels.
Environmental laws often impose strict liability for remediation of spills and releases of hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. We could also become subject to personal injury or property damage claims relating to the release of hazardous substances associated with our existing or historic operations. Violations of, or liabilities under, environmental requirements can result in substantial penalties, fines and other sanctions, including, in certain instances, seizure or detention of our vessels and could harm our reputation with current or potential charterers of our tankers. We are required to satisfy insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents. Although we have arranged insurance to cover certain environmental risks, there can be no assurance that such insurance will be sufficient to cover all such risks or that any claims will not have a material adverse effect on our business, results of operations, cash flows, financial condition and available cash.
Now there are a lot of non-mandatory sustainability (non-financial information) reporting standards. Companies are not obliged to structure their sustainability reporting framework based on these standards, such as the Sustainability Accounting Standards Board (SASB) and Global Reporting Initiative (GRI), however, increasing consistency and transparency increases awareness and visibility towards stakeholders and investors providing a benchmarking foundation. On January 5, 2023 the Corporate Sustainability Reporting Directive (CSRD) entered into force (2022/2464/EU). This new directive modernizes and strengthens the rules about the social and environmental information that companies have to report. A broader set of large companies, as well as listed SMEs, will now be required to report on sustainability. Companies subject to the CSRD will have to report risks and opportunities arising from social and environmental issues according to European Sustainability Reporting Standards (ESRS). The standards will be tailored to EU policies, while building on and contributing to international standardization initiatives. The CSRD also makes it mandatory for companies to have an audit of the sustainability information that they report. In addition, it provides for the digitalization of sustainability information. The first companies will have to apply the new rules for the first time in financial year 2024, for reports published in 2025. The diligence and granularity level of that new reporting framework is unprecedented. Therefore, we will need to dedicate additional resources for monitoring, managing and securing compliance with that new framework. That implies extra financial resources leveraged for addressing such new compliance requirement both channeled to internal or external expertise acquisition and external auditing services. Lack of compliance with such requirements may have adverse impacts on our Company image and financial penalties: potential public declaration describing infraction and identifying entity, cease-and-desist orders or administrative penalties.
In addition, many environmental requirements are designed to reduce the risk of pollution, such as from oil spills, and our compliance with these requirements could be costly. To comply with these and other regulations, including: (i) the sulfur emission requirements of Annex VI of the International Convention for the Prevention of Marine Pollution from Ships (MARPOL), which instituted a global 0.5% (lowered from 3.5% as of January 1, 2020) sulfur cap on marine fuel consumed by a vessel, unless the vessel is equipped with a scrubber, and (ii) the International Convention for the Control and Management of Ships' Ballast Water and Sediments of the International Maritime Organization (IMO), which requires vessels to install expensive ballast water treatment systems, we may be required to incur additional costs to meet new maintenance and inspection requirements, develop contingency plans for potential spills, and obtain insurance coverage.
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The increased demand for low sulfur fuels may increase the costs of fuel for our vessels that do not have scrubbers. Additional conventions, laws and regulations may be adopted that could limit our ability to do business or increase the cost of doing business and which may materially and adversely affect our operations.
Please see “Item 4. Information on the Company—B. Business Overview—Environmental and Other Regulations on Tankers and FSOs” for a discussion of the environmental and other regulations applicable to us.
We are subject to international safety regulation and if we fail to comply with international safety regulations, we may be subject to increased liability, which may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports.
The operation of our vessels is affected by government regulations in the form of international conventions, national, state and local laws and regulations in force in the jurisdictions in which the vessels operate, as well as in the country or countries of their registration. As such, we are subject to the requirements set forth in the IMO’s International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, or the ISM Code, the International Ship & Port Facility Security Code. or ISPS Code, promulgated by the IMO under the International Convention for the Safety of Life at Sea of 1974, or SOLAS, as well as to other conventions, mainly MARPOL, the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers, or STCW, etc. Failure to comply with these requirements may subject us to increased liability, may decrease available insurance coverage for the affected ships, and may result in denial of access to, or detention in, certain ports. The U.S. Coast Guard or USCG and E.U. Authorities enforce compliance with the ISM and ISPS Codes and prohibit non-compliant vessels from trading in U.S. and E.U. ports. This could have a material adverse effect on our future performance, results of operations, cash flows and financial position. The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any, such regulations might have on our operations.
Because such conventions, laws, and regulations are often revised, we cannot predict the ultimate cost of complying with such conventions, laws and regulations or the impact thereof on the resale prices or useful lives of our vessels. Additional conventions, laws and regulations may be adopted which could limit our ability to do business or increase the cost of our doing business and which may materially adversely affect our operations. We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses, certificates, and financial assurances with respect to our operations.
Please see “Item 4. Information on the Company—B. Business Overview—Environmental and Other Regulations on Tankers and FSOs” for a discussion of the environmental and other regulations applicable to us.
Developments in safety and environmental requirements relating to the recycling of vessels may result in escalated and unexpected costs.
The 2009 Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, or the Hong Kong Convention, aims to ensure ships, being recycled once they reach the end of their operational lives, do not pose any unnecessary risks to the environment, human health and safety. Upon the Hong Kong Convention's entry into force, each ship sent for recycling will have to carry an inventory of its hazardous materials. The hazardous materials, whose use or installation are prohibited in certain circumstances, are listed in an appendix to the Hong Kong Convention. Ships will be required to have surveys to verify their inventory of hazardous materials initially, throughout their lives and prior to the ship being recycled.
The Hong Kong Convention, which is currently open for accession by IMO member states, will enter into force 24 months after the date on which 15 IMO member states, representing at least 40% of world merchant shipping by gross tonnage, have ratified or approve accession. As of the date of this annual report, 20 countries have ratified or approved accession of the Hong Kong Convention, but the requirement of 40% of world merchant shipping by gross tonnage has not yet been satisfied.
On November 20, 2013, the European Parliament and the Council of the EU adopted the EU Ship Recycling Regulation, or ESSR, which, among other things, retains the requirements of the Hong Kong Convention and requires that certain commercial seagoing vessels flying the flag of an EU Member State may be recycled only in facilities included on the European List.
Under the ESSR, commercial EU-flagged vessels of 500 gross tonnage and above may be recycled only at shipyards included on the European List. As of December 31, 2022, all our EU-flagged vessels met this weight specification. The European List presently includes eight facilities in Turkey but no facilities in the major ship recycling countries in Asia. The
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combined capacity of the European List facilities may prove insufficient to absorb the total recycling volume of EU-flagged vessels. This circumstance, taken in tandem with the possible decrease in cash sales, may result in longer wait times for divestment of recyclable vessels as well as downward pressure on the purchase prices offered by European List shipyards. Furthermore, facilities located in the major ship recycling countries generally offer significantly higher vessel purchase prices, and as such, the requirement that we utilize only European List shipyards may negatively impact revenue from the residual values of our vessels.
These regulatory requirements may lead to cost escalation by shipyards, repair yards and recycling yards. This may then result in a decrease in the residual recycling value of a vessel which could potentially not cover the cost to comply with the latest requirements, which may have an adverse effect on our future performance, results of operations, cash flows and financial position.
Regulations relating to ballast water discharge may adversely affect our revenues and profitability.
The IMO has imposed updated guidelines for ballast water management systems specifying the maximum amount of viable organisms allowed to be discharged from a vessel’s ballast water. Depending on the date of the International Oil Pollution Prevention or IOPP renewal survey, existing vessels constructed before September 8, 2017 are required to comply with the updated D-2 standard on or after September 8, 2019. For most vessels, compliance with the D-2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. Vessels constructed (keel-laid) on or after September 8, 2017 are required to comply with the D-2 standards on or after September 8, 2017. We currently have ten vessels that do not comply with the updated guideline and costs of compliance may be substantial and adversely affect our revenues and profitability.
Furthermore, United States regulations are currently changing. Although the 2013 Vessel General Permit (VGP) program and U.S. National Invasive Species Act (NISA) are currently in effect to regulate ballast discharge, exchange and installation, the Vessel Incidental Discharge Act (VIDA), which was signed into law on December 4, 2018, requires that the U.S. Environmental Protection Agency (EPA) develop national standards of performance for approximately 30 discharges, similar to those found in the VGP, within two years. On October 26, 2020, the EPA published a Notice of Proposed Rulemaking for Vessel Incident Discharge National Standards of Performance under VIDA. Within two years after the EPA publishes its final Vessel Incidental Discharge National Standards of Performance, the U.S. Coast Guard must develop corresponding implementation, compliance and enforcement regulations regarding ballast water. The new regulations could require the installation of new equipment, which may cause us to incur substantial additional costs which may adversely affect our profitability.
Climate change and greenhouse gas restrictions may adversely impact our operations and markets.
Due to concern over the risk of climate change, a number of countries, the European Commission and the IMO have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions. These regulatory measures may include, among others, adoption of cap-and-trade regimes, carbon taxes, taxonomy of ‘green’ economic activities, increased efficiency standards and incentives or mandates for renewable energy. More specifically, on October 27, 2016, IMO's Marine Environment Protection Committee (MEPC) announced its decision concerning the implementation of regulations mandating a reduction in sulfur emissions from 3.5% currently to 0.5% as of the beginning of January 1, 2020. Additionally, in April 2018, nations at the MEPC 72 adopted an initial strategy to reduce greenhouse gas emissions from ships. The initial strategy identifies levels of ambition to reducing greenhouse gas emissions, including (1) decreasing the carbon intensity from ships through implementation of further phases of the Energy Efficiency Design Index (EEDI) for new ships; (2) reducing carbon dioxide emissions per transport work, as an average across international shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008 emission levels; and (3) reducing the total annual greenhouse emissions by at least 50% by 2050 compared to 2008 while pursuing efforts towards phasing them out entirely.
The European Commission has proposed adding shipping to the EU Emission Trading Scheme (EU ETS) as of 2023 with a phase-in period. It is expected that shipowners will need to purchase and surrender a number of emission allowances that represent their recorded carbon emission exposure for a specific reporting period. The person or organisation responsible for the compliance with the EU ETS should be the shipping company, defined as the shipowner or any other organisation or person, such as the manager or the bareboat charterer, that has assumed the responsibility for the operation of the ship from the shipowner. On December 18, 2022, the Environmental Council and European Parliament agreed to include maritime shipping emissions within the scope of the EU ETS on a gradual introduction of obligations for shipping companies to surrender allowances: 40% for verified emissions from 2024, 70% for 2025 and 100% for 2026. Most large vessels will be included in the scope of the EU ETS from the outset. Big offshore vessels of 5,000 gross tonnage and above will be included in the Monitoring, Reporting and Verification (MRV) of CO2 emissions from maritime transport regulation from 2025 and in the EU ETS from 2027. General cargo vessels and off-shore vessels between 400-5,000 gross tonnage will be
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included in the MRV regulation from 2025 and their inclusion in EU ETS will be reviewed in 2026. Compliance with the Maritime EU ETS could result in additional compliance and administration costs to properly incorporate the provisions of the Directive into our business routines. Additional EU regulations which are part of the EU’s Fit-for-55, could also affect our financial position in terms of compliance and administration costs when they take effect.
The EU ETS will be applied for maritime shipping as of 2024 with a phase-in period. Shipowners will need to purchase and surrender a number of emission allowances that represent their MRV-recorded carbon emission exposure for a specific reporting period. The geographical scope covers emissions generated at berth and on intra-EU voyages as well as 50% of the energy sources used on voyages inbound and outbound to/from the EU. The person or organization responsible for the compliance with the EU ETS should be the shipping company, defined as the shipowner or any other organization or person, such as the manager or the bareboat charterer, that has assumed the responsibility for the operation of the ship from the shipowner. Compliance with the Maritime EU ETS will result in additional compliance and administration costs to properly incorporate the provisions of the Directive into our business routines. Additional EU regulations which are part of the EU’s Fit-for-55, could also affect our financial position in terms of compliance and administration costs when they take effect.
While an EU ETS could accelerate building more efficient ships, any regional system comes with significant administrative burden and a risk of market distortion. To drive the market towards more energy efficient ships, it is crucial that the EU polluter pays principle is applied. In terms of shipping chartering agreements, the 'polluter' might be considered as the body responsible for the decision of speed. The level of speed is dictating the fuel consumption during voyage and impact of greenhouse gas (GHG) emissions. Therefore, we believe that compliance accountability should lie to the entities that decide on the operational speed of the vessel.
Territorial taxonomy regulations in geographies where we are operating and are regulatory liable, such as EU Taxonomy, might jeopardize the level of access to capital. For example, the EU has already introduced a set of criteria for economic activities which should be framed as ‘green’, called EU Taxonomy. The EU taxonomy is a classification regulatory system which attempts to identify environmentally sustainable economic activities. The requirement to deliver sustainability indicators under Article 8 of the Taxonomy Regulation is applicable as of 01/01/2022, to companies subject to the obligation to publish non-financial statements in accordance with Article 19a or Article 29a of the Accounting Directive 2013/34/EU. The Non-financial Reporting Directive (Directive 2014/95/EU, NFRD) is an amendment to the Accounting Directive (Directive 2013/34/EU). Under the NFRD, large listed companies, banks and insurance companies ('public interest entities') with more than 500 employees are required to publish reports on the policies they implement in relation to social responsibility and other sustainability related information (Act 14, Art. 1 and Art. 29a). Article 8 of the Taxonomy Regulation requires companies falling within the scope of the existing NFRD, and additional companies brought under the scope of the proposed Corporate Sustainability Reporting Directive, to report certain indicators on the extent to which their activities are sustainable as defined by the EU Taxonomy.
Taxonomy and NFRD application apply to companies with an average number of employees during the specific financial year exceeding 500 and a balance sheet total exceeding €20 million or net turnover exceeding €40 million on balance sheet date. Euronav employs approximately 3000 people, on shore and on board, whilst the majority of them are seafarers. Seafarers are not classified as FTEs as they are associated with external agents. Euronav had 440 FTEs on our payroll registered. Given that condition the Company does not qualify for mandatory reporting of EU Taxonomy eligibility and alignment. This is going to be waived once Euronav is subject to CSRD and European Sustainability Reporting Standards (ESRS) where the Company will be required to report its Taxonomy eligibility and alignment as part of CSRD reporting requirements. The outcome of such provision might result in either an increase in the cost of capital and/or gradually reduced access to financing.
Since January 1, 2020, ships must either remove sulfur from emissions or buy fuel with low sulfur content, which may lead to increased costs and supplementary investments for ship owners. The interpretation of "fuel oil used on board" includes use in main engine, auxiliary engines and boilers. Shipowners may comply with this regulation by (i) using 0.5% sulfur fuels on board, which are available around the world but at a higher cost; (ii) installing scrubbers for cleaning of the exhaust gas; or (iii) by retrofitting vessels to be powered by liquefied natural gas or other alternative energy sources, which may not be a viable option due to the lack of supply network and high costs involved in this process. Costs of compliance with these regulatory changes may be significant and may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
MEPC 75 introduced draft amendments to Annex VI which impose new regulations to reduce greenhouse gas emissions from ships. These amendments introduce requirements to assess and measure the energy efficiency of all ships and set the required attainment values, with the goal of reducing the carbon intensity of international shipping. To achieve a 40% reduction in carbon emissions by 2023 compared to 2008, shipping companies are required to include: (i) a technical requirement to reduce carbon intensity based on a new Energy Efficiency Existing Ship Index (“EEXI”), and (ii) operational
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carbon intensity reduction requirements, based on a new operational Carbon Intensity Indicator (“CII”). The EEXI is required to be calculated for ships of 400 gross tonnage and above. The IMO and MEPC will calculated “required” EEXI levels based on the vessel’s technical design, such as vessel type, date of creation, size and baseline. Additionally, an “attained” EEXI will be calculated to determine the actual energy efficiency of the vessel. A vessel’s attained EEXI must be less than the vessel’s required EEXI. Non-compliant vessels will have to upgrade their engine to continue to travel. With respect to the CII, the draft amendments would require ships of 5,000 gross tonnage to document and verify their actual annual operational CII achieved against a determined required annual operational CII. The vessel’s attained CII must be lower than its required CII. Vessels that continually receive subpar CII ratings will be required to submit corrective action plans to ensure compliance. MEPC 79 also adopted amendments to MARPOL Annex VI, Appendix IX to include the attained and required CII values, the CII rating and attained EEXI for existing ships in the required information to be submitted to the IMO Ship Fuel Oil Consumption Database. The amendments will enter into force on May 1, 2024.
Additionally, MEPC 75 proposed draft amendments requiring that, on or before January 1, 2023, all ships above 400 gross tonnage must have an approved Ship Energy Efficiency Management Plan, or SEEMP, on board. For ships above 5,000 gross tonnage, the SEEMP would need to include certain mandatory content. MEPC 75 also approved draft amendments to MARPOL Annex I to prohibit the use and carriage for use as fuel of heavy fuel oil by ships in Arctic waters on and after July 1, 2024. The draft amendments introduced at MEPC 75 were adopted at the MEPC 76 session held on June 2021, entered into force on November 1, 2022 and became effective on January 1, 2023.
MPEC 76 adopted amendments to the International Convention on the Control of Harmful Anti-Fouling Systems on Ships, 2001, or the AFS Convention, which have been entered into force on January 1, 2023. From this date, all ships shall not apply or re-apply anti-fouling systems containing cybutryne on or after January 1, 2023; all ships bearing an anti-fouling system that contains cybutryne in the external coating layer of their hulls or external parts or surfaced on January 1, 2023 shall either: remove the anti-fouling system or apply a coating that forms a barrier to this substance leaching from the underlying non-compliance anti-fouling system.
On November 13, 2021, the Glasgow Climate Pact was announced following discussions at the 2021 United Nations Climate Change Conference (“COP26”). The Glasgow Climate Pact calls for signatory states to voluntarily phase out fossil fuels subsidies. A shift away from these products could potentially affect the demand for our vessels and negatively impact our future business, operating results, cash flows and financial position. COP26 also produced the Clydebank Declaration, in which 22 signatory states (including the United States and United Kingdom) announced their intention to voluntarily support the establishment of zero-emission shipping routes. Governmental and investor pressure to voluntarily participate in these green shipping routes could cause us to incur significant additional expenses to “green” our vessels.
In addition, although the emissions of greenhouse gases from international shipping currently are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which required adopting countries to implement national programs to reduce emissions of certain gases, or the Paris Agreement (discussed further below), a new treaty may be adopted in the future that includes restrictions on shipping emissions. Compliance with changes in laws, regulations and obligations relating to climate change could increase our costs related to operating and maintaining our vessels and require us to install new emission controls, acquire allowances or pay taxes related to our greenhouse gas emissions or administer and manage a greenhouse gas emissions program. Revenue generation and strategic growth opportunities may also be adversely affected.
In March 2022, the SEC announced proposed rules with respect to climate-related disclosures, including with respect to greenhouse gas emissions and certain climate-related financial statement metrics, which would apply to foreign private issuers listed on US national securities exchanges, such as us. Compliance with such reporting requirements or any similar requirements may impose substantial obligations and costs on us. If we are unable to accurately measure and disclose required climate-related data in a timely manner, we could be subject to penalties in certain jurisdictions.
Adverse effects upon the oil and gas industry relating to climate change, including growing public concern about the environmental impact of climate change, may also adversely affect demand for our services. For example, increased regulation of greenhouse gases or other concerns relating to climate change may reduce the demand for oil and gas in the future or create greater incentives for use of alternative energy sources. In addition to the peak oil risk from a demand perspective, the physical effects of climate change, including changes in weather patterns, extreme weather events, rising sea levels, scarcity of water resources, may negatively impact our operations. Any long-term material adverse effect on the oil and gas industry could have a significant financial and operational adverse impact on our business that we cannot predict with certainty at this time.
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Risk Factors Relating to Tax Matters
United States tax authorities could treat us as a “passive foreign investment company,” which could have adverse United States federal income tax consequences to United States shareholders.
A foreign corporation will be treated as a “passive foreign investment company” (PFIC) for United States federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of “passive income” or (2) at least 50% of the average value of the corporation’s assets produce or are held for the production of those types of “passive income.” For purposes of these tests, “passive income” includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute “passive income.” United States shareholders of a PFIC are subject to a disadvantageous United States federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
Based on our current and proposed method of operation, we do not believe that we will be a PFIC with respect to any taxable year. In this regard, we treat the gross income we derive or are deemed to derive from our time chartering activities as services income, rather than rental income. Accordingly, our income from our time and voyage chartering activities should not constitute “passive income,” and the assets that we own and operate in connection with the production of that income should not constitute assets that produce or are held for the production of “passive income.”
There is substantial legal authority supporting this position, consisting of case law and United States Internal Revenue Service, or IRS, pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, it should be noted that there is also authority that characterizes time charter income as rental income rather than services income for other tax purposes. Accordingly, no assurance can be given that the IRS or a court of law will accept this position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if the nature and extent of our operations change.
If the IRS were to find that we are or have been a PFIC for any taxable year, our United States shareholders would face adverse United States federal income tax consequences and incur certain information reporting obligations. Under the PFIC rules, unless those shareholders make an election available under the United States Internal Revenue Code of 1986, as amended, or the Code (which election could itself have adverse consequences for such shareholders), such shareholders would be subject to United States federal income tax at the then prevailing rates on ordinary income plus interest, in respect of excess distributions and upon any gain from the disposition of their ordinary shares, as if the excess distribution or gain had been recognized ratably over the shareholder’s holding period of the ordinary shares.
See “Item 10. Additional Information E. Taxation-Passive Foreign Investment Company Status and Significant Tax Consequences” for a more comprehensive discussion of the United States federal income tax consequences to United States shareholders if we are treated as a PFIC.
We may have to pay tax on United States source shipping income, or taxes in other jurisdictions, which would reduce our net earnings.
Under the Code, 50% of the gross shipping income of a corporation that owns or charters vessels, as we and our subsidiaries do, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States may be subject to a 4% United States federal income tax without allowance for deductions, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the regulations promulgated thereunder by the United States Department of the Treasury or an applicable U.S. income tax treaty.
We and our subsidiaries continue to take the position that we qualify for either this statutory tax exemption or exemption under an income tax treaty for United States federal income tax return reporting purposes. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption and thereby become subject to United States federal income tax on our United States source shipping income. For example, we may no longer qualify for exemption under Section 883 of the Code for a particular taxable year if shareholders with a five percent or greater interest in our ordinary shares (5% Shareholders) owned, in the aggregate, 50% or more of our outstanding ordinary shares for more than half the days during the taxable year, and there does not exist sufficient 5% Shareholders that are qualified shareholders for purposes of Section 883 of the Code to preclude non-qualified 5% Shareholders from owning 50% or more of our ordinary shares for more than half the number of days during such taxable year or we are unable to satisfy certain
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substantiation requirements with regard to our 5% Shareholders. Due to the factual nature of the issues involved, there can be no assurances on the tax-exempt status of us or any of our subsidiaries.
If we or our subsidiaries were not entitled to exemption under Section 883 of the Code for any taxable year, we or our subsidiaries could be subject for such year to an effective 2% United States federal income tax on the shipping income we or they derive during such year which is attributable to the transport of cargoes to or from the United States. The imposition of this taxation would have a negative effect on our business and would decrease our earnings available for distribution to our shareholders.
We may also be subject to tax in other jurisdictions, which could reduce our earnings.
Our shareholders residing in countries other than Belgium may be subject to double withholding taxation with respect to dividends or other distributions made by us.
Any dividends or other distributions we make to shareholders will, in principle, be subject to withholding tax in Belgium at a rate of 30%, except for shareholders which qualify for an exemption of withholding tax such as, amongst others, qualifying pension funds or a company qualifying as a parent company in the sense of the Council Directive (90/435/EEC) of July 23, 1990, or the Parent-Subsidiary Directive or that qualify for a lower withholding tax rate or an exemption by virtue of a tax treaty. Various conditions may apply and shareholders residing in countries other than Belgium are advised to consult their advisers regarding the tax consequences of dividends or other distributions made by us. Our shareholders residing in countries other than Belgium may not be able to credit the amount of such withholding tax to any tax due on such dividends or other distributions in any other country than Belgium. As a result, such shareholders may be subject to double taxation in respect of such dividends or other distributions.
Belgium and the United States have concluded a double tax treaty concerning the avoidance of double taxation, or the U.S.-Belgium Treaty. The U.S.-Belgium Treaty reduces the applicability of Belgian withholding tax to 15%, 5% or 0% for U.S. taxpayers, provided that the U.S. taxpayer meets the limitation of benefits conditions imposed by the U.S.-Belgium Treaty. The Belgian withholding tax is generally reduced to 15% under the U.S.-Belgium Treaty. The 5% withholding tax applies in cases where the U.S. shareholder is a company which holds at least 10% of the shares in the Company. A 0% Belgian withholding tax applies when the shareholder is a company which has held at least 10% of the shares in the Company for at least 12 months, or is, subject to certain conditions, a U.S. pension fund. The U.S. shareholders are encouraged to consult their own tax advisers to determine whether they can invoke the benefits and meet the limitation of benefits conditions as imposed by the U.S.-Belgium Treaty.
Changes to the tonnage tax or the corporate tax regimes applicable to us, or to the interpretation thereof, may impact our future operating results.
Shortly after its incorporation in 2003, Euronav applied for treatment under the Belgian tonnage tax regime. It was declared eligible for this regime by the Federal Finance Department on October 23, 2003 for a ten-year period. In line with the tonnage tax regulations, which are part of the normal corporate tax regime in Belgium, profits from the operation of seagoing vessels are determined on a lump sum basis based on the net registered tonnage of the particular vessels. After this first ten-year period had elapsed, the tonnage tax regime has been automatically renewed for another ten-year period. This tonnage tax replaces all factors that are normally taken into account in traditional tax calculations, such as profit or loss, operating costs, depreciation, gains and the offsetting of past losses of the revenues taxable in Belgium.
Changes to the tax regimes applicable to us, or the interpretation thereof, may impact our future operating results.
Euronav is also operating vessels under Belgian, French, Greek, Marshall Island and Liberian Flag for which the Company is paying the required tonnage tax in these particular jurisdictions.
There is, however, no guarantee that the tonnage tax regime will not be reversed or that other forms of taxation will not be imposed such as, but not limited to, a global minimum tax, a carbon tax or emissions trading system in the context of the discouragement of the use of fossil fuels. To the extent such changes would be implemented on the EU level only, the global level playing field may be distorted and put the Company in a weaker competitive position compared to its non-EU peer companies.
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Risks Relating to Investment in our Ordinary Shares
The price of our ordinary shares has fluctuated in the past, has been volatile and may be volatile in the future, and as a result, investors in our ordinary shares could incur substantial losses.
Our share price may be highly volatile and future sales of our ordinary shares could cause the market price of our ordinary shares to decline.
The market price of our ordinary shares has historically fluctuated over a wide range and may continue to fluctuate significantly in response to many factors, such as actual or anticipated fluctuations in our operating results, changes in financial estimates by securities analysts, economic, regulatory and ESG trends, general market conditions, rumors and fabricated news, COVID-19 impacts and other factors, many of which are beyond our control. Since 2008, the stock market has experienced extreme price and volume variability due to various factors, including the prospect of increased interest rates, notable market fluctuations in the first calendar quarter of 2022 to date. If the volatility in the market continues or worsens, it could have an adverse effect on the market price of our ordinary shares and impact a potential sale price if holders of our ordinary shares decide to sell their shares.
Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future. The price of our ordinary shares has ranged from a price of between $9.04 and $19.96 between January 1, 2022 and December 31, 2022. Our stock prices may experience rapid and substantial decreases or increases in the foreseeable future that are unrelated to our operating performance or prospects. The stock market in general and the market for shipping companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may experience substantial losses on their investment in our ordinary shares. The market price for our ordinary shares may be influenced by many factors, including the following:
•Investor reaction to the execution of our business strategy, including mergers and acquisitions;
•Shareholder activism;
•Our continued compliance with the listing standards of NYSE and/or Euronext Brussels;
•Regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to our industry, including those related to climate change;
•Variations in our financial results or those of companies that are perceived to be similar to us;
•Our ability or inability to raise additional capital and the terms on which we raise it;
•Declines in the market prices of stocks generally;
•Trading volume of our ordinary shares;
•Shorting activity in relation to our share;
•Sales of our ordinary shares by us or our stockholders;
•General economic, industry and market conditions; and
•Other events or factors, including those resulting from such events, or the prospect of such events, including war, terrorism and other international conflicts, public health issues including health epidemics or pandemics, such as the COVID-19 pandemic, adverse weather and climate conditions could disrupt our operations or result in political or economic instability.
These broad market and industry factors may seriously harm the market price of our ordinary shares, regardless of our operating performance, and may be inconsistent with any improvements in actual or expected operating performance, financial condition or other indicators of value. Since the stock price of our ordinary shares has fluctuated in the past, has been recently volatile and may be volatile in the future, investors in our ordinary shares could incur substantial losses. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, financial condition, results of operations and growth prospects. There can be no guarantee that our stock price will remain at current prices.
Additionally, recently, securities of certain companies have experienced significant and extreme volatility in stock price due short sellers of our ordinary shares, known as a “short squeeze”. These short squeezes have caused extreme volatility in those companies and in the market and have led to the price per share of those companies to trade at a significantly inflated rate that is disconnected from the underlying value of the Company. Many investors who have purchased shares in those companies at an inflated rate face the risk of losing a significant portion of their original investment as the price per share has declined steadily as interest in those stocks have abated. While we have no reason to believe our shares would be the target of a short squeeze, there can be no assurance that we will not be in the future, and you may lose a significant portion or all of your investment if you purchase our shares at a rate that is significantly disconnected from our underlying value.
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From time to time our Supervisory Board may authorize a share buyback within the Belgian legal framework. There is no guarantee that we will repurchase shares at a level anticipated by stockholders or at all, which could reduce returns to our stockholders. Once authorized, decisions to repurchase our ordinary shares will be at the discretion of our Management Board, based upon a review of relevant considerations.
In accordance with the authorization granted by a general meeting of shareholders held on June 23, 2021, we have the option but not the obligation until July 2026 of buying our own shares back should we believe there is a substantial value disconnect between the share price and the real value of the Company. During 2023 and as of the date of this annual report, we did not buy back shares.
On December 31, 2022, we owned 18,241,181 of our own shares (8.3% of the total outstanding shares). We may continue to buy back our shares opportunistically under the conditions laid down by law and subject to a valid authorization. The extent to which we do so and the timing of these purchases, will depend upon a variety of factors, including market conditions, regulatory requirements and other corporate considerations.
The Supervisory Board’s determination to repurchase our ordinary shares will depend upon our profitability and financial condition, contractual restrictions, restrictions imposed by applicable law and other factors that the Supervisory Board deems relevant. Based on an evaluation of these factors, the Supervisory Board may determine not to repurchase shares or to repurchase shares at reduced levels compared to historical levels, any or all of which could reduce returns to our stockholders. The Supervisory Board may suspend or discontinue this authorization at any time.
Although we have a dividend policy that includes a fixed component, we cannot assure you that we will declare or pay any dividends. The tanker industry is volatile and we cannot predict with certainty the amount of cash, if any, that will be available for distribution as dividends in any period.
Our Supervisory Board may from time to time, declare and pay cash dividends in accordance with our Coordinated Articles of Association and applicable Belgian law. The declaration and payment of dividends or other distributions, if any, will always be subject to the approval of either our Supervisory Board (in the case of “interim dividends”) or of the shareholders (in the case of “regular dividends”, "intermediary dividends" or “repayment of capital”).
Our current dividend policy is as follows: we intend to pay a minimum fixed dividend of at least $0.12 in total per share per year provided the Company has in the view of the Supervisory Board, sufficient balance sheet strength and liquidity combined with sufficient earnings visibility from fixed income contracts. In addition, if the results per share are positive and exceed the amount of the fixed dividend, the resulting excess income will be considered for allocation to either additional cash dividends, share buy-backs, accelerated amortization of debt or the acquisition of vessels that the Supervisory Board considers at that time to be accretive to shareholders’ value.
Additional guidance to the above stated policy as applied to our final results for the year ended on December 31, 2019 and to our quarterly results as from 2020 onwards, was provided by our Supervisory Board by way of a press release dated January 9, 2020, as follows:
•Each quarter the Company will target to return 80% of net income (including the fixed element of $0.03 per quarter) to shareholders.
•This return to shareholders will primarily be in the form of a cash dividend and the Company will always look at stock repurchase as an alternative if it believes more value can be created for shareholders.
•The Company retains the right to return more than 80% should the circumstances allow it.
As part of its distribution policy, the Company will continue to include exceptional capital losses when assessing additional dividends but also continue to exclude exceptional capital gains when assessing additional dividend payments. As part of its distribution policy the Company will not include non-cash items affecting the results such as deferred tax assets or deferred tax liabilities.
Our Supervisory Board will continue to assess the declaration and payment of dividends upon consideration of our financial results and earnings, restrictions in our debt agreements, market prospects, current capital expenditures, commitments, investment opportunities, and the provisions of Belgian law affecting the payment of dividends to shareholders and other factors. We may stop paying dividends at any time and cannot assure you that we will pay any dividends in the future or of the amount of such dividends. For instance, we did not declare or pay any dividends from 2010 until 2014.
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In general, under the terms of our debt agreements, we are not permitted to pay dividends if there is or will be a default or a breach of a loan covenant as a result of the dividend. Our credit facilities also contain restrictions and undertakings which may limit our and our subsidiaries' ability to declare and pay dividends (for instance, with respect to each of our joint ventures, no dividend may be distributed before its loan agreement, as applicable, is repaid in full).
Please see “Item 5. Operating and Financial Review and Prospects” for more information relating to restrictions on our ability to pay dividends under the terms of the agreements governing our indebtedness.
Belgian law generally prohibits the payment of dividends unless net assets on the closing date of the last financial year do not fall beneath the amount of the registered capital and, before the dividend is paid out, 5% of the net profit is allocated to the legal reserve until this legal reserve amounts to 10% of the share capital. No distributions may occur if, as a result of such distribution, our net assets would fall below the sum of (i) the amount of our registered capital, (ii) the amount of such aforementioned legal reserves, and (iii) other reserves which may be required by our Coordinated Articles of Association or by law, such as the reserves not available for distribution in the event we hold treasury shares.
We may not have sufficient surplus in the future to pay dividends and our subsidiaries may not have sufficient funds or surplus to make distributions to us. We can give no assurance that dividends will be paid at a level anticipated by stockholders or at all. In addition, the corporate law of jurisdictions in which our subsidiaries are organized may impose restrictions on the payment or source of dividends under certain circumstances.
Future issuances and sales of our ordinary shares could cause the market price of our ordinary shares to decline.
As of December 31, 2022, our issued (and fully paid up) share capital was $239,147,505.82 which was represented by 220,024,713 shares. As of December 31, 2022, we had:
•201,783,532 ordinary shares outstanding, and
•18,241,181 treasury shares.
By decision at our Shareholders’ Special Meeting held on June 23, 2021, our Supervisory Board has been authorized to acquire a maximum of 10% of the existing shares or profit shares during a period of five years, at a price per share not exceeding the maximum price allowed under applicable law and not to be less than EUR 0.01. Shares bought back by us, can be cancelled or can be held as treasury shares, at the option of the Company.
Under Belgian corporate laws, the voting rights related to treasury shares are suspended and treasury shares give no entitlement to dividend. We may at any time transfer all or part of our treasury shares to a third party, at which time the corresponding voting rights will cease to be suspended and the shares will again give their holder entitlement to dividend. Our shareholders may incur dilution from any such future transfer.
Additionally, by decision of our shareholders’ meeting held on February 20, 2020, our Supervisory Board has been authorized to increase our share capital in one or several times by a total maximum amount of $25,000,000 (with possibility for our Supervisory Board to restrict or suspend the preferential subscription rights of our existing shareholders) or $120,000,000 (without the possibility for our Supervisory Board to restrict or suspend the preferential subscription rights of our existing shareholders) during a period of five years as from the date of publication of the decision, subject to the terms and conditions to be determined by our Supervisory Board.
Issuances and sales of a substantial number of ordinary shares in the public market, or the perception that these issuances or sales could occur, may depress the market price for our ordinary shares. These sales could also impair our ability to raise additional capital through the sale of our equity securities in the future. We intend to issue additional ordinary shares in the future. Our shareholders may incur dilution from any future equity offering.
We are incorporated in Belgium, which provides for different and in some cases more limited shareholder rights than the laws of jurisdictions in the United States.
We are a Belgian company and our corporate affairs are governed by Belgian corporate law. Principles of law relating to such matters as the validity of corporate procedures, the fiduciary duties of management, the dividend payment dates and the rights of shareholders may differ from those that would apply if we were incorporated in a jurisdiction within the United States.
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For example, there are no statutory dissenters’ rights under Belgian law with respect to share exchanges, mergers and other similar transactions, and the rights of shareholders of a Belgian company to sue derivatively, on the company’s behalf, are more limited than in the United States.
Civil liabilities based upon the securities and other laws of the United States may not be enforceable in original actions instituted in Belgium or in actions instituted in Belgium to enforce judgments of U.S. courts.
Civil liabilities based upon the securities and other laws of the United States may not be enforceable in original actions instituted in Belgium or in actions instituted in Belgium to enforce judgments of U.S. courts. Actions for the enforcement of judgments of U.S. courts might be successful only if the Belgian court confirms the substantive correctness of the judgment of the U.S. court and is satisfied that:
•The effect of the enforcement judgment is not manifestly incompatible with Belgian public policy;
•The judgment did not violate the rights of the defendant;
•The judgment was not rendered in a matter where the parties transferred rights subject to transfer restrictions with the sole purpose of avoiding the application of the law applicable according to Belgian international private law;
•The judgment is not subject to further recourse under U.S. law;
•The judgment is not incompatible with a judgment rendered in Belgium or with a subsequent judgment rendered abroad that might be enforced in Belgium;
•A claim was not filed outside Belgium after the same claim was filed in Belgium, while the claim filed in Belgium is still pending;
•The Belgian courts did not have exclusive jurisdiction to rule on the matter;
•The U.S. court did not accept its jurisdiction solely on the basis of either the nationality of the plaintiff or the location of the disputed goods; and
•The judgment submitted to the Belgian court is authentic.
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ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
Euronav NV was incorporated under the laws of Belgium on June 26, 2003 for an indefinite term. Our Company has the legal form of a public limited liability company (naamloze vennootschap/société anonyme). Our registered office is located at De Gerlachekaai 20, 2000 Antwerpen, Belgium and our telephone number is +32 3 247 44 11.
Our ordinary shares have traded on Euronext Brussels since December 2004. In January 2015, we completed our underwritten initial public offering in the United States of 18,699,000 ordinary shares at $12.25 per share, and our ordinary shares commenced trading on the New York Stock Exchange, or NYSE. In March 2015, we completed our offer to exchange unregistered ordinary shares that were previously issued in Belgium (other than ordinary shares owned by our affiliates) for ordinary shares that were registered under the Securities Act of 1933, as amended, or the U.S. Exchange Offer, in which an aggregate of 42,919,647 ordinary shares were validly tendered and exchanged. Our ordinary shares currently trade on the NYSE and Euronext Brussels under the symbol "EURN."
On June 12, 2018 we completed the merger with Gener8 Maritime Inc. (Gener8), a corporation organized under the laws of the Republic of the Marshall Islands whereby Gener8 became our wholly-owned subsidiary. Prior to the merger, Gener8 was a leading U.S.-based provider of international seaborne crude oil transportation services that resulted from a merger between General Maritime Corporation, a well-known tanker owner, and Navig8 Crude Tankers Inc., a company sponsored by the Navig8 Group, an independent vessel pool manager. At the date of the merger with Gener8, Gener8 owned a fleet of 29 tankers on the water, consisting of 21 VLCC vessels, six Suezmax vessels, and two LR1 vessels, with an aggregate carrying capacity of approximately 7.4 million deadweight tons or DWT, which included 19 “eco” VLCC newbuildings delivered from 2015 through 2017 equipped with advanced, fuel-saving technology, that were constructed at reputable shipyards.
The merger with Gener8 created a world leading independent crude tanker operator with 74 large crude tankers focused predominately on the VLCC and Suezmax asset classes and two FSO vessels in joint venture and provides tangible economies of scale via pooling arrangements, procurement opportunities, reduced overhead and enhanced access to capital. Furthermore the combined company offers investors a well-capitalized and more liquid company in the tanker market.
On June 7, 2022, Euronav became the full owner of the FSO platform as previously held in its 50-50 joint venture with International Seaways, Inc. (“INSW”).
The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, which can be accessed at http://www.sec.gov. Our website address is https://www.euronav.com/en/. The information contained on these websites do not form a part of this annual report.
For information about the development of our fleet, please see "Item 5. Operating and Financial Review and Prospects—Fleet Development."
B. Business Overview
We are a fully-integrated provider of international maritime shipping and offshore services engaged primarily in the transportation and storage of crude oil. As of April 1, 2023, we owned or operated a modern fleet of 65 vessels with an aggregate carrying capacity of approximately 16.9 million deadweight tons, or dwt, consisting of 41 very large crude carriers (VLCCs), one V-plus, 21 Suezmax vessels, and two floating, storage and offloading vessels (FSOs). The average age of our fleet as of April 1, 2023, was approximately 7.5 years for our VLCC fleet and 11.0 years for our Suezmax fleet, as compared to an industry average age as of April 1, 2023 of approximately 10.5 years for the VLCC fleet and 11.4 years for the Suezmax fleet.
We currently charter our vessels on time charters, non-exclusively, to leading international energy companies, such as North Oil Company (whose shareholders are Qatar Petroleum Oil & Gas Limited and Total E&P Golfe Limited) and Valero or their respective subsidiaries, although there is no guarantee that these companies will continue their relationships with us.
We pursue a chartering strategy that seeks an optimal mix of employment of our vessels depending on the fluctuations of freight rates in the market and our own judgment as to the direction of those rates in the future. Our vessels are therefore routinely employed on a combination of spot market voyages, fixed-rate contracts and long-term time charters, which typically include a profit sharing component.
We principally employ our VLCCs through the TI Pool, a spot market-oriented pool in which we were a founding member in 2000.
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As of April 1, 2023, 16 of our vessels were employed directly in the spot market, 40 of our vessels were employed in the TI Pool and six of our vessels were employed on long-term charters. Our two FSOs, FSO Asia and FSO Africa, were employed on long-term service contracts and our V-Plus vessel, Oceania, was used for storage.
While we believe that our chartering strategy allows us to capitalize on opportunities in an environment of increasing rates by maximizing our exposure to the spot market, our vessels operating in the spot market may be subject to market downturns to the extent spot market rates or need for spot voyages decline.
At times when the freight market may become more challenging, we typically shift our exposure to more time charter contracts to the extent allowed by market conditions and potentially dispose of some of our assets which should provide us with incremental stable cash flows and stronger utilization rates supporting our business during periods of market weakness.
We believe that our chartering strategy and our fleet size management, combined with the leadership of our experienced management team should enable us to capture value during cyclical upswings and to withstand the challenging operating environment such as the one seen in the years from 2010 to 2013, 2018 and again since 2021.
In 2022 we saw tankers markets strongly recover from the challenging markets that we have experienced since the outbreak of COVID-19. Oil demand has returned to pre-COVID levels in most parts of the world and freight markets have benefited from increasing demand to ship crude oil.
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Our Fleet
Set forth below is certain information regarding our fleet as of April 1, 2023.
Vessel Name | Type | Deadweight Tons (DWT) | Year Built | Shipyard (1) | Charterer | Employment | Charter Expiry Date (2) | |||||||||||||||||||||||||||||||||||||
Owned Vessels | ||||||||||||||||||||||||||||||||||||||||||||
Daishan | VLCC | 306,506 | 2007 | Daewoo | Perenco | Time Charter | Nov-25 | |||||||||||||||||||||||||||||||||||||
Dalma | VLCC | 306,506 | 2007 | Daewoo | TI Pool | |||||||||||||||||||||||||||||||||||||||
Nautica | VLCC | 299,999 | 2008 | Dalian | TI Pool | |||||||||||||||||||||||||||||||||||||||
Hakata | VLCC | 302,550 | 2010 | Universal | TI Pool | |||||||||||||||||||||||||||||||||||||||
Hakone | VLCC | 302,624 | 2010 | Universal | TI Pool | |||||||||||||||||||||||||||||||||||||||
Hirado | VLCC | 299,991 | 2011 | Universal | TI Pool | |||||||||||||||||||||||||||||||||||||||
Alsace | VLCC | 299,999 | 2012 | Samsung | TI Pool | |||||||||||||||||||||||||||||||||||||||
Ilma | VLCC | 299,999 | 2012 | Hyundai | TI Pool | |||||||||||||||||||||||||||||||||||||||
Ingrid | VLCC | 314,000 | 2012 | Hyundai | TI Pool | |||||||||||||||||||||||||||||||||||||||
Iris | VLCC | 299,999 | 2012 | Hyundai | TI Pool | |||||||||||||||||||||||||||||||||||||||
Hojo | VLCC | 302,965 | 2013 | JMU | TI Pool | |||||||||||||||||||||||||||||||||||||||
Antigone | VLCC | 299,421 | 2015 | Hyundai | TI Pool | |||||||||||||||||||||||||||||||||||||||
Dia | VLCC | 299,995 | 2015 | Daewoo | TI Pool | |||||||||||||||||||||||||||||||||||||||
Dominica | VLCC | 299,990 | 2015 | Daewoo | TI Pool | |||||||||||||||||||||||||||||||||||||||
Aegean | VLCC | 299,011 | 2016 | Hyundai | TI Pool | |||||||||||||||||||||||||||||||||||||||
Alboran | VLCC | 298,991 | 2016 | Hyundai | TI Pool | |||||||||||||||||||||||||||||||||||||||
Alex | VLCC | 299,446 | 2016 | Hyundai | TI Pool | |||||||||||||||||||||||||||||||||||||||
Alice | VLCC | 299,320 | 2016 | Hyundai | TI Pool | |||||||||||||||||||||||||||||||||||||||
Andaman | VLCC | 299,392 | 2016 | Hyundai | TI Pool | |||||||||||||||||||||||||||||||||||||||
Anne | VLCC | 299,533 | 2016 | Hyundai | TI Pool | |||||||||||||||||||||||||||||||||||||||
Arafura | VLCC | 298,991 | 2016 | Hyundai | TI Pool | |||||||||||||||||||||||||||||||||||||||
Aral | VLCC | 299,011 | 2016 | Hyundai | TI Pool | |||||||||||||||||||||||||||||||||||||||
Desirade | VLCC | 299,989 | 2016 | Daewoo | TI Pool | |||||||||||||||||||||||||||||||||||||||
Donoussa | VLCC | 299,999 | 2016 | Daewoo | TI Pool | |||||||||||||||||||||||||||||||||||||||
Drenec | VLCC | 299,985 | 2016 | Daewoo | TI Pool | |||||||||||||||||||||||||||||||||||||||
Amundsen | VLCC | 298,991 | 2017 | Hyundai | TI Pool | |||||||||||||||||||||||||||||||||||||||
Aquitaine | VLCC | 298,767 | 2017 | Hyundai | TI Pool | |||||||||||||||||||||||||||||||||||||||
Ardeche | VLCC | 298,642 | 2017 | Hyundai | TI Pool | |||||||||||||||||||||||||||||||||||||||
Hatteras | VLCC | 297,637 | 2017 | Hanjin | TI Pool | |||||||||||||||||||||||||||||||||||||||
Heron | VLCC | 297,363 | 2017 | Hanjin | TI Pool | |||||||||||||||||||||||||||||||||||||||
Derius | VLCC | 299,995 | 2019 | Okpo | TI Pool | |||||||||||||||||||||||||||||||||||||||
Dalis | VLCC | 299,995 | 2020 | Okpo | TI Pool | |||||||||||||||||||||||||||||||||||||||
Delos | VLCC | 299,986 | 2021 | Daewoo | TI Pool | |||||||||||||||||||||||||||||||||||||||
Dickens | VLCC | 299,982 | 2021 | Daewoo | TI Pool | |||||||||||||||||||||||||||||||||||||||
Diodorus | VLCC | 299,987 | 2021 | Daewoo | TI Pool | |||||||||||||||||||||||||||||||||||||||
Doris | VLCC | 299,999 | 2021 | Daewoo | TI Pool | |||||||||||||||||||||||||||||||||||||||
Camus | VLCC | 299,999 | 2023 | Hyundai | TI Pool | |||||||||||||||||||||||||||||||||||||||
Cassius | VLCC | 299,999 | 2023 | Hyundai | TI Pool | |||||||||||||||||||||||||||||||||||||||
VLCC | Total DWT | # | 11,419,554 | 38 |
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Vessel Name | Type | Deadweight Tons (DWT) | Year Built | Shipyard (1) | Charterer | Employment | Charter Expiry Date (2) | |||||||||||||||||||||||||||||||||||||
Owned Vessels | ||||||||||||||||||||||||||||||||||||||||||||
Oceania | ULCC | 441,584 | 2003 | Daewoo | Storage | |||||||||||||||||||||||||||||||||||||||
ULCC | Total DWT | # | 441,584 | 1 | ||||||||||||||||||||||||||||||||||||||||||
Vessel Name | Type | Deadweight Tons (DWT) | Year Built | Shipyard (1) | Charterer | Employment | Charter Expiry Date (2) | |||||||||||||||||||||||||||||||||||||
Owned Vessels | ||||||||||||||||||||||||||||||||||||||||||||
Statia | Suezmax | 150,296 | 2006 | Universal | Spot | |||||||||||||||||||||||||||||||||||||||
Cap Lara | Suezmax | 158,826 | 2007 | Samsung | Valero | Time Charter (3) | Mar-23 | |||||||||||||||||||||||||||||||||||||
Cap Victor | Suezmax | 158,853 | 2007 | Samsung | Spot | |||||||||||||||||||||||||||||||||||||||
Selena | Suezmax | 150,296 | 2007 | Universal | Spot | |||||||||||||||||||||||||||||||||||||||
Sienna | Suezmax | 149,847 | 2007 | Universal | Spot | |||||||||||||||||||||||||||||||||||||||
Cap Felix | Suezmax | 158,764 | 2008 | Samsung | Spot | |||||||||||||||||||||||||||||||||||||||
Cap Theodora | Suezmax | 158,818 | 2008 | Samsung | Spot | |||||||||||||||||||||||||||||||||||||||
Sapphira | Suezmax | 149,876 | 2008 | Universal | Spot | |||||||||||||||||||||||||||||||||||||||
Fraternity | Suezmax | 157,713 | 2009 | Samsung | Spot | |||||||||||||||||||||||||||||||||||||||
Sofia | Suezmax | 164,715 | 2010 | Hyundai | Spot | |||||||||||||||||||||||||||||||||||||||
Stella | Suezmax | 164,925 | 2011 | Hyundai | Spot | |||||||||||||||||||||||||||||||||||||||
Captain Michael | Suezmax | 157,648 | 2012 | Samsung | Spot | |||||||||||||||||||||||||||||||||||||||
Maria | Suezmax | 157,522 | 2012 | Hyundai | Spot | |||||||||||||||||||||||||||||||||||||||
Cap Corpus Christi | Suezmax | 156,004 | 2018 | Hyundai | Valero | Time Charter (3) | Oct-25 | |||||||||||||||||||||||||||||||||||||
Cap Pembroke | Suezmax | 156,002 | 2018 | Hyundai | Valero | Time Charter (3) | Jun-25 | |||||||||||||||||||||||||||||||||||||
Cap Port Arthur | Suezmax | 156,049 | 2018 | Hyundai | Valero | Time Charter (3) | Oct-25 | |||||||||||||||||||||||||||||||||||||
Cap Quebec | Suezmax | 156,013 | 2018 | Hyundai | Valero | Time Charter (3) | Jun-25 | |||||||||||||||||||||||||||||||||||||
Cedar | Suezmax | 158,289 | 2022 | Daehan | Spot | |||||||||||||||||||||||||||||||||||||||
Cypress | Suezmax | 157,290 | 2022 | Daehan | Spot | |||||||||||||||||||||||||||||||||||||||
SUEZMAX | Total DWT | # | 2,977,746 | 19 | ||||||||||||||||||||||||||||||||||||||||||
Vessel Name | Type | Deadweight Tons (DWT) | Year Built | Shipyard (1) | Charterer | Employment | Chartered-In Expiry Date | |||||||||||||||||||||||||||||||||||||
Chartered-In Vessels | ||||||||||||||||||||||||||||||||||||||||||||
Nectar | VLCC | 299,999 | 2008 | Dalian | TI Pool | Jun-24 | ||||||||||||||||||||||||||||||||||||||
Noble | VLCC | 299,999 | 2008 | Dalian | TI Pool | Jun-24 | ||||||||||||||||||||||||||||||||||||||
Newton | VLCC | 307,251 | 2009 | Dalian | TI Pool | Jul-25 | ||||||||||||||||||||||||||||||||||||||
Marlin Sardinia | Suezmax | 158,000 | 2019 | NTS | Spot | Oct-23 | ||||||||||||||||||||||||||||||||||||||
Marlin Somerset | Suezmax | 158,000 | 2019 | NTS | Spot | Nov-23 | ||||||||||||||||||||||||||||||||||||||
Chartered-In | Total DWT | # | 1,223,249 | 5 | ||||||||||||||||||||||||||||||||||||||||||
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Vessel Name | Type | Deadweight Tons (DWT) | Year Built | Shipyard (1) | Charterer | Employment | Charter Expiry Date (2) | |||||||||||||||||||||||||||||||||||||
FSO Vessels | ||||||||||||||||||||||||||||||||||||||||||||
FSO Africa | FSO | 440,165 | 2002 | Daewoo | NOC | Service Contract | Sep-32 | |||||||||||||||||||||||||||||||||||||
FSO Asia | FSO | 441,893 | 2002 | Daewoo | NOC | Service Contract | Jul-32 | |||||||||||||||||||||||||||||||||||||
FSO | Total DWT | # | 882,058 | 2 |
(1)As used in this report, "Samsung" refers to Samsung Heavy Industries Co., Ltd, "Hyundai" refers to Hyundai Heavy Industries Co., Ltd., "Universal" refers to Universal Shipbuilding Corporation, "Hitachi" refers to Hitachi Zosen Corporation, "Daewoo" refers to Daewoo Shipbuilding and Marine Engineering S.A., "JMU" refers to Japan Marine United Corp., Ariake Shipyard, Japan, "Dalian" refers to Dalian Shipbuilding Industry Co. Ltd., "STX" refers to STX Offshore and Shipbuilding Co. Ltd., and "Hanjin" refers to Hanjin Heavy Industry Co. Ltd., "NTS" refers to New Times Shipbuilding Co., Ltd., "Okpo" refers to Daewoo Shipbuilding & Marine Engineering (DSME) shipyard.
(2)Assumes no exercise by the charterer of any option to extend (if applicable).
(3)Profit sharing component under time charter contracts.
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Employment of Our Fleet
Our tanker fleet is employed worldwide through a combination of primarily spot market voyage fixtures, including through the TI Pool, fixed-rate contracts and time charters. We deploy our two FSOs as floating storage units under fixed-rate service contracts in the offshore services sector.
For the year 2023, our fleet is currently expected to have approximately 23,710 available days for hire, of which as of April 1, 2023, 89.8% are expected to be available to be employed on the spot market, either directly or through the TI Pool, 5.9% are expected to be available to be employed on fixed time charters with a profit sharing element and 4.3% are expected to be available to be employed on fixed time charters without a profit sharing element.
Spot Market
A spot market voyage charter is a contract to carry a specific cargo from a load port to a discharge port for an agreed freight per ton of cargo or a specified total amount. Under spot market voyage charters, we pay voyage expenses such as port, canal and bunker costs. Spot charter rates have historically been volatile and fluctuate due to seasonal changes, as well as general supply and demand dynamics in the crude oil marine transportation sector. Although the revenue we generate in the spot market is less predictable, we believe our exposure to this market provides us with the opportunity to capture better profit margins during periods when vessel demand exceeds supply leading to improvements in tanker charter rates. As of April 1, 2023, we employed 16 of our vessels directly in the spot market.
Tankers International Pool
Euronav principally employs and commercially manages its VLCCs through the TI Pool, a leading spot market-oriented VLCC pool in which other shipowners with vessels of similar size and quality participate along with us. We participated in the formation of the TI Pool in 2000 to allow it and other TI Pool participants, consisting of unaffiliated third-party owners and operators of similarly sized vessels, or Pool Participants, to gain economies of scale, obtain increased cargo, flow of information, logistical efficiency and greater vessel utilization. As of April 1, 2023, the TI Pool was comprised of 58 vessels, including 40 of Euronav’s VLCCs.
By pooling its VLCCs with those of other shipowners, Euronav is able to derive synergies, including (i) the potential for increased vessel utilization by securing backhaul voyages for its vessels, and (ii) the performance of the Contracts of Affreightment, or COAs. Backhaul voyages involve the transportation of cargo on part of the return leg of a voyage. COAs, which can involve backhauls, may generate higher effective time charter equivalent, or TCE, revenues than otherwise might be obtainable directly in the spot market. Additionally, by operating a large number of vessels as an integrated transportation system, the TI Pool offers customers greater flexibility and an additional level of service while achieving scheduling efficiencies. The TI Pool is an owner-focused pool that does not charge commissions to its members, a practice that differs from that of other commercial pools; rather, the TI Pool aggregates gross charter revenues it receives and deducts voyage expenses and administrative costs before distributing net revenues to the pool members in accordance with their allocated pool points, which are based on each vessel's speed, fuel consumption and cargo-carrying capacity. We believe this results in lower TI Pool membership costs, compared to other similarly sized pools. In 2022, TI Pool membership costs were approximately $540.42 per vessel per day (with each vessel receiving its proportional share of pool membership expenses, excluding pool credit line costs).
In 2017, the corporate structure of the TI Pool was rationalized. This new structure allowed the TI Pool to arrange for a credit line financing. This credit line is used to fund the working capital in the ordinary course of TI Pool's business of operating a pool of tankers vessels, including but not limited to the purchase of bunker fuel, the payment of expenses relating to specific voyages and supplies of pool vessels, commissions payable on fixtures, port costs, expenses for hull and propeller cleaning, canal costs, insurance costs for the account of the pool, and insurance and fees payable for towage of vessels.
Tankers (UK) Agencies Limited, of which Euronav owns 50% of the outstanding voting shares, is the manager of the pool and is also responsible for the commercial management of the Pool Participants, including negotiating and entering into vessel employment agreements on behalf of the Pool Participants. Technical management of the pooled vessels is performed by each shipowner, who bears the operating costs for its vessels.
Time Charters
Time charters provide us with a fixed and stable cash flow for a known period of time. Time charters may help Euronav mitigate, in part, its exposure to the spot market, which tends to be volatile in nature, being seasonal and generally weaker in the second and third quarters of the year due to refinery shutdowns and related maintenance during the warmer summer months. In the future, Euronav may when the cycle matures or otherwise opportunistically employ more of its vessels under
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time charter contracts as the available rates for time charters improve. Euronav may also enter into time-charter contracts with profit-sharing arrangements, which it believes will enable Euronav to benefit if the spot market increases above a base charter rate as calculated either by sharing sub charter profits of the charterer or by reference to a market index and in accordance with a formula provided in the applicable charter contract. As of April 1, 2023, Euronav employed six of its vessels on fixed-rate time charters.
FSOs and Offshore Service Contracts
We currently deploy our two FSOs as floating storage units under service contracts with North Oil Company, in the offshore services sector. As our tanker vessels age, we may seek to extend their useful lives by employing such vessels on long-term offshore projects at rates higher than may otherwise be achieved in the time charter market, or sell such vessels to third-party owners in the offshore conversion market at a premium.
Technical and Commercial Management of our Vessels
A majority of Euronav’s vessels are technically managed in-house through our wholly-owned subsidiaries, Euronav Ship Management SAS, Euronav SAS and Euronav Ship Management (Hellas) Ltd. Its in-house technical management services include providing technical expertise necessary for all vessel operations, supervising the maintenance, upkeep and general efficiency of vessels, arranging and supervising newbuilding construction, drydocking, repairs and alterations, and developing, implementing, certifying and maintaining a safety management system.
In addition to Euronav’s in-house fully integrated technical management, Euronav utilizes the services of experienced third party managers. The independent technical managers typically have specific teams dedicated to Euronav’s vessels and are supervised by an experienced in-house oversight team. Euronav currently contracts Northern Marine Management Limited (part of Northern Marine Group) and Anglo Eastern group of companies (through some of their wholly-owned subsidiaries) The services provided by Euronav’s third party technical management are very similar to Euronav’s own technical management and involves part or all of the day-to-day management of vessels.
Euronav’s VLCCs are commercially managed by Tankers International while operating in the TI Pool. All of the participants in the TI Pool collectively pay a pool management fee equivalent to the costs of running the pool business, excluding voyage expenses, interest adjustments and administration costs, including legal, banking and other professional fees. The net charge is the pool administration cost, which is apportioned to each vessel by calendar days. During the year ended December 31, 2022, Euronav paid an aggregate of $7.5 million for the commercial management of Euronav’s vessels operating in the TI Pool.
Euronav’s Suezmax vessels trading in the spot market are commercially managed by Euronav (UK) Agencies Ltd., our London commercial department. Commercial management services include securing employment for Euronav’s vessels.
Euronav’s time chartered vessels are managed by Euronav’s operations department based in Antwerp.
Competition
The operation of tanker vessels and transportation of crude and petroleum products is extremely competitive. We compete with other tanker owners, including major oil companies as well as independent tanker companies.
Competition arises primarily from other tanker owners, including major oil companies as well as independent tanker companies, some of whom have substantially greater resources than we do. We compete for charters on the basis of price, vessel location, size, age and condition of the vessel, as well as on our reputation as an operator. Competition is also affected by the availability of other size vessels to compete in the trades in which we engage.
We currently operate all of our vessels in the spot market, either directly or through the TI Pool, or on time charter or on service agreements for the FSOs. For our vessels that operate in the TI Pool, Tankers UK Agencies Ltd. (TUKA), the pool manager, is responsible for their commercial management, including marketing, chartering, operating and purchasing bunker (fuel oil) for the vessels.
From time to time, we may also arrange our time charters and voyage charters in the spot market through the use of brokers, who negotiate the terms of the charters based on market conditions.
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Seasonality
We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, charter rates. Peaks in tanker demand quite often precede seasonal oil consumption peaks, as refiners and suppliers anticipate consumer demand. Seasonal peaks in oil demand can broadly be classified into two main categories:
1.Increased demand prior to Northern Hemisphere winters as heating oil consumption increases, and
2.Increased demand for gasoline prior to the summer driving season in the United States.
Unpredictable weather patterns and variations in oil reserves disrupt tanker scheduling. This seasonality may result in quarter-to-quarter volatility in our operating results, as many of our vessels trade in the spot market. Seasonal variations in tanker demand will affect any spot market related rates that we may receive.
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THE INTERNATIONAL OIL TANKER SHIPPING INDUSTRY
All the information and data presented in this section, including the analysis of the international oil tanker shipping industry has been provided by Drewry. Drewry has advised us that the statistical and graphical information contained herein is drawn from its database and other sources. In connection therewith, Drewry has advised that: (i) certain information in Drewry’s database is derived from estimates or subjective judgments; (ii) the information in the databases of other maritime data collection agencies may differ from the information in Drewry’s database; and (iii) while Drewry has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures. The Company believes and acts as though the industry and market data presented in this section is reliable.
Overview
The maritime transport industry is fundamental to international trade as it is the only practicable and economic way of transporting large volumes of many essential commodities and finished goods around the world. In turn, the oil tanker shipping industry represents a vital link in the global energy supply chain, in which larger vessels, such as VLCC, Suezmax and Aframax tankers, play an important role, given their capability to carry large quantities of crude oil.
The oil tanker shipping industry is divided between crude tankers that carry either crude oil or residual fuel oil and product tankers that carry refined petroleum products. The following review specifically focuses on the crude sector. Revenue for an oil tanker shipping company is primarily driven by freight rates paid for transportation capacity. Freight is paid for the movement of cargo between a load port and a discharge port. The cost of moving the ship from a discharge port to the next load port is not directly compensated by the charterers in the freight payment but is an expense of the owners if not on time charter.
In broad terms, the volume of seaborne oil trade is primarily dependent on global and regional economic growth, and to a lesser extent other factors such as changes in regional oil prices. Overall, there is a close relationship between changes in the level of economic activity and changes in the volume of oil moved by sea. With continued strong GDP growth in Asia, seaborne oil trade to emerging Asian markets has been growing significantly. Chinese oil consumption grew at a compound average growth rate (CAGR) of 4.4% from 9.8 million barrels per day (mbpd) in 2012 to 15.0 mbpd in 2022. Asian (excluding China) oil consumption increased at a CAGR of 2.0% during the same period. China's weak economy due to its zero-COVID policy impacted the country’s oil demand and squeezed the refinery throughput by more than 6% in 2022.
The outbreak of COVID-19 severely affected demand of crude oil and refined petroleum products as several major economies enforced lockdowns to contain the spread of the virus and mitigate the damage caused by the pandemic. Accordingly, the world seaborne tanker trade, including crude oil, oil products and chemicals fell 9.1% to 3,105 million tons in 2020. Crude oil trade declined 9.4% and oil products trade declined 10.1% during the same period. However, world seaborne tanker trade grew slightly to 3,120 million tons in 2021 mainly due to a sharp recovery in global oil demand. Global oil demand increased 5.6 mbpd in 2021 fueled by robust economic growth, rising vaccination rates and higher mobility levels. Although oil demand and refinery runs have recovered significantly from the lows of April 2020, they have not fully translated into a significant increase in seaborne tanker trade in 2021 as high oil prices due to the OPEC+ production curbs led to a surge in inventory drawdown. Global economic recovery coupled with the energy crisis, which started in October 2021, provided the much-needed further boost to oil demand in 2022. Global oil demand grew by 2.3 mbpd in 2022.
The geopolitical crisis in 2022, including the conflict between Russia and Ukraine that began in February 2022, has led to change in trade patterns for both crude oil and products trade with trades shifting from Russia-Europe to Asia-Europe and Middle East-Europe. This has led to increased crude tanker trade and tonne-mile demand. The tanker market has also benefited from recovery in demand as economies started emerging from the impact of COVID-19. Overall, crude oil seaborne tanker trade volumes grew 4% in 2022. The recent G7 price cap on crude oil, which became effective on December 5, 2022, and on refined oil products, which became effective on February 5, 2023, should further increase the trade pattern.
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World GDP and crude oil seaborne trade – 2002 to 2022*
(Percent change year on year)
![Picture1.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g1.jpg)
* Provisional estimates for GDP/Trade; Source: IMF, Trade Data Monitor, Drewry
Changes in regional oil consumption, as well as a shift in global refinery capacity from the developed to the developing world, is also translating into growing seaborne oil trade distances. For example, a VLCC’s voyage from West Africa to the US Gulf takes 40 days, but a round trip from West Africa to China (a trade which is expanding) takes 65 days, and a round trip from the US Gulf to Far East (a key trade route with growing US crude exports) takes nearly 100 days. The increase in oil trade distances, coupled with increases in world oil demand, has had a positive impact on tanker demand in ton miles (crude and products), which has increased from 11.3 to 13.1 trillion ton miles in the period 2012 to 2022.
Supply in the tanker sector, as measured by its deadweight (dwt) cargo carrying capacity, is primarily influenced by the rate of deliveries of newbuilds from the shipyards in line with their orderbook, as well as the rate of removals from the fleet via vessel scrapping or conversion. After a period of rapid expansion, supply growth in the tanker sector moderated in 2013-14 and the overall tanker fleet expanded just 0.6% in 2014, and a relatively modest 2.7% in 2015. However, in 2016, the crude oil tanker fleet expanded 5.8% due to a high level of newbuilding deliveries during the year and lower levels of scrapping. A further round of newbuilding deliveries took place in 2017 and the world tanker fleet increased another 4.8% despite a rise in scrapping in the second half of the year. Record high demolitions kept a check on fleet growth, and global crude tanker fleet expanded by a marginal 0.3% in 2018 despite the delivery of 101 newbuilds with aggregate capacity of 20.3 million deadweight (mdwt). Global world tanker fleet rose 7.1% year on year to 412.3 mdwt in 2019 primarily due to 39.1% year on year increase in deliveries to 28.3 mdwt. Demolitions declined sharply to two mdwt in 2019 compared with 17.4 mdwt in 2018. Global tanker fleet growth has slowed since 2020 and it increased 1.3% in 2020, 1.6% in 2021 and 3.9% in 2022 to 442.2 mdwt.
In terms of ordering activity, new tanker orders from 2010 to 2014 were limited due to the lack of available bank financing and a challenged rate environment, which contributed to the total crude tanker orderbook declining to 13.9% of the existing global tanker fleet capacity as of December 2014, compared with nearly 50% of the existing fleet at its peak in 2008. However, new ordering picked up in the VLCC and Suezmax sectors in late 2014 and 2015 because of the continued strength in the tanker freight market and the exemption from compliance to Tier III NOx emission norms for vessels ordered before January 1, 2016. Ordering activity fell substantially in 2016 and only 39 crude tankers were ordered, compared with 244 in 2015. However, ordering activity picked up again in 2017 with 93 new contracts placed for crude tankers during the year. Weak newbuilding prices were one of the main factors stimulating new ordering. Ordering activity took a backseat in a depressed tanker market, and a total of 73 crude tankers were ordered in 2018. The crude tanker orderbook has thinned down significantly from 2019 as deliveries have outpaced new ordering. The orderbook as a percentage of the fleet has slipped from 12.3% at the start of 2019 to 2.7% at the end of January 2023.
The tanker freight market remained buoyant throughout 2015 and the first half of 2016 on the back of favourable supply/demand dynamics. However, in the second half of 2016, rising newbuilding deliveries outpaced the growth in tanker demand, and hence, there was downward pressure on freight rates. A deluge of newbuilding in 2017 aggravated the situation further and rates fell.
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For example, the average VLCC spot rate on the Arabian Gulf (AG)-Japan route was US$ 22,617 per day (pd) in 2017 compared with US$ 42,183pd in 2016. Oil tanker freight rates declined in the second half of 2016 and 2017 due to a number of factors, including:
1.A surge in newbuilding deliveries that outpaced the growth in tanker demand in 2016 as well as 2017,
2.Oil production cuts announced by OPEC and higher compliance by the member countries, and
3.Reduced stockpiling activity by major Asian economies.
Freight rates across vessel class averaged well below breakeven rates for the first nine months of 2018. Suppressed vessel earnings prompted demolitions and 103 crude tankers with aggregate capacity of 17.4 mdwt were sold to scrapyards in 2018. Sluggish fleet growth, due to record high demolitions and steady increase in the demand for tankers—improved supply-demand dynamics in the last quarter of 2018 to an extent. Vessel earnings surged substantially in the last four months of 2018. Second-hand asset prices moved up in the fourth quarter of 2018, as a result of higher charter rates.
In 2019, crude tanker freight rates benefited from the US sanctions on Cosco Shipping Tanker (Dalian) Co., geopolitical tensions and tight supply. In addition, crude tanker vessel supply was reduced by 1.2% as vessels moved out of trade to fit scrubbers. New orders were constrained as shipowners wanted more clarity to emerge on the availability of scrubber-fitted vessels and LSFO prices. Scrapping came down sharply as owners wanted to benefit from higher freight rates in the second half of 2019. Second-hand asset prices reacted positively to buoyant charter rates.
Crude tanker freight rates saw a sudden spike in the first half of 2020 due to a surge in demand of VLCCs for floating storage. The global oil demand plunged substantially due to lockdown measure adopted by several major economies. However, the rates have normalized since then as OPEC+ and several other key producers curtailed their production to rebalance the oil market. Freight rates declined in 2021 due to inventory drawdown and more vessels joining the supply from floating storage. Freight rates increased in 2022 due to change in trade pattern with increase in long-haul trade. As of January 2023, one-year time charter rate for a five-year-old VLCC was $46,000 per day. An increase in newbuild prices in 2021 despite weak vessel earnings was fueled by the increased bargaining power of shipyards as they received increased ordering from other shipping sectors. Newbuild prices continued to increase in 2022 due to high-capacity utilization of tier-I years and increased steel prices. Second-hand prices increased in 2022 due to higher replacement costs.
World oil demand and production
In 2019, oil accounted for around one-third of global energy consumption. With the exception of 2008, 2009 and 2020, world oil consumption has increased steadily over the past two decades, as a result of increasing global economic activity and industrial production. In recent years, the growth in oil demand has been largely driven by developing countries in Asia and growing Chinese consumption, but some developed economies also recorded increases in demand between 2014 and 2018. In 2019, world oil demand increased to 100.3 mbpd, which represents a 1.0% increase from 2018 and 17.3% higher than the recent low recorded in 2009 following the global financial crisis of 2008-09. Global oil demand was hampered in 2020 due to COVID-19-related demand slump. However, the easing of mobility restrictions and resumption of economic activities coupled with the launch of several COVID vaccines, have supported the global oil demand in 2021. The global oil demand increased from 90.9 mbpd in 2020 to 96.5 mbpd in 2021. High commodity prices and sanctions on Russia, following its invasion of Ukraine, weighed on oil demand causing leading to lower global economic growth in 2022.
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World oil consumption: 2012 to 2022
(Million barrels per day)
![Picture2.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g2.jpg)
*Provisional estimates; Source: IEA
Seasonal trends also affect world oil consumption, and consequently, oil tanker demand. While trends in consumption vary with the specific season each year, peaks in tanker demand often precede seasonal consumption peaks as refiners and suppliers anticipate consumer demand. Seasonal peaks in oil demand can be classified broadly into two main categories: increased demand before the Northern Hemisphere winters as heating oil consumption increases and increased demand for gasoline before the summer driving season in the US.
Global trends in oil production have generally followed the growth in oil consumption, allowing for the fact that changes in the level of oil inventories also play an integral role in determining production levels and tie in with the seasonal peaks in demand. Changes in world crude oil production by region from 2012 to 2022 are shown in the table below.
World oil production: 2012 to 2022
(Million barrels per day)
![Picture3.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g3.jpg)
*Provisional estimates, #Former Soviet Union; Source: IEA
At the beginning of 2021, proven global oil reserves totaled 1,732 billion barrels – about 53 times the current rates of annual production (based on 2021 crude production). These reserves tend to be located in regions far from the major consuming countries separated by large expanses of water, and this geographical barrier creates the demand for crude tanker shipping. However, the development of light tight oil (LTO) or shale oil reserves in the US had a negative impact on the volume of US crude oil imports as well as the demand for crude tankers from 2004 to 2014. However, rising US crude exports on long-haul routes to China and India is good news for shipowners as every additional barrel exported from the country will open avenues for equal imports as the US is a net importer of crude oil.
New technologies, such as horizontal drilling and hydraulic fracturing, triggered a shale oil revolution in the US, and in 2013, for the first time in the previous two decades, the US produced more oil than it imported. In view of the rising surplus
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in oil production, the US Congress lifted a 40-year-old ban on crude oil exports in 2015 that was put in place after the Arab oil embargo in 1973. Thereby, this allowed US oil producers access to international markets.
The first shipments of the US crude were sent to Europe immediately after the lifting of the ban, and since then, other destinations have followed. The US exported 0.5 mbpd of crude oil in 2015 and 2016. However, 2017 marked a very important development for the US crude producers as the country exported crude to every major importer, including China, India, South Korea and several European countries. In October 2017, US crude exports surpassed two mbpd, and on average, the country’s crude exports more than doubled in 2017 to 1.2 mbpd. The US crude exports jumped further to 2.1 mbpd in 2018 and 3.0 mbpd in 2019 on the back of rising domestic crude oil production and nearly flat domestic demand. US crude oil exports increased slightly to 3.2 mbpd in 2020 as the outbreak of COVID-19 and steep decline in crude oil prices in 2020 adversely affected oil production, thereby reducing exports momentum. US crude exports continued to decline in 2021 due to lower crude oil production. US crude oil exports increased by about 21% in 2022 due to higher demand of US crude oil following sanctions on Russia’s exports of crude oil and the US’s massive release of oil from emergency reserves. US crude oil export is still well below the exports of major exporters such as Saudi Arabia, Russia and other Middle Eastern exporters. Nevertheless, the US Gulf to Asia could be a key trading route for VLCC with growing US exports.
US crude oil production and US crude oil exports: 2012-2022
![Picture4.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g4.jpg)
In the meantime, much of the oil from West Africa and the Caribbean, which was historically imported by the US, is now shipped in VLCC to China and other Asian economies, which has a positive impact on tanker demand due to increased ton miles, given the longer distances the oil needs to travel. Production and exports from the Middle East (largely from OPEC suppliers) and West Africa have historically had a significant impact on the demand for tanker capacity, and consequently, on tanker charter hire rates due to the long distances between these supply sources and demand centers. Oil exports from short-haul regions, such as the North Sea, are significantly closer to ports used by the primary consumers of such exports, which results in shorter average voyages.
Overall, the volume of crude oil moved by sea each year reflects the underlying changes in world oil consumption and production. Driven by increased world oil demand and production, especially in developing countries, seaborne trade in crude oil in 2022 is provisionally estimated at 1.9 billion tons or 65.5% of all seaborne oil trade (crude oil and refined petroleum products). The chart below illustrates changes in global seaborne movements of crude oil between 1983 and 2022.
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Seaborne crude oil trade development: 1980 to 2022
(Million tons)
![Picture5.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g5.jpg)
Source: Trade Data Monitor, Drewry
World seaborne oil trade is the result of geographical imbalances between areas of oil consumption and production. Historically, certain developed economies have acted as the primary drivers of these seaborne oil trade patterns. The regional growth rates in oil consumption shown in the chart below indicate that the developing world is driving recent trends in oil demand and trade. In Asia, the Middle East and Africa, oil consumption during 2012 to 2022 grew at annual rates of 1.7%, and at an annual growth rate of 4.4% in the case of China. Strong demand for oil in these regions is driving both increased volume of seaborne oil trades and increased voyage distances as more oil is being transported on long-haul routes.
Regional oil consumption growth rates: 2012 to 2022
(CAGR – Percent)
![Picture6.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g6.jpg)
Source: IEA, Drewry
Furthermore, consumption on a per capita basis remains low in many parts of the developing world, and as many of these regions have insufficient domestic supplies, the rising demand for oil will have to be satisfied by increased imports.
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Oil consumption per capita: 2022
(Tons per capita)
![Picture7.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g7.jpg)
Source: IEA, Drewry
In the case of China and India, seaborne crude oil imports have risen significantly in the last decade in order to meet an increasing demand for energy. During 2012 to 2022, Chinese crude oil imports increased from 271 to 50.8.4 million tons and Indian imports increased from 187.3 to 227.5 million tons. Conversely, Japanese imports declined from 179.7 to 131.1 million tons over the same period. In the US, crude oil imports declined between 2007 and 2015, but in 2016, the trend was reversed and average US crude imports increased 0.5 mbpd due to declining shale output. In 2017, US imports inched up by another 0.4% to reach 7.9 mbpd on the back of rising crude oil consumption. In 2018, the US crude oil imports declined 2.5% year on year to 7.8 mbpd, whereas the country’s crude oil imports declined 12.6% year on year to 6.8 mbpd in 2019. US crude oil imports declined 13.6% year on year to 5.9 mbpd in 2020. US crude oil imports have declined in the last three years due to the country’s rising crude oil production. In 2020, crude oil imports for almost all countries have been adversely impacted by the pandemic. In 2021 and 2022, US crude imports increased 4% and 3.1%, respectively.
Asian countries – Crude oil imports: 2012 to 2022
(Million tons)
![Picture8.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g8.jpg)
* Provisional estimates; Source: JODI, Drewry
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A vital factor, which is affecting both the volume and pattern of world oil trades, is the shift in global refinery capacity from the developed to the developing world, which is increasing the distances from oil production sources to refineries. The distribution of refinery throughput by region from 2012 to 2022 is shown in the following table.
Oil refinery throughput by region: 2012 to 2022
(‘000 barrels per day)
![Picture9.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g9.jpg)
* Provisional estimates; Source: BP, IEA, Drewry
Changes in refinery throughput are largely driven by changes in the location of capacity. Capacity increases are taking place mostly in the developing world, especially in Asia. In response to growing domestic demand, coupled with export ambitions, Chinese refinery throughput has grown at a faster rate than that of any other global region in the last decade, with refinery throughput in India, the Middle East and other emerging economies following a similar pattern. The shift in refinery capacity is likely to continue as refinery development plans are heavily focused on areas such as Asia and the Middle East and few new refineries are planned for North America and Europe.
Oil refinery throughput by region: Growth rates 2012 to 2022
(CAGR – Percent)
![Picture10.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g10.jpg)
Source: BP, IEA, Drewry
As a result of changes in trade patterns, as well as shifts in refinery locations, average voyage distances in the crude sector have increased. From 2012 to 2022, ton-mile demand in the crude tanker sector grew from 8.8 to 9.7 trillion ton miles. The table below shows changes in tanker demand expressed in ton miles, which is measured as the product of the volume of oil carried (measured in metric tons) multiplied by the distance over which it is carried (measured in miles).
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Crude oil tanker demand: 2012 to 2022
![Picture11.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g11.jpg)
* Provisional estimates; Source: Drewry
Another aspect which has impacted crude tanker demand in recent years has been the use of tankers for floating storage. In the closing weeks of 2014 and the opening weeks of 2015, commodity traders hired VLCCs in the expectation that profits could be made by storing oil at sea to create a contango, that is, where the current or spot price for the oil was below the price of oil for delivery in the futures market. As a result, several fixtures for long-term storage were reported by oil majors and commodity traders for periods up to 12 months in late 2014 and the first half of 2015. Floating crude oil storage reached a high of 197 million barrels in May 2015, and thereafter, it declined because of a narrowing of the contango and shrinking arbitrage in crude oil futures.
The use of large tankers for offshore storage rebounded somewhat in 2016 due to logistical considerations, marketing issues and inventory drawdown. Similar patterns were seen when floating storage peaked in June 2017, when more than 200 million barrels were reported to be stored in crude tankers. Floating storage declined gradually in the second half of 17. Production cuts pursued by OPEC, Russia and its allies encouraged inventory drawdown and floating storage dropped further in 2018. In 2019, demand for floating storage increased as owners stored low sulfur fuel oil (LSFO) and high sulfur fuel oil (HSFO) to avoid uncertainty of availability of these fuels and hedge them from price increase. Demand for VLCC for oil storage increased as well with 28 VLCCs being used in the Middle East Gulf to store oil.
In early 2020, the oil supply shock as a result of the price war between Russia and Saudi Arabia coupled with demand destruction due to the outbreak of COVID-19 led to a sharp decline in crude oil prices and a contango in oil futures. The demand for VLCCs for floating storage surged with arbitrage opportunities in the oil market and operational limitations of several oil producers. As of January 2023, nearly 59 VLCCs were employed in floating storage, which account for approximately 6.6% of the fleet. This figure was lower than the 105 VLCCs deployed for floating storage at the peak of the contango opportunities in oil market in April 2020, indicating a declining trend in on-the-water storage of crude oil.
G7 price cap on Russian crude and refined oil products and impact on crude trade
EU sanctions and the G7 price cap on crude oil, which became effective December 5, 2022 and on refined oil products, which became effective on February 5, 2023, has caused Russia to divert most of its crude away from Europe and towards China and India. On the contrary, European buyers have replaced Russian crude oil with imports from the US, Latin America and the Middle East, which should further aid the change in trade pattern. There is little clarity about the effectiveness of the "yet to be decided" price cap as Russia threatens to stop supplying crude oil at capped prices but is expected to be reviewed on a quarterly basis. The cap levels were introduced at $60 per barrel for crude, and $100 per barrel for diesel and other related products. However, any possible disruption to Russian crude oil exports might hamper the prospects of the crude tanker market. On the other hand, the demand for Russia’s refined products is likely to decline due to the recent G7 price cap, which might force the country to lower refinery runs. If Russia does not curb its crude oil production in line with the lower refinery runs, its crude oil surplus will widen, thus boosting the long-haul exports.
Crude tanker fleet overview
The world crude tanker fleet is generally classified into three major types of vessel categories, based on carrying capacity. The main crude tanker vessel types are:
•VLCCs, with an oil cargo carrying capacity in excess of 200,000 dwt (typically 300,000 to 320,000 dwt or around two million barrels). VLCCs generally trade on long-haul routes from the Middle East and West Africa to Asia, Europe and the US Gulf or the Caribbean. Tankers in excess of 320,000 dwt are known as Ultra Large Crude Carriers (ULCCs), although for the purposes of this report, they are included within the VLCC category.
•Suezmax tankers, with an oil cargo carrying capacity of about 120,000 to 200,000 dwt (typically 150,000 to 160,000 dwt or around one million barrels). Suezmax tankers are engaged in a range of crude oil trades across a number of major loading zones. Within the Suezmax sector, there are a number of product and shuttle tankers (shuttle tankers are specialized ships built to transport crude oil and condensates from offshore oil field
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installations to onshore terminals and refineries and are often referred to as ‘floating pipelines’), which do not participate in the crude oil trades.
•Aframax tankers, with an oil cargo carrying capacity of around 80,000 to 120,000 dwt (or about 500,000 barrels). Aframax tankers are employed in shorter regional trades, mainly in Northwest Europe, the Caribbean, the Mediterranean and Asia.
There are also a relatively small number of ships below 80,000 dwt which operate in crude oil trades. However, many operate in cabotage type trades, and therefore, do not form part of the open market. For this reason, the following analysis of supply concentrates on the VLCC, Suezmax and Aframax vessels. As of January 31, 2023, the crude tanker fleet consisted of 2,137 vessels with a combined capacity of 439.5 mdwt.
Crude oil tanker fleet – January 31, 2023
![Picture12.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g12.jpg)
Source: Drewry
The table below shows principal routes for crude oil tankers and where these vessels are deployed.
Crude oil tankers – Typical deployment by size category
![Picture13.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g13.jpg)
Source: Drewry
VLCCs are built to carry cargo parcels of two million barrels, and Suezmax tankers are built to carry cargo parcels of one million barrels, which are the most commonly traded parcel sizes in the crude oil trading markets. Their carrying capacities
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make VLCCs and Suezmax tankers the most appropriate asset class globally for long and medium haul trades. While traditional VLCC and Suezmax trading routes have typically originated in the Middle East and the Atlantic Basin, increased Asian demand for crude oil has opened up new trading routes for both classes of vessels.
VLCC/Suezmax fleet development
After growing at a record 6.5% year on year in 2019, crude tanker fleet growth moderated to 3.1% year on year in 2020 to 417.6 mdwt and 1.6% in 2021 to 425.5 mdwt. Deliveries declined by 46.1% year on year as orderbook was small. Demolition also declined 18.8% year on year in 2020 as sharp decline in bunker prices made life easy for old vessels. Global tanker fleet expanded 1.4% (based on capacity) in 2021 mainly due to high demolitions. Weaker market conditions favored demolitions with the opening of scrapyards and higher scrap prices. The year 2021 witnessed the highest number of crude tankers being scrapped during the last three years, but the fleet expanded as deliveries exceeded demolitions. An unprecedented surge in freight rates in the first half of 2020 also kept scrapping activity muted. Moreover, activity in ship-breaking yards in Southeast Asia was also hampered by the lockdowns and corresponding volatility in steel prices. Crude tanker fleet grew 3.9% year on year in 2022 to 442.2 mdwt on account of buoyant deliveries and modest demolitions.
VLCC & Suezmax fleet development: 2012 to 2023*
(Year on year percentage growth: mdwt)
![Picture14.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g14.jpg)
* as of January 31, 2023; Source: Drewry
The chart below indicates the volume of new orders placed in the VLCC and Suezmax sectors from 2012 to January 2023. Tight supply-demand dynamics in the tanker market, firm freight rates and exemption from compliance to Tier III NOx emission norms for vessels ordered before January 1, 2016, were the reasons for high new ordering activity in 2015, and a total of 62 VLCCs and 51 Suezmaxes contracts were placed during the year. New ordering activity then declined in 2016, with only 14 VLCCs ordered during the year compared with 62 during 2015. Ordering activity picked up again in 2017 as shipowners took advantage of low newbuild prices to embark on fleet renewal. However, newbuilding activity took a back seat in the depressed freight market, and 39 VLCCs and 12 Suezmaxes were ordered in 2018 compared with 48 VLCCs and 19 Suezmaxes in 2017. Uncertainty over the price and availability of new bunker fuel resulted in lower orders in 2019. New orders remained subdued in 2020 and 2021. Apart from the weak market outlook, the upcoming IMO regulations on decarbonisation are holding back newbuilding activity as the new regulations will affect the choice of propulsion systems and fuels in the future. Tonnage ordering declined sharply in 2022 despite a surge in vessel earnings and a record-low orderbook due to high newbuilding prices, lack of clarity about the compliant bunker fuel and tight availability of slots with major shipbuilding yards.
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VLCC/Suezmax new orders – 2012 to 2023*
(‘000 Dwt)
![Picture15.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g15.jpg)
* as of January 31, 2023; Source: Drewry
In the last few years, delays in new vessel deliveries, often referred to as ‘slippage’, have become a regular feature of the market. Slippage is the result of a combination of several factors, including cancellations of orders, issues in obtaining vessel financing, owners seeking to defer delivery during weak markets, shipyards quoting over-optimistic delivery times, and in some cases, shipyards experiencing financial difficulty. A number of Chinese yards, including yards at which crude tankers are currently on order, are experiencing financial problems which have led to both cancellations and delays in deliveries. New order cancellations have been a feature of most shipping markets during the market downturn. For obvious reasons, shipyards are reluctant to openly report such events, making the tracking of the true size of the orderbook at any given point in time difficult. The difference between actual and scheduled deliveries reflects the fact that orderbooks are often overstated. Slippage has affected both the VLCC and Suezmax sectors. The table below indicates the relationship between scheduled and actual deliveries for both asset classes from 2012 to 2022. Since slippage has occurred in recent years, it is not unreasonable to expect that some of the VLCC and Suezmax tankers currently on order will not be delivered on time.
VLCC/Suezmax tankers: Scheduled versus actual deliveries
(mdwt)
![Picture16.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g16.jpg)
Source: Drewry
In 2022, VLCC and Suezmax deliveries amounted to 12.2 and 5.2 mdwt respectively, compared with 10.8 and 3.2 mdwt respectively in 2021. As a result of these deliveries and demolition, the VLCC fleets expanded 4.3%, while Suezmax fleet increased 5.4% in 2022.
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VLCC/Suezmax tanker deliveries: 2012 to 2023*
(‘000 Dwt)
![Picture17.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g17.jpg)
* as of January 31, 2023; Source: Drewry
At its peak in 2008, the VLCC and Suezmax tanker orderbooks were each equivalent to 50% of the existing fleets, which led to high levels of new deliveries in both sectors between 2009 and 2012. The orderbook as a percentage of the existing fleet declined in the period 2010-13 due to low levels of new ordering. However, with the upturn in new ordering activity in 2014 and 2015, the VLCC and Suezmax orderbook to fleet ratios rose to 19.4% and 24.7% respectively in December 2015. Orderbook for Suezmax and VLCC have continued to decline from 2018 due to lower new order and higher deliveries. As of January 31, 2023, orderbook to fleet ratio for VLCC and Suezmax vessels were equivalent to 2.4% and 2.2% of the existing fleet respectively, which is at the lowest level since 2008.
VLCC & Suezmax orderbook
(Percent of existing fleet)
![Picture18.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g18.jpg)
* as of January 31, 2023; Source: Drewry
As of January 31, 2023, the total crude tanker orderbook consisted of 65 vessels with aggregate capacity of 20.4 mdwt. The orderbook for Suezmax tankers was 14 vessels representing 10.7 mdwt (excluding shuttle tankers), and for VLCCs, the orderbook was 20 vessels representing 6.1 mdwt.
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Crude oil tanker (1) orderbook – January 31, 2023
![Picture19.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g19.jpg)
(1)Excludes product tankers and shuttle tankers
Source: Drewry
Tanker supply is also affected by vessel scrapping. As an oil tanker ages, vessel owners often conclude that it is more economical to scrap a vessel that has exhausted its useful life than to upgrade it to maintain its ’in-class’ status. Often, particularly when tankers reach about 25 years of age, the costs of conducting the class survey and performing required repairs become economically inefficient. In recent years, most oil tankers that have been demolished were between 25 and 30 years of age. Average demolition age of VLCC has been around 21 years. High scrap prices also influence the scrapping, particularly when freight rates are weak.
In addition to vessel age and scrap prices, scrapping activity is influenced by freight markets. During periods of high freight rates, demolitions tend to decline and the opposite occurs when freight rates are low. The chart below indicates that vessel scrapping was much higher from 2010 to 2014 than in the preceding five years. Firm freight rates in 2015 and 2016 also encouraged shipowners to defer the scrapping of older vessels, and demolitions in these two years were substantially lower compared with those during 2010 and 2014. However, weak freight rates in the third quarter of 2017 accelerated demolitions and a total of 58 crude tankers totaling 8.5 mdwt were sold to scrapyards in 2017. Scrapping activity touched a record high as a weak freight market forced shipowners to phase out vessels below 20 years of age. Consequently, 108 crude carriers aggregating 18.6 mdwt were demolished in 2018. In 2019, demolitions remained muted as shipowners preferred holding on their old vessels due to higher freight rates in the second half of 2019. Scrapping in 2020 continued to be muted due to a sharp decline in bunker prices and surge freight rates in the first half of 2020. Moreover, activity in ship-breaking yards in Southeast Asia was also hampered by the lockdowns and corresponding volatility in steel prices. Lower freight rates in the second half of 2020 failed to underpin scrapping activity as many old vessels were employed in oil storage. Demolition surged in 2021 due to weak tanker earnings and high scrap prices with 65 crude tankers aggregating 9.9 million dwt being sold to scrapyards. An unprecedented surge in vessel earnings capped demolition in 2022.
Crude oil tanker scrapping: 2011 to 2022
(‘000 Dwt)
![Picture20.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g20.jpg)
Source: Drewry
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Ballast water management convention
All deep-sea vessels engaged in international trade are required to have ballast water treatment system before September 8, 2024. For a VLCC tanker, the retrofit cost could be as much as $2.0 million per vessel, including labor. Expenditure of this kind has become another factor impacting the decision to scrap older vessels after Ballast Water Management Convention came into force in 2019.
IMO 2020 regulation on low sulfur fuel
The second regulation, which came into force on January 1, 2020, and impacted vessel supply, particularly in 2020, is the drive to introduce low sulfur fuels. For many years, HSFO has been the main fuel of the shipping industry. It is relatively inexpensive and widely available, but it is ‘dirty’ from an environmental point of view. The sulfur content of HSFO is extremely high and is the reason that maritime shipping accounted for 8% of global emissions of sulfur dioxide (SO2), a significant source for acid rain as well as respiratory diseases. According to IMO, sulfur oxide emissions have dropped 77% (annual reduction of about 8.5 million metric tonnes) since the implementation of IMO 2020 regulations.
The IMO, the governing body of international shipping, has made a decisive effort to shift the industry away from HSFO to cleaner fuels with less harmful effects on the environment and human health. Effective in 2015, ships operating within the Emission Control Areas (ECAs) covering the Economic Exclusive Zone of North America, the Baltic Sea, the North Sea, and the English Channel, are required to use marine gas oil with allowable sulfur content up to 1,000 parts per million (ppm). In the lead-up to 2020, when the shipping industry started to prepare for a new low sulfur norm, two factors were closely considered: (i) the spread between (expensive) very low-sulfur fuel and (cheaper) high-sulfur fuel and, (ii) scrubber retrofitting activity. Starting 2020, high and low sulfur fuel demand from marine sector reported significant variation. The HSFO and LSFO price spread largely oscillated between $300 and $350 per metric tonne during the initial days and hovered around $190-200 per tonne in February 2020. Despite the initial speculation, the shipping industry did not see any systemic shortage of the new low sulfur fuel, which came out as a relief. The premium commanded by low sulfur fuel reduced to around $60 per tonne by December 2020 as the availability of compliant fuel is not an issue due to reduced demand and increased supply across major bunkering ports. Overall, installation of scrubbers and new fuel regulations turned out to be a non-event in the backdrop of COVID-19 and low bunker prices. However, the recent increase in crude oil prices since June 2021 and corresponding widening in the spread, improves the economic rationale for a scrubber investment.
IMO GHG strategy
The IMO has been devising strategies to reduce greenhouse gases (GHG) and carbon emissions from ships. According to the announcement in 2018, the IMO plans to initiate measures to reduce CO2 emissions intensity by at least 40% by 2030 and 70% by 2050 from the levels in 2008. It also plans to introduce measures to reduce GHG emissions by 50% by 2050 from the 2008 levels. These are likely to be achieved by setting energy efficiency requirements, energy saving technology and encouraging shipowners to use alternative fuels such as biofuels, and electro-/synthetic fuels such as hydrogen or ammonia. It may also include limiting the speed of the ships. Currently, there is uncertainty regarding the exact measures that the IMO will undertake to achieve these targets. Although the current macroeconomic environment is the main deterrent, IMO-related uncertainty is also a key factor preventing ship owners from placing new orders, as the vessels with conventional propulsion system may have a high environmental compliance cost and possible faster depreciation in asset values in the future. Some shipowners have decided to manage this risk by ordering LNG-fueled/methanol ships in order to comply with stricter regulations that may be announced in future.
In June 2021, the IMO adopted amendments to the International Convention for the Prevention of Pollution from ships that will require vessels to reduce their greenhouse gas emissions. These amendments are a combination of technical and operational measures and came into force on November 1, 2022, with the requirements for Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Indicator (CII) certification, effective January 1, 2023. These will be monitored by the flag administration and corrective actions will be required in the event of constant non-compliance. A review clause requires the IMO to review the effectiveness of the implementation of the CII and EEXI requirements, by January 1, 2026, at the latest. EEXI is a technical measure and would apply to ships above 400 GT. It indicates the energy efficiency of the ship compared to a baseline and is based on a required reduction factor (expressed as a percentage relative to the Energy Efficiency Design Index (“EEDI”) baseline).
On the other hand, CII is an operational measure which specifies carbon intensity reduction requirements for vessels with 5,000 GT and above. The CII determines the annual reduction factor needed to ensure continuous improvement of the ship’s operational carbon intensity within a specific rating level. The operational carbon intensity rating would be given on a scale of A, B, C, D or E indicating a major superior, minor superior, moderate, minor inferior, or inferior performance level, respectively. The performance level would be recorded in the ship’s Ship Energy Efficiency Management Plan (SEEMP). A ship rated D for three consecutive years, or E, would have to submit a corrective action plan, to show how the
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required index (C or above) would be achieved. To reduce carbon intensity, shipowners can switch from oil to alternative fuels such as LNG or methanol. Some marine fuels such as ammonia and hydrogen have zero-carbon content. In the long term, ammonia may emerge as a cost-effective alternative fuel but in the short term, it seems unviable. Other options to improve energy efficiency include propeller upgrading/polishing, hull cleaning/coating and retrofitting vessels with the wind-assisted propulsion system. Reducing ship speeds also helps in complying with the regulations as it lowers fuel consumption, and it is easy to implement.
In addition to the IMO regulation, the EU has proposed a set of proposals including the EU Emissions Trading System and FuelEU Maritime Initiative. Shipping will be included in EU ETS from 2024. It will be phased in gradually with 40% in 2024, 75% in 2025 and 100% in 2026. All ships will be (as per the definition) required to acquire and surrender emission allowances. 100% of emissions are included on voyages and port calls within the EU while 50% of emissions are covered for voyages between an EU port and a third country. All other ships calling EU ports will be included in EU ETS from 2027. Methane (CH4), Nitrous oxide (N2O) will be included in 2026. The EU ETS lays down rules regarding GHG intensity of energy used on-board all ships arriving in the EU. It aims to reduce GHG emission by 26% by 2040 and 75% by 2050 compared to 2020 level. It also makes it obligatory for ships to use on-shore power supply or zero-emission technology in ports in the EU. These initiatives are applicable to 50% of the emission from voyages arriving at or departing from an EU port. All shipowners trading in the European waters will need to comply with these regulations.
Ships will be required to undertake a combination of initiatives in order to comply with the upcoming environmental regulations. It may range from switching to low/zero carbon alternative fuels, paying carbon taxes, retrofitting energy-saving devices, propulsion improvement devices as well as voyage optimization techniques. The emission control regulations are likely to slow the speed of the vessels in next few years. Consequently, it will lead to a reduction in the supply of ships and therefore, in the short to medium-term, it will benefit shipowners with younger fleets as charter rates should potentially increase with lower supply of ships.
Besides the IMO regulations, the decarbonization of shipping is being propelled by various state and non-state stakeholders of the shipping industry. In recent years, there have been several developments towards it such as the Sea Cargo Charter, Poseidon Principles (for ship finance banks) and Poseidon Principles for Marine Insurance. In addition, there have been several industry led initiatives to facilitate movement towards low/zero-carbon shipping such as Getting to Zero Coalition, The Castor Initiative for Ammonia, Global Centre for Maritime Decarbonization and the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping.
Alternative fuels for shipping
The IMO has a target to reduce GHG emissions by 50% in 2050. This can’t be achieved with the low sulpfur fuel and so has encouraged innovation in alternative fuels. The IMO has also been planning other technical and operational measures in order to meet emission targets. Alternative fuels like LPG and methanol are mainly used on vessels carrying these as cargo. However, LNG is used as a fuel in LNG vessels and also in other vessels. Hydrogen and ammonia are in the initial stages of development as a marine fuel. LNG is expected to remain as a preferred alternative fuel in the near to medium term due to its availability. However, LNG is still a fossil fuel and is unable to meet the IMO 2050 decarbonization target. and methane slips continue to be a heavily debated issue. Another drawback is that LNG propulsion requires an LNG capable engine which, would require additional capex and increased fuel storage space. Biofuel is another potential alternative fuel because it requires no major modification of engine, and therefore, no significant additional capex is required, but compete with other uses.
Energy transition
Traditionally, fossil fuel-based energy sources such as oil, natural gas and coal have propelled the global economy, but their share has been declining over the past few years from 86.9% in 2011 to 82.3% in 2021 with the share of oil declining from around 33% in 2011 to 31% in 2021. However, the energy transition from fossil fuel-based energy to renewable sources of energy is currently underway which has received a boost from the accelerated sales of electric vehicles (EVs), even though their share in total sales was 2.5% in 2019. As the cost of EVs becomes competitive against internal combustion engine vehicles, and charging infrastructure is developing across the world, sales of EVs are expected to gain momentum, reducing the demand for gasoline and diesel in the long run. Increasing focus on decarbonization will also impact the global oil demand going forward. The demand for naphtha is likely to remain robust and will be the key driver of global trade in crude and refined petroleum products.
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The crude oil tanker freight market
Types of charter
Oil tankers are employed in the market through a number of different chartering options, described below.
• A bareboat charter involves the use of a vessel usually over longer periods of up to several years. All voyage related costs, including vessel fuel, or bunkers, and port dues as well as all vessel operating expenses, such as day-to-day operations, maintenance, crewing and insurance, transfer to the charterer’s account. The owner of the vessel receives monthly charter hire payments on a per day basis and is responsible only for the payment of capital costs related to the vessel.
• A time charter involves the use of the vessel, either for a number of months or years or for a trip between specific delivery and redelivery positions, known as a trip charter. The charterer pays all voyage related costs. The owner of the vessel receives monthly charter hire payments on a per day basis and is responsible for the payment of all vessel operating expenses and capital costs of the vessel.
• A single or spot voyage charter involves the carriage of a specific amount and type of cargo on a load port to discharge port basis, subject to various cargo-handling terms. Most of these charters are of a single or spot voyage nature. The cost of repositioning the ship to load the next cargo falls outside the charter and is at the cost and discretion of the owner. The owner of the vessel receives one payment derived by multiplying the tons of cargo loaded on board by the agreed upon freight rate expressed on a per cargo ton basis. The owner is responsible for the payment of all expenses, including voyage, operating and capital costs of the vessel.
• A contract of affreightment, or COA, relates to the carriage of multiple cargoes over the same route and enables the COA holder to nominate different ships to perform individual voyages. This arrangement constitutes a number of voyage charters to carry a specified amount of cargo during the term of the COA, which usually spans a number of years. All of the ship’s operating, voyage and capital costs are borne by the shipowner. The freight rate is normally agreed on a per cargo ton basis.
Tanker freight rates
Worldscale is the tanker industry’s standard reference for calculating freight rates. Worldscale is used because it provides the flexibility required for oil trade. Oil is a fairly homogenous commodity as it does not vary significantly in quality and it is relatively easy to transport by a variety of methods. These attributes, combined with the volatility of the world oil markets, means that an oil cargo may be bought and sold many times while at sea, and therefore, the cargo owner requires great flexibility in its choice of discharge options. If tanker fixtures were priced in the same way as dry cargo fixtures, this would involve the shipowner calculating separate individual freights for a wide variety of discharge points. Worldscale provides a set of nominal rates designed to provide roughly the same daily income irrespective of discharge point.
Time charter equivalent (TCE) is the measurement that describes the earnings potential of any spot market voyage based on the quoted Worldscale rate. As described above, the Worldscale rate is set and can then be converted into dollars per cargo ton. A voyage calculation is then performed, which removes all expenses (port costs, bunkers and commission) from the gross revenue, resulting in a net revenue that is then divided by the total voyage days, including the days from discharge of the prior cargo until discharge of the cargo for which the freight is paid (at sea and/or in port), to give a daily TCE rate.
The supply and demand for tanker capacity influences tanker charter hire rates and vessel values. In general, time charter rates are less volatile than spot rates as they reflect the fact that the vessel is fixed for a longer period of time. In the spot market, rates will reflect the immediate underlying conditions in vessel supply and demand, and are thus more prone to volatility. Small changes in tanker utilization have historically led to relatively large fluctuations in tanker charter rates for VLCCs, with more moderate price volatility in the Suezmax, Aframax and Panamax markets and less volatility in the Handysize market, as compared with the tanker market as a whole. The chart below illustrates monthly changes in TCE rates for VLCC and Suezmax tankers during January 2012 to January 2023.
VLCC TCE saw a spike during the first half of 2020 due to a surge in demand for VLCCs for floating storage when the global oil demand plunged substantially as a result of the lockdown measures adopted by several major economies to curb the spread of COVID-19. This led to unprecedented oversupply of crude oil. As a result, the average VLCC TCE rate spiked to about $200,000 per day in April 2020. However, the production cut by OPEC+ and other major companies has facilitated the gradual clearing of supply glut and TCE rates came down to $15,800 per day in December 2020. High inventories of crude and refined products, as well as the second wave of COVID-19, dented the crude oil trade and tonnage demand. Meanwhile, the return of vessels from floating storage inflated vessel supply. In 2021, freight rates declined due to inventory drawdown and more VLCCs joining the supply from floating storage. In 2022, changes in crude trade patterns benefited mid-size tankers freight rates at the expense of large crude carriers. Additionally, low refinery runs in China,
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which is a key driver of long-haul trade, squeezed the rates of vessels in this segment taking them lower than those of Suezmaxes for a significant part of the year.
VLCC/Suezmax tanker Time Charter Equivalent (TCE) Rates: 2011 to 2023*
(US$/Day)
![VLCC_SZ_TCE.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g21.jpg)
* Up to January 2023; Source: Drewry
After a weak phase between 2009 and the first half of 2014, tanker freight rates started rising in the second half of 2014, the main stimulus being the fall in oil prices and rising oil consumption. In addition, key oil-importing countries, such as India and China, started building Strategic Petroleum Reserves (SPRs).
In the fourth quarter of 2015, VLCC spot rates surged, benefiting from seasonal demand and low growth in the global crude tanker fleet. However, a wave of newbuilding deliveries in 2016 outpaced demand, and average TCE rates in 2016 were around 40% lower than in 2015. A spate of newbuilding deliveries in 2017 aggravated the situation further and the average TCE rates dropped by a further 45% in 2017. The situation worsened further and TCE rates were below breakeven rates for the first nine months of 2018. However, vessel earnings improved in the later months of the year and TCE rates for VLCCs on Arabian Gulf–Japan averaged at about $21,500 per day in 2018, which is nearly 5% lower than the rates realized in 2017.
VLCC TCE rates rose 2.1x in 2019, compared with 2018, on the back of the US sanctions on Cosco Shipping Tanker (Dalian) Co. (Cosco), geopolitical tensions and tight supply. VLCC rates surged to record high levels in October 2019 due to tight supply as US sanctions on Cosco subsidiaries in late September 2019 made a substantial number of Cosco’s 43 VLCCs difficult to trade. The US sanctions on Iran and the corresponding decline in Iran’s crude exports have also trimmed the availability of National Iranian Tanker Company (NITC) vessels for international trade. Effective vessel supply was also squeezed, with vessels moving out of trade to retrofit scrubbers.
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![Image_22.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g22.jpg)
Source: Drewry
VLCC/Suezmax one-year time charter rates: 2011 to 2023*
(US$/day period averages)
![TC_Rates.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g23.jpg)
* Up to January 2023; Source: Drewry
In the tanker market, independent shipowners have two principal employment options – either the spot or time charter markets or a combination of both. How tankers are deployed varies from operator to operator, and are also influenced by market conditions. In a buoyant market, the companies that prefer to deploy vessels on the spot market will gain more as they will benefit from the rise in freight rates. Broadly speaking, a shipowner with an operating strategy, which is focused on the time charter market, will experience a more stable income stream and they will be relatively insulated against the volatility in spot rates.
Newbuilding prices
Global shipbuilding is concentrated in South Korea, China and Japan. This concentration is the result of economies of scale, construction techniques and the prohibitive costs of building ships in other parts of the world. Collectively, these three countries account for about 90% of the global shipbuilding market.
Vessels constructed at shipyards are of varying size and technical sophistication. Dry bulk carriers generally require less technical know-how to construct, while oil tankers, container vessels and LNG carriers require technically advanced manufacturing processes.
The actual construction of a vessel can take place in nine to 12 months and can be partitioned into five stages: contract signing, steel cutting, keel laying, launching and delivery. The amount of time between signing a newbuilding contract and
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the date of delivery is usually at least 16 to 20 months, but in times of high shipbuilding demand, it can extend up to two to three years.
Newbuilding prices for tankers of all sizes rose steadily between 2004 and mid-2008. This was due to a number of factors, including high levels of new ordering, a shortage in newbuilding capacity during a period of high charter rates, and increased shipbuilders’ costs as a result of strengthening steel prices and the weakening US dollar. Prices weakened in 2009 following a downturn in new ordering and remained weak until the second half of 2013, when they slowly started to rise.
Newbuild prices increased by an average of 10% across vessel classes in 2014, but they declined marginally in 2015 due to weaker steel prices and spare capacity at shipyards due to negligible activity in other sectors of the maritime industry. The average newbuilding prices for VLCCs in 2015 dropped 2.4% year on year, while prices were flat for Suezmax tankers between 2014 and 2015. Spare capacity at shipyards, coupled with low ordering in 2016, led to a further decline of 10% to 12% in newbuilding prices of crude tankers. Newbuild prices remained stable throughout 2017. However, newbuild prices increased steadily in 2018 primarily on the back of optimism about a recovery in the tanker market. VLCC and Suezmax newbuild prices increased in 2019 with an increase in charter rates. In 2020 newbuilding prices for VLCC and Suezmax declined 7.4% on an average due to lower new orders and weak freight market in the second half of 2020.
Increase in newbuild prices in 2021 despite weak vessel earnings was fueled by the increased bargaining power of shipyards that have emerged as price setters with yards flushed with excess ordering, albeit from other shipping sectors, and are hence hard pressed for time for any new orders. Tanker shipowners are also willing to pay extra sums in anticipation of improved market at the time of delivery of the vessels. Newbuild prices continued to increase in 2022 amid high-capacity
utilization of tier-1 yards and increased steel prices.
VLCC/Suezmax tanker newbuilding prices: 2011 to 2023*
(US$ million)
![Picture23.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g24.jpg)
Source: Drewry, * Up to January 2023
Second-hand prices
Second-hand prices are generally influenced by potential vessel earnings, which in turn are influenced by trends in the supply of and demand for shipping capacity. The second-hand vessel prices follow the prevailing freight rates and they provide a better assessment of the existing supply-demand dynamics in the market. Vessel values are also dependent on other factors, including the age of the vessel, shipyard etc. Prices for young vessels, those around five-years old or under are also influenced by newbuilding prices. Prices for old vessels, those that are in excess of 20 years of age and near the end of their useful economic lives, are swayed by the value of scrap steel. In addition, the values for younger vessels tend to fluctuate less on a percentage basis than the values for older vessels. This is attributed to the finite useful economic life of older vessels that makes the price of younger vessels less sensitive to freight rates in the short term.
Vessel values are determined on a daily basis in the sale and purchase (S&P) market, where vessels are sold and bought through specialized sale and purchase brokers who regularly report these transactions to participants in the seaborne transportation industry. The S&P market for oil tankers is transparent and quite liquid, with a large number of vessels changing hands on a regular basis.
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The chart below illustrates the movements of prices for second-hand (5-year old) oil tankers between 2012 and January 2023. After remaining range-bound between 2010 and 2013, second-hand vessel prices started recovering in 2014-15, but a sharp decline in the earning capabilities of vessels in 2016 reversed the trend, and second-hand prices plunged 25-30% during the year. However, second-hand prices remained stable for much of 2017 and started to move up slowly from the beginning of 2018 due to increased demand for modern fuel-efficient vessels in the S&P market. Nevertheless, the second-hand prices of crude tankers are well below the last peak recorded in 2008. In 2019, the second-hand prices of VLCC and Suezmax vessels increased in tandem with a surge in charter rates. Second-hand prices of VLCC and Suezmax declined 15.8% on an average in 2020 as freight rates plunged in the second half of 2020. The uptrend in newbuild tanker prices coupled with higher demolition prices pushed up second-hand vessel prices in 2021. Second-hand prices climbed higher in 2022 due to increased replacement costs. Higher newbuild prices are also putting upward pressure on the second-hand values of modern fuel-efficient vessels.
VLCC/Suezmax tanker second-hand prices – 5-year old vessels: 2012 to 2023*
(US$ million)
![Picture24.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g25.jpg)
* Up to January 2023
Source: Drewry
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OVERVIEW OF THE OFFSHORE OIL AND GAS INDUSTRY
All the information and data in this prospectus about the offshore oil industry has been provided by Energy Maritime Associates (EMA), an independent strategic planning and consulting firm focused on the marine and offshore sectors. EMA has advised that the statistical and graphical information contained herein is drawn from its database and other sources. In connection therewith, EMA has advised that: (a) certain information in EMA’s database is derived from estimates or subjective judgments; (b) the information in the databases of other maritime data collection agencies may differ from the information in EMA’s database; (c) while EMA has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures.
Brief History of the Offshore Industry
The offshore oil and gas industry can generally be defined as the extraction and production of oil and gas offshore. From a more nuanced perspective, it is a highly technical industry with significant risks, but whose rewards are high. Unlike onshore developments, where drilling and processing equipment be constructed onsite, often with access to existing infrastructure, offshore developments have additional engineering and logistical requirements in designing, transporting, installing and operating facilities in remote offshore environments. Because of this, each production unit is unique and designed for the specific field’s geological and environmental characteristics including hydrocarbon specifications, reservoir requirements (water/gas/chemical injection), well/subsea configuration, water depth, and weather conditions (above and below the water).
The water depth of offshore developments has increased dramatically since its start from piers extended from shore in just a few meters of water. In 1947, Kerr-McGee drilled the first well beyond the sight of land. This well was in only 5.5 meters of water but was 17 kilometers off the Louisiana coast. Offshore developments have continued to move further from land and into increasingly deeper waters using fixed platforms that extended from the seabed to the surface.
Floating Production and Storage (FPS) and Floating, Production, Storage and Offloading unit (FPSO) units emerged in the 1970s. Since that time, FPS units have been installed in increasing water depths, with the deepest unit now operating in 2,900 meters of water. Water depths are currently defined as shallow (less than 1,000 meters), deepwater (between 1,000 meters and 1,500 meters), and ultra-deepwater (greater than 1,500 meters). Units installed before 2000 were almost all shallow water. Since 2000, 45% of units have been installed in deepwater including 20% in ultra-deepwater. For units currently on order, over 45% are in deepwater, including 20% in ultra-deepwater. Other types of FPS units include Spar, Tension-Leg Platform (TLP), and Semi-submersible (Semi), which are well suited to deepwater. For liquefying gas and then converting it back to gas, Floating Liquefied Natural Gas (FLNG) and Floating Storage Regas Unit (FSRU) can be used. Mobile Offshore Production Units (MOPU), and Floating Storage Offloading Units (FSO) are popular for shallow water developments.
The geographical range of the FPS industry has also changed over the years. For the first few decades of industry activity, projects were concentrated in the Gulf of Mexico and the North Sea. However, with discoveries of new hydrocarbon basins, the location of offshore developments expanded to include most parts of the world, with Brazil, West Africa, and Southeast Asia now leading the way.
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![Currently Installed Units by Region 2011-2022.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g26.jpg)
Source: Energy Maritime Associates, Jan 2023
Along with increasing water depth, the size and complexity of these offshore developments has also grown, which in turn has increased the size and complexity of the FPS units. Project development cycles had been increasing in time, complexity, and cost. However, over the past few years there has been a concerted effort to reduce field development costs by reducing the number of interfaces and re-using standardized designs as much as possible. As a result, some developments have been able to achieve first production within five years of discovery.
Contract Awards and Orderbook
Approval of these projects depends largely on the oil price expectation at the time and the related production potential associated with the specific project. As a result, the orders for FPS units generally follow the price of oil. However, oil price is not the only factor. Development costs also play a major role in determining the economic viability of a project. After the price of Brent crude dropped to $34 per barrel in 2008, only 10 FPS units were awarded in 2009. As the price of Brent crude recovered to over $100 per barrel, 25 to 33 FPS units were awarded each year from 2010 to2014. Following the sharp decline in oil prices, FPS orders dropped to 15 units in 2015 and 17 in 2016. As oil prices recovered from 2017 to 2019, so did orders, particularly for FPSOs, which rose from six in 2017 to 11 in 2019. With the COVID-19 pandemic and subsequent oil price crash, only three FPSOs were ordered in 2020. However, as oil prices recovered, nine FPSOs were awarded in 2021 followed by 12 in 2022.
2022 was a record year for many types of FPS units, particularly FSRUs and FLNGs. This was driven by the demand for alternative gas supplies, following the Russian invasion of Ukraine. 14 FSRUs were awarded, mainly fulfilled by existing units that were trading as LNG carriers. The number of FPSO orders reached a level last seen in 2012 and is expected to grow further.
The current order backlog consists of 59 production floaters, nine FSOs (two oil and seven LNG) and five mobile offshore production units (MOPUs). Within the backlog, 35 units are utilizing purpose-built hulls, 27 units are based on converted hulls, and 14 are rescheduled for redeployments. Of the production floaters being built, 36 are owned by field operators and 37 are owned by leasing contractors, including one which may be leased or owned (Uaru FPSO).
Since 1997, the production floater order backlog has ranged from a low of 17 units in 1999 to a peak of 70 units in the first half of 2013. Within this period, there have been multiple cycles: a downturn in 1998 and 1999 followed by an upturn from 2000 to 2002 of 17 to 39 units, relative stability in 2003 and 2004, an upturn from 2005 to 2007 from 35 to 67 units followed by a downturn from 2008 to 2009 down to 32 units, an upturn between 2010 and 2013 to 70 units, and a gradual decline to around 50 units where it has remained since 2017. In the first quarter of 2021, the orderbook dropped to 42 as deliveries outpaced orders.
Brazil and Southeast Asia are the destinations for the oil FSOs currently on order.
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![FPS Awards by Type.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g27.jpg)
Source: Energy Maritime Associates, Jan 2023
![FPS Units Currently On Order by Region and Type.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g28.jpg)
Source: Energy Maritime Associates, Jan 2023
Currently Installed Units
As of January 2023, there are 303 FPS systems in service worldwide comprised of FPSOs (54%) of the current total, Production Semis (13%), FSRUs (13%), TLPs (9%), Production Spars (7%), Production Barges (3%), and FLNGs (2%). This does not include 23 production units and four floating storage/offloading units that are available for re-use. There is one FPSO under repair. Another 107 floating storage/offloading units (without production capability) are in service.
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![Q1 Inst Total by Type.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g29.jpg)
Source: Energy Maritime Associates, Jan 2023
![Total Installed Units by FPS Type and Region.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g30.jpg)
Source: Energy Maritime Associates, Jan 2023
Markets
The top five regions for floating production systems are Southeast Asia (21%), Africa (19%), Brazil (17%), Gulf of Mexico (15%), and Northern Europe (11%). The type of systems varies widely from region to region – FSOs are the dominant type in Southeast Asia due to the relatively shallow water depths and lack of infrastructure. In this type of environments, a fixed production platform and FSO is often the most economic development option.
Most Attractive Growth Regions
Brazil remains the top growth region again this year, as it has been since the beginning of the FPS Market Sentiment Survey. Petrobras awarded three Buzios FPSOs in 2022 and has plans for many more to develop pre-salt fields as well as replace aging FPSOs in the Campos Basin. Independent operators are redeveloping older fields, while larger players such as Equinor and Shell are progressing new developments. EMA is tracking 30 potential projects in Brazil, which could require up to 40 floating production units.
In second place is West Africa, buoyed by the prospects of long-awaited awards in mature areas like Angola as well as new discoveries in frontier areas like Namibia.
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South America (excluding Brazil) remained in third place. ExxonMobil has placed orders for five FPSOs and has plans for a further five units in Guyana (10 in total). There could be potential for double this number to develop the entire basin, which extends to neighboring Suriname.
The Middle East and US Gulf of Mexico again tied for fourth place. The most notable changes were the Mexican side of the Gulf of Mexico, which dropped from being tied last year with the US side of the Gulf of Mexico to eighth place. This is likely as a result of continued issues with Pemex and delays in sanctioning developments by international operators.
The FSO Market
FSOs provide field storage and offloading in a variety of situations. FSOs are primarily used in conjunction with fixed platforms, MOPUs and production floaters (Semis, TLPs, Spars) to provide offshore field storage of oil and condensate. They are also used as offshore storage/export facilities for onshore production fields and as storage/blending/transshipment terminals for crude oil or refined products. Most FSOs store oil, although there are a few FSOs that store liquefied natural gas (LNG) or liquefied petroleum gas (LPG).
FSOs range from simple tankers with few modifications to purpose built and extensively modified tankers with significant additional equipment at a total cost ranging between $250 and $300 million. Oil storage capacity on FSOs varies from 240,000 barrels to three million barrels. FSO Asia and the FSO Africa, which are owned by Euronav, are among the largest and most complex FSOs in operation. Water depth ranges from 20 meters to 350 meters except for an FSO located in Brazil’s Marlim Sul field (1,180 meters). There is no inherent limitation on water depth for FSOs.
Most FSOs currently in operation are older tankers modified for storage/offloading use. Close to approximately 75% of the FSOs now operating are at least 20 years old, with 28% over 30 years old. Production continues on many of these fields, therefore requiring life extension or replacement of these older hulls. Around 40% of the FSOs in service are Aframax or Suezmax-size (600,000 to one million barrels). VLCC or ULCC size units (up to three million barrels) account for another 40%. The remaining 20% of FSOs is comprised of smaller units.
Approximately 50% of FSOs in service are positioned in Southeast Asia. Around another 15% are in West Africa. The others are spread over the Middle East, India, Northern Europe, Mediterranean, Brazil, and elsewhere. Fuel storage units account for 15% of the fleet and are mainly located off Singapore/Malaysia. These are almost all 15 to 25 years old VLCC/ULCC tankers, with minimal modification.
Large storage capacity and ability to be moored in almost any water depth makes FSOs ideal for areas without pipeline infrastructure and where the production platform has no storage capabilities (fixed platforms, MOPU, Spar, TLP, Semi-submersible platform). FSOs have no or limited process topsides, which make them relatively simple to convert from old tankers, as compared to an FPSO. FSOs can be relocated to other fields and some have also later been converted to FPSOs.
The Key Components of an FSO
Unlike other FPS systems, the hull is the primary component of an FSO. Topsides are normally simple and feature primarily accommodation, helicopter landing facilities, crude metering equipment, and sometimes power generation. However, some FSOs, including the FSO Asia and the FSO Africa, which are owned by Euronav, have more sophisticated topsides (which are described below). Mooring systems are the same as for an FPSO: spread-mooring or turret-moored (internal and external). In addition, some simple storage units are moored by their own anchor or alongside a jetty. In benign environments, an FSO can be moored to a Catenary Anchor Leg Mooring buoy (soft mooring), where the buoy is fixed to the seabed and attached to the FSO by mooring ropes.
Some FSOs, such as FSO Asia and FSO Africa, include a small part of the production process, particularly water separation/treatment and chemical injection. For example, after initial processing on the platform, the FSO Asia and FSO Africa may provide additional processing of the platform fluids and separate the water from the crude oil. The oil and water are usually heated, accelerating the separation of the two organic compounds. Once separated, oil is transferred to separate storage cargo tanks and then offloaded to export vessels. Water is treated, purified and returned to the underwater source reservoir or directly to the sea.
Trends in FSO orders
There were 57 orders for FSOs placed over the past eleven years, an average of 5.2 annually. Over one-third of those orders were for simple fuel storage. Of the FSOs for offshore fields, 25% of the FSOs were purpose-built and 75% of the FSOs were converted from existing oil tankers. This is in line with the currently installed fleet profile.
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Forecast Summary
EMA is tracking 29 potential projects in the planning stage that may require an FSO. The number of FSO projects in the planning pipeline has increased by five since last year. FSO projects can typically be developed more quickly than other FPS developments and therefore a number of projects could be awarded in the next five years that are not yet visible. The exception to this is condensate FSOs for gas projects, which require at least three years for construction of the gas processing facilities.
The prospects for the FSO sector remain good, supported by the number of visible projects in the planning stage, the drive for energy security, and high oil prices. Utilization and rates for drilling rigs has increased sharply from record lows. A few deepwater FPSO developments did not proceed in 2022 due to rising costs. . In Southeast Asia, the most popular development option is an FSO, in conjunction with a fixed platform or MOPU.
The vast majority of FSOs will continue to operate in Southeast Asian countries including Thailand, Vietnam, and Malaysia, but there has been increased activity in Africa and Mexico as well. FSOs could be required to store production from a deepwater Semi (Trion) or a fixed platform (Zama).
From 2023 to 2027, converted oil tankers will remain the dominant choice for FSOs. Newbuilt units will be used for some projects in the North Sea as well as for condensate FSOs on gas fields. We expect between 13 to 27 conversion and one to five newbuilding orders over the next five years. In addition, we expect one to three FSO orders to be filled by redeployed units. Currently 19 FPSOs and 1 FSOs are idle, with more than 20 units potentially coming off contract over the next few years.
Between $2.1 and $5.2 billion is expected to be spent on FSO orders over the next five years, with the mid-case being almost $3.6 billion. Around 75% will be spent on conversions, 20% on newbuildings, and 5% on redeployments. The purpose-built units will cost in the range of $175 to $875 million. Converted units will cost an average of around $135 million. Capital cost for redeployed units would depend on the specification, but should be slightly less than a converted unit. Where the capex falls in this range depends on the hull size, design life and mooring/offloading system needed.
In the past, most vessels chosen for conversion were between 20 and 25 years old. However, this trend is changing as companies increasingly scrutinize the quality and hull fatigue of the units earmarked as conversion candidates. Some recent FPSO conversion projects have selected newbuilt intercepts or units as young as 5 years old.
FSO conversion work is being carried out in Chinese yards, but some of the more complex FSO projects will be continue to be performed in Singapore and Malaysia. Most newbuilt units have been constructed by the Chinese and Korean yards. However, Sembcorp in Singapore completed a high spec unit for the UK’s Culzean field in 2018.
Competition
Competition in the FSO market includes tanker owners, specialized FSO/FPSO contractors, and engineering/construction companies in the floating production sector. Tanker owners tend to compete for projects which require less modification and investment. Companies such as Altera Infrastructure (formerly Teekay Offshore Partners L.P.), Knutsen NYK Offshore Tankers AS, Malaysia International Shipping Corporation Berhad, and Omni Offshore Terminals Pte Ltd target more complex FSO projects with higher specifications and client requirements. FPSO contractors such as MODEC Inc, SBM Offshore N.V., and BW Offshore Limited had competed in the FSO market in the past but are now primarily focused on large FPSO projects.
Most clients conduct a detailed pre-qualification screening before accepting proposals. Pre-qualification requirements include: FSO conversion and operation experience, health, safety, environment systems and procedures, access to tanker for conversion, and financial resources.
Contract Structure
As part of the overall offshore field development, most FSOs are leased on long-term (five to 15 years), fixed rate service contracts (normally structured as either a time charter or a bareboat contract). The FSO is essential to the field production as oil is exported via the FSO. Typically, the FSO contract has a fixed period as well as additional extension periods (at the charterer’s option) depending on the projected life of the development project. The FSO is designed to remain offshore for the duration of the contact, as opposed to conventional tankers, which have scheduled drydocking repairs every two to three years. Depending on tax treatment and local regulations, some oil companies elect to purchase the FSO rather than lease it, particularly when the unit is expected to remain on site for over 20 years. However, there have been FSO lease contracts for 20 or even 25 years.
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Environmental and Other Regulations on Tankers and FSO's
Government regulation and laws significantly affect the ownership and operation of our fleet. We are subject to international conventions and treaties, national, state and local laws and regulations in force in the countries in which our vessels may operate or are registered relating to safety and health and environmental protection including the storage, handling, emission, transportation and discharge of hazardous and non-hazardous materials, and the remediation of contamination and liability for damage to natural resources. Compliance with such laws, regulations and other requirements entails significant expense, including vessel modifications (where applicable) and implementation of certain operating procedures.
A variety of government and private entities subject our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (applicable national authorities such as the United States Coast Guard or USCG, Captain of the Port or equivalent), classification societies, flag state administrations (countries of registry) and charterers, particularly terminal operators. Certain of these entities require us to obtain permits, licenses, certificates and other authorizations for the operation of our vessels. Failure to maintain necessary permits or approvals could require us to incur substantial costs or result in the temporary suspension of the operation of one or more of our vessels.
Increasing environmental concerns have created a demand for vessels that conform to stricter environmental standards. We are required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with United States and international regulations. We believe that the operation of our vessels is in full compliance with applicable environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations. However, because such laws and regulations frequently change and may impose increasingly stricter requirements, we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our vessels. In addition, a future serious marine incident that causes significant adverse environmental impact could result in additional legislation or regulation that could negatively affect our profitability.
International Maritime Organization
The IMO had adopted the International Convention for the Prevention of Pollution from Ships (MARPOL), the International Convention for the Safety of Life at Sea of 1974 (SOLAS Convention), and the International Convention on Load Lines of 1966 (LL Convention). MARPOL establishes structural and operational environmental standards relating to oil leakage or spilling, garbage management, sewage, air emissions, handling and disposal of noxious liquids and the handling of harmful substances in packaged forms. MARPOL is applicable to all tankers, among other vessels, and is broken into six Annexes, each of which regulates a different source of pollution. Annex I relates to prevention of pollution by oil; Annexes II and III relate to harmful substances carried in bulk in liquid or in packaged form, respectively; Annexes IV and V relate to sewage and garbage management, respectively; and Annex VI, lastly, relates to prevention of air pollution from ships. Annex VI was separately adopted by the IMO in September of 1997; new emissions standards, titled IMO-2020, took effect on January 1, 2020.
In 2013, the IMO’s Marine Environmental Protection Committee (MEPC) adopted a resolution amending MARPOL Annex I Condition Assessment Scheme (CAS). These amendments became effective on October 1, 2014, and require compliance with the 2011 International Code on the Enhanced Programme of Inspections during Surveys of Bulk Carriers and Oil Tankers (ESP Code) which provides for enhanced inspection programs. We may need to make certain financial expenditures to comply with these amendments.
Air Emissions
In September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution from vessels. Effective May 2005, Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from all commercial vessel exhausts and prohibits “deliberate emissions” of ozone depleting substances (such as halons and chlorofluorocarbons), emissions of volatile compounds from cargo tanks, and the shipboard incineration of specific substances. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions, as explained below. Emissions of “volatile organic compounds” from certain vessels, and the shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as polychlorinated biphenyls, or PCBs) are also prohibited. All of the Euronav vessels are currently compliant in all material respects with these regulations.
The MEPC adopted amendments to Annex VI regarding emissions of sulfur oxide, nitrogen oxide, particulate matter and ozone depleting substances, which entered into force on July 1, 2010. The amended Annex VI seeks to further reduce air pollution by, among other things, implementing a progressive reduction of the amount of sulfur contained in any fuel oil used onboard vessels. On October 27, 2016, the MEPC agreed to implement a global 0.5% mass by mass (m/m) sulfur oxide
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emissions limit (reduced from 3.50%) starting from January 1, 2020. This limitation can be met by using low-sulfur compliant fuel oil, alternative fuels, or certain exhaust gas cleaning systems. Vessels are now required to obtain bunker delivery notes and International Air Pollution Prevention (IAPP) Certificates from their flag states that specify sulfur content. Additionally, at MEPC 73, amendments to Annex VI to prohibit the carriage of bunkers above 0.5% sulfur on vessels were adopted and took effect March 1, 2020, with the exception of vessels fitted with exhaust gas cleaning equipment (scrubbers), which can carry fuel of higher sulfur content. These regulations subject ocean-going vessels to stringent emissions controls, and may cause us to incur substantial costs.
Sulfur content standards are even stricter within certain “Emission Control Areas,” or ECAs. As of January 1, 2015, vessels operating within an ECA were not permitted to use fuel with sulfur content in excess of 0.1% m/m. Amended Annex VI establishes procedures for designating new ECAs. Currently, the IMO has designated four ECAs, including specified portions of the Baltic Sea area, North Sea area, North American area and United States Caribbean area. In addition, several Chinese ports have established a similar system. Ocean-going vessels in these areas will be subject to stringent emission controls and may cause us to incur additional costs. Other areas in China are subject to local regulations that impose stricter emission controls. If other ECAs are approved by the IMO, or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the U.S. Environmental Protection Agency “EPA”, or the states where we operate, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations. In December 2021, the member states of the Convention for the Protection of the Mediterranean Sea Against Pollution, or the Barcelona Convention, agreed to support the designation of a new ECA in the Mediterranean. On December 15, 2022, MEPC 79 adopted the designation of a new ECA in the Mediterranean, with an effective date of May 1, 2025.
Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for marine diesel engines, depending on their date of installation. At the MEPC meeting held from March to April 2014, amendments to Annex VI were adopted which address the date on which Tier III Nitrogen Oxide (NOx) standards in ECAs will go into effect. Under the amendments, Tier III NOx standards apply to vessels that operate in the North American and U.S. Caribbean Sea ECAs designed for the control of NOx produced by vessels with a marine diesel engine installed and constructed on or after January 1, 2016. Tier III requirements could apply to areas that will be designated for Tier III NOx in the future. At MEPC 70 and MEPC 71, the MEPC approved the North Sea and Baltic Sea as ECAs for nitrogen oxide for vessels built on or after January 1, 2021. The EPA promulgated equivalent (and in some senses stricter) emissions standards in 2010. As a result of these designations or similar future designations, we may be required to incur additional operating or other costs.
As determined at the MEPC 70, the new Regulation 22A of MARPOL Annex VI became effective as of March 1, 2018 and requires vessels above 5,000 gross tonnage to collect and report annual data on fuel oil consumption to an IMO database, with the first year of data collection having commenced on January 1, 2019. The IMO intends to use such data as the first step in its roadmap (through 2023) for developing its strategy to reduce greenhouse gas emissions from vessels, as discussed further below.
MARPOL made mandatory certain measures relating to energy efficiency for vessels. All vessels are now required to develop and implement Ship Energy Efficiency Management Plans (SEEMP), and new vessels must be designed in compliance with minimum energy efficiency levels per capacity mile as defined by the Energy Efficiency Design Index (EEDI). Under these measures, by 2025, all new vessels built will be 30% more energy efficient than those built in 2014. MEPC 75 adopted amendments to MARPOL Annex VI which brings forward the effective date of the EEDI’s “phase 3” requirements from January 1, 2025 to April 1, 2022 for several ship types, including gas carriers, general cargo ships, and LNG carriers.
Additionally, MEPC 75 introduced draft amendments to Annex VI which impose new regulations to reduce greenhouse gas emissions from ships. These amendments introduce requirements to assess and measure the energy efficiency of all ships and set the required attainment values, with the goal of reducing the carbon intensity of international shipping. The requirements include (1) a technical requirement to reduce carbon intensity based on a new Energy Efficiency Existing Ship Index (EEXI), and (2) operational carbon intensity reduction requirements, based on a new operational carbon intensity indicator (CII). The attained EEXI is required to be calculated for ships of 400 gross tonnage and above, in accordance with different values set for ship types and categories. With respect to the CII, the draft amendments would require ships of 5,000 gross tonnage to document and verify their actual annual operational CII achieved against a determined required annual operational CII. Additionally, MEPC 75 proposed draft amendments requiring that, on or before January 1, 2023, all ships above 400 gross tonnage must have an approved SEEMP on board. For ships above 5,000 gross tonnage, the SEEMP would need to include certain mandatory content. MEPC 75 also approved draft amendments to MARPOL Annex I to prohibit the use and carriage for use as fuel of heavy fuel oil (HFO) by ships in Arctic waters on and after July 1, 2024. The draft amendments introduced at MEPC 75 were adopted at the MEPC 76 session in June 2021 and entered into force in November 2022, with the requirements for EEXI and CII certification coming into effect from January 1, 2023. Any vessels
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that will not meet this new EEXI requirement will need to adopt energy-saving/emission reducing technology, through retrofits, to reach compliant levels. This creates a vast array of implications for the tanker industry going forward. Recycling of older ships could accelerate as the investments to comply with regulations are not feasible. One of the most efficient ways of reducing emissions is reducing power, this would in turn limit vessel speed and with that supply.
MEPC 77 adopted a non-binding resolution which urges Member States and ship operators to voluntarily use distillate or cleaner alternative fuels or methods of propulsion that are safe for ships and could contribute to the reduction of Black Carbon emissions from ships when operating in or near the Arctic. MEPC 79 adopted amendments to MARPOL Annex VI, Appendix IX to include the attained and required CII values, the CII rating and attained EEXI for existing ships in the required information to be submitted to the IMO Ship Fuel Oil Consumption Database. The amendments will enter into force on May 1, 2024.
MEPC 78 made progress with the discussions around the revision of the Initial IMO GHG Strategy. The revision takes into account the commitment to strengthen the levels of ambition of the Initial Strategy and the needs of developing States, in particular small island developing States (SIDS) and least developed countries (LDCs). The MEPC adopted guidelines to support the implementation of the short-term measure to reduce ships' carbon intensity in accordance with the timelines set out in the Initial IMO GHG Strategy. The MEPC also approved draft amendments to appendix IX of MARPOL Annex VI on the reporting of EEXI and CII values to the IMO Data Collection System (DCS). Regarding the so-called "basket of candidate mid-term measures" the MEPC integrated various technical elements (for example, a GHG fuel standard and/or enhancement of IMO's carbon intensity measures) and carbon pricing elements (for example, a market-based measure). The MEPC agreed to designate the entire Mediterranean Sea as an emission control area, meaning that ships will - from 2025 - have to comply with more stringent controls on sulfur oxide emissions. In a SOx-ECA, the limit for sufhur in fuel oil used on board ships is 0.10% m/m, while outside these areas the limit is 0.50% m/m. Proposed amendments to MARPOL Annex VI were also approved, with a view to adoption at MEPC 79, which will designate the Mediterranean Sea, as a whole, as an Emission Control Area for Sulphur Oxides (SOx-ECA) and particulate matter. The amendment could enter into force in mid-2024, with the new limit taking effect from 2025.
MEPC 79 approved an extension of the Unified Interpretation of Regulation 18.3 of MARPOL Annex VI related to NOx emissions when using biofuels, that it should also be applicable for fuels with a synthetic fuel content of up to 30%.
We may incur costs to comply with these revised standards. Additional or new conventions, laws and regulations may be adopted that could require the installation of expensive emission control systems and could adversely affect our business, results of operations, cash flows and financial condition.
Safety Management System Requirements
The SOLAS Convention addresses issues related to the safe manning of vessels and emergency preparedness, training and drills. The Convention of Limitation of Liability for Maritime Claims (LLMC) sets limitations of liability for a loss of life or personal injury claim or a property claim against vessel owners. All of the Euronav vessels are in full compliance with SOLAS and LLMC standards.
Under Chapter IX of the SOLAS Convention, or the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention (ISM Code), our operations are also subject to environmental standards and requirements. The ISM Code requires the party with operational control of a vessel to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies. We rely upon the safety management system that we and our technical management team have developed for compliance with the ISM Code.
The failure of a vessel owner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports.
The ISM Code requires that vessel operators obtain a safety management certificate (SMC) for each vessel they operate. This certificate evidences compliance by a vessel’s management with the ISM Code requirements for a safety management system. No vessel can obtain a safety management certificate unless its manager has been awarded a document of compliance (DOC), issued by, or on behalf of, each flag state, under the ISM Code. We have obtained applicable documents of compliance for our ship management offices and safety management certificates for all of our vessels for which the certificates are required by the IMO. The document of compliance and safety management certificate are renewed as required.
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Regulation II-1/3-10 of the SOLAS Convention governs vessel construction and stipulates that vessels over 150 meters in length must have adequate strength, integrity and stability to minimize risk of loss or pollution. Goal-based standards amendments in SOLAS regulation II-1/3-10 entered into force in 2012, with July 1, 2016 set for application to new oil tankers, among other vessels. The SOLAS Convention regulation II-1/3-10 on goal-based vessel construction standards for oil tankers, among other vessels, which entered into force on January 1, 2012, requires that all oil tankers, among other vessels, of 150 meters in length and above, for which the building contract is placed on or after July 1, 2016, satisfy applicable structural requirements conforming to the functional requirements of the International Goal-based Ship Construction Standards for Bulk Carriers and Oil Tankers (GBS Standards).
Amendments to the SOLAS Convention Chapter VII apply to vessels transporting dangerous goods and require those vessels be in compliance with the International Maritime Dangerous Goods Code (IMDG Code). Effective January 1, 2018, the IMDG Code includes (1) updates to the provisions for radioactive material, reflecting the latest provisions from the International Atomic Energy Agency, (2) new marking, packing and classification requirements for dangerous goods, and (3) new mandatory training requirements. Amendments which took effect on January 1, 2020 also reflect the latest material from the UN Recommendations on the Transport of Dangerous Goods, including (1) new provisions regarding IMO type 9 tank, (2) new abbreviations for segregation groups, and (3) special provisions for carriage of lithium batteries and of vehicles powered by flammable liquid or gas. Additional amendments, which came into force on June 1, 2022, include (1) addition of a definition of dosage rate, (2) additions to the list of high consequence dangerous goods, (3) new provisions for medical/clinical waste, (4) addition of various ISO standards for gas cylinders, (5) a new handling code, and (6) changes to stowage and segregation provisions.
The IMO has also adopted the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (STCW). As of February 2017, all seafarers are required to meet the STCW standards and be in possession of a valid STCW certificate. Flag states that have ratified SOLAS and STCW generally employ the classification societies, which have incorporated SOLAS and STCW requirements into their class rules, to undertake surveys to confirm compliance.
The IMO's Maritime Safety Committee and MEPC, respectively, each adopted relevant parts of the International Code for Ships Operating in Polar Water (Polar Code). The Polar Code, which entered into force on January 1, 2017, covers design, construction, equipment, operational, training, search and rescue as well as environmental protection matters relevant to ships operating in the waters surrounding the two poles. It also includes mandatory measures regarding safety and pollution prevention as well as recommendatory provisions. The Polar Code applies to new ships constructed after January 1, 2017, and after January 1, 2018, ships constructed before January 1, 2017 are required to meet the relevant requirements by the earlier of their first intermediate or renewal survey.
In June 2022, SOLAS also set out new amendments that will take effect January 1, 2024, which include new requirements for: (1) the design for safe mooring operations, (2) the Global Maritime Distress and Safety System (“GMDSS”), (3) watertight integrity, (4) watertight doors on cargo ships, (5) fault-isolation of fire detection systems, (6) life-saving appliances, and (7) safety of ships using LNG as fuel. These new requirements may impact the cost of our operations.
Pollution Control and Liability Requirements
The IMO has negotiated international conventions that impose liability for pollution in international waters and the territorial waters of the signatories to such conventions. For example, the IMO adopted an International Convention for the Control and Management of Ships’ Ballast Water and Sediments (BWM Convention) in 2004. The BWM Convention entered into force on September 8, 2017. The BWM Convention requires vessels to manage their ballast water to remove, render harmless, or avoid the uptake or discharge of new or invasive aquatic organisms and pathogens within ballast water and sediments. The BWM Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits, and require all vessels to carry a ballast water record book and an international ballast water management certificate.
On December 4, 2013, the IMO Assembly passed a resolution revising the application dates of BWM Convention so that the dates are triggered by the entry into force date and not the dates originally in the BWM Convention. This, in effect, makes all vessels delivered before the entry into force date “existing vessels” and allows for the installation of ballast water management systems on such vessels at the first International Oil Pollution Prevention (IOPP) renewal survey following entry into force of the convention. The MEPC adopted updated guidelines for approval of ballast water management systems (G8) at MEPC 70. At MEPC 71, the schedule regarding the BWM Convention’s implementation dates was also discussed and amendments were introduced to extend the date existing vessels are subject to certain ballast water standards. Those changes were adopted at MEPC 72. Vessels over 400 gross tons generally must comply with a “D-1 standard,” requiring the exchange of ballast water only in open seas and away from coastal waters. The “D-2 standard” specifies the
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maximum amount of viable organisms allowed to be discharged, and compliance dates vary depending on the IOPP renewal dates. Depending on the date of the IOPP renewal survey, existing vessels must comply with the D-2 standard on or after September 8, 2019. For most vessels, compliance with the D-2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. We currently have 4 vessels that do not comply with the updated guideline which we expect will be retrofitted at the occasion of their first next dry dock
Ballast water management systems, which include systems that make use of chemical, biocides, organisms or biological mechanisms, or which alter the chemical or physical characteristics of the ballast water, must be approved in accordance with IMO Guidelines. As of October 13, 2019, MEPC 72’s amendments to the BWM Convention took effect, making the Code for Approval of Ballast Water Management Systems, which governs assessment of ballast water management systems, mandatory rather than permissive, and formalized an implementation schedule for the D-2 standard. Under these amendments, all ships must meet the D-2 standard by September 8, 2024. Costs of compliance with these regulations may be substantial. Additionally, in November 2020, MEPC 75 adopted amendments to the BWM Convention which would require a commissioning test of the ballast water management system for the initial survey or when performing an additional survey for retrofits. This analysis will not apply to ships that already have an installed BWM system certified under the BWM Convention. These amendments have entered into force on June 1, 2022. In December 2022, MEPC 79 agreed that it should be permitted to use ballast tanks for temporary storage of treated sewage and grey water. MEPC 79 also established that ships are expected to return to D-2 compliance after experiencing challenging uptake water and bypassing a BWM system should only be used as a last resort. Guidance will be developed at MEPC 80 (in July 2023) to set out appropriate actions and uniform procedures to ensure compliance with the BWM Convention.
Once mid-ocean exchange ballast water treatment requirements become mandatory under the BWM Convention, the cost of compliance could increase for ocean carriers and may have a material effect on our operations. However, many countries already regulate the discharge of ballast water carried by vessels from country to country to prevent the introduction of invasive and harmful species via such discharges. The U.S., for example, requires vessels entering its waters from another country to conduct mid-ocean ballast exchange, or undertake some alternate measure, and to comply with certain reporting requirements.
The IMO adopted the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended by different Protocols in 1976, 1984, and 1992, and amended in 2000 (CLC). Under the CLC and depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel’s registered owner may be strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain exceptions. The 1992 Protocol changed certain limits on liability expressed using the International Monetary Fund currency unit, the Special Drawing Rights. The limits on liability have since been amended so that the compensation limits on liability were raised. The right to limit liability is forfeited under the CLC where the spill is caused by the vessel owner’s actual fault and under the 1992 Protocol where the spill is caused by the vessel owner’s intentional or reckless act or omission where the vessel owner knew pollution damage would probably result. The CLC requires vessels over 2,000 tons covered by it to maintain insurance covering the liability of the owner in a sum equivalent to an owner’s liability for a single incident. We have protection and indemnity insurance for environmental incidents. P&I Clubs in the International Group issue the required Bunkers Convention “Blue Cards” to enable signatory states to issue certificates. All of our vessels are in possession of a CLC State issued certificate attesting that the required insurance coverage is in force.
The IMO also adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage (Bunker Convention) to impose strict liability on vessel owners (including the registered owner, bareboat charterer, manager or operator) for pollution damage in jurisdictional waters of ratifying states caused by discharges of bunker fuel. The Bunker Convention requires registered owners of vessels over 1,000 gross tons to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable national or international limitation regime (but not exceeding the amount calculated in accordance with the LLMC). With respect to non-ratifying states, liability for spills or releases of oil carried as fuel in vessel’s bunkers typically is determined by the national or other domestic laws in the jurisdiction where the events or damages occur.
Vessels are required to maintain a certificate attesting that they maintain adequate insurance to cover an incident. In jurisdictions, such as the United States where the CLC or the Bunker Convention has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or on a strict-liability basis.
Anti‑Fouling Requirements
In 2001, the IMO adopted the International Convention on the Control of Harmful Anti‑fouling Systems on Ships (Anti‑fouling Convention). The Anti‑fouling Convention, which entered into force on September 17, 2008, prohibits the use of organotin compound coatings to prevent the attachment of mollusks and other sea life to the hulls of vessels. Vessels of
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over 400 gross tons engaged in international voyages are required to undergo an initial survey before the vessel is put into service or before an International Anti‑fouling System Certificate is issued for the first time; and subsequent surveys when the anti‑fouling systems are altered or replaced. Vessels of 24 meters in length or more but less than 400 gross tons engaged in international voyages will have to carry a Declaration on Anti-fouling Systems signed by the owner or authorized agent. We have obtained Anti-fouling System Certificates for all of our vessels that are subject to the Anti-fouling Convention.
In November 2020, MEPC 75 approved draft amendments to the Anti-fouling Convention to prohibit anti-fouling systems containing cybutryne, which would apply to ships from January 1, 2023, or, for ships already bearing such an anti-fouling system, at the next scheduled renewal of the system after that date, but no later than 60 months following the last application to the ship of such a system. In addition, the IAFS Certificate has been updated to address compliance options for anti-fouling systems to address cybutryne. Ships which are affected by this ban on cybutryne must receive an updated IAFS Certificate no later than two years after the entry into force of these amendments. Ships which are not affected (i.e. with anti-fouling systems which do not contain cybutryne) must receive an updated IAFS Certificate at the next Anti-fouling application to the vessel. These amendments were formally adopted at MEPC 76 in June 2021. The MEPC adopted revised guidelines to support implementation of the AFS Convention, following the adoption, in 2021, of amendments to include controls on the biocide cybutryne.
Compliance Enforcement
Noncompliance with the ISM Code or other IMO regulations may subject the vessel owner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports. The USCG and European Union authorities have indicated that vessels not in compliance with the ISM Code by applicable deadlines will be prohibited from trading in U.S. and European Union ports, respectively. As of the date of this report, each of our vessels is ISM Code certified. However, there can be no assurance that such certificates will be maintained in the future. The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any, such regulations may have on our operations.
United States Regulations
The U.S. Oil Pollution Act of 1990 and the Comprehensive Environmental Response, Compensation and Liability Act
The U.S. Oil Pollution Act of 1990 (OPA) established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA affects all “owners and operators” whose vessels trade or operate within the U.S., its territories and possessions or whose vessels operate in U.S. waters, which includes the U.S.’s territorial sea and its 200 nautical mile exclusive economic zone around the U.S. The U.S. has also enacted the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), which applies to the discharge of hazardous substances other than oil, except in limited circumstances, whether on land or at sea. OPA and CERCLA both define “owner and operator” in the case of a vessel as any person owning, operating or chartering by demise, the vessel. Both OPA and CERCLA impact our operations.
Under OPA, vessel owners and operators are “responsible parties” and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels, including bunkers (fuel). OPA defines these other damages broadly to include:
•injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs;
•injury to, or economic losses resulting from, the destruction of real and personal property;
•loss of subsistence use of natural resources that are injured, destroyed or lost;
•net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal property, or natural resources;
•lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural resources; and
•net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources.
OPA contains statutory caps on liability and damages; such caps do not apply to direct cleanup costs. Effective November 12, 2019, the USCG adjusted the limits of OPA liability for tankers, other than a single-hull tanker, over 3,000 gross tons liability to the greater of $2,300 per gross ton or $19,943,400 (subject to periodic adjustment for inflation). On December
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23, 2022, the USCG issued a final rule to adjust the limitation of liability under the OPA. Effective March 23, 2022, the new adjusted limits of OPA liability for a tank vessel, other than a single-hull tank vessel, over 3,000 gross tons liability to the greater of $2,500 per gross ton or $21,521,300 (subject to periodic adjustment for inflation). These limits of liability do not apply if an incident was proximately caused by the violation of an applicable U.S. federal safety, construction or operating regulation by a responsible party (or its agent, employee or a person acting pursuant to a contractual relationship), or a responsible party's gross negligence or willful misconduct. The limitation on liability similarly does not apply if the responsible party fails or refuses to (i) report the incident as required by law where the responsible party knows or has reason to know of the incident; (ii) reasonably cooperate and assist as requested in connection with oil removal activities; or (iii) without sufficient cause, comply with an order issued under the Federal Water Pollution Act (Section 311 (c), (e)) or the Intervention on the High Seas Act.
CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as well as damages for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing the same, and health assessments or health effects studies. There is no liability if the discharge of a hazardous substance results solely from the act or omission of a third party, an act of God or an act of war. Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $500,000 for any other vessel. These limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible person fails or refused to provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA.
OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law. OPA and CERCLA both require owners and operators of vessels to establish and maintain with the USCG evidence of financial responsibility sufficient to meet the maximum amount of liability to which the particular responsible person may be subject. Vessel owners and operators may satisfy their financial responsibility obligations by providing a proof of insurance, a surety bond, qualification as a self-insurer or a guarantee. We comply and plan to comply going forward with the USCG’s financial responsibility regulations by providing applicable certificates of financial responsibility.
The 2010 Deepwater Horizon oil spill in the Gulf of Mexico resulted in additional regulatory initiatives or statutes, including higher liability caps under OPA, new regulations regarding offshore oil and gas drilling and a pilot inspection program for offshore facilities. However, several of these initiatives and regulations have been or may be revised. For example, the U.S. Bureau of Safety and Environmental Enforcement’s (BSEE) revised Production Safety Systems Rule (PSSR), effective December 27, 2018, modified and relaxed certain environmental and safety protections under the 2016 PSSR. Additionally, the BSEE amended the Well Control Rule, effective July 15, 2019, which rolled back certain reforms regarding the safety of drilling operations, and the former U.S. President Trump had proposed leasing new sections of U.S. waters to oil and gas companies for offshore drilling. In January 2021, current U.S. President Biden signed an executive order temporarily blocking new leases for oil and gas drilling in federal waters. However, attorneys general from 13 states filed suit in March 2021 to lift the executive order, and in June 2021, a federal judge in Louisiana granted a preliminary injunction against the Biden administration, stating that the power to pause offshore oil and gas leases “lies solely with Congress.” In August 2022, a federal judge in Louisiana sided with Texas Attorney General Ken Paxton, along with the other 12 plaintiff states, by issuing a permanent injunction against the Biden Administration’s moratorium on oil and gas leasing on federal public lands and offshore waters. With these rapid changes, compliance with any new requirements of OPA and future legislation or regulations applicable to the operation of our vessels could impact the cost of our operations and adversely affect our business.
OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, provided they accept, at a minimum, the levels of liability established under OPA and some states have enacted legislation providing for unlimited liability for oil spills. Many U.S. states that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law. Moreover, some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters, although in some cases, states which have enacted this type of legislation have not yet issued implementing regulations defining vessel owners’ responsibilities under these laws. The Company complies and intends to comply going forward with all applicable state regulations in the ports where the Company’s vessels call.
We currently maintain pollution liability coverage insurance in the amount of $1 billion per incident for each of our vessels. If the damages from a catastrophic spill were to exceed our insurance coverage, it could have an adverse effect on our business and results of operations. Cybersecurity is also a top priority with the U.S. Coast Guard, and they announced a
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concentrated campaign to assist in identifying and addressing cybersecurity vulnerabilities during the first quarter of the year 2023. The cybersecurity of our vessels continues to improve through hands-on training, campaigns and external assistance/equipment provision.
Other United States Environmental Initiatives
The U.S. Clean Air Act (CAA) of 1970 (including its amendments of 1977 and 1990) requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. The CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards in each state. Although state-specific, SIPs may include regulations concerning emissions resulting from vessel loading and unloading operations by requiring the installation of vapor control equipment. Our vessels operating in such regulated port areas with restricted cargoes are equipped with vapor recovery systems that satisfy these existing requirements.
The U.S. Clean Water Act (CWA) prohibits the discharge of oil, hazardous substances and ballast water in U.S. navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA. In 2015, the EPA expanded the definition of “waters of the United States” (WOTUS), thereby expanding federal authority under the CWA. Following litigation on the revised WOTUS rule, in December 2018, the EPA and Department of the Army proposed a revised, limited definition of WOTUS. In 2019 and 2020, the agencies repealed the prior WOTUS Rule and promulgated the Navigable Waters Protection Rule (NWPR) which significantly reduced the scope and oversight of EPA and the Department of the Army in traditionally non-navigable waterways. On August 30, 2021, a federal district court in Arizona vacated the NWPR and directed the agencies to replace the rule. On December 7, 2021, the EPA and the Department of the Army proposed a rule that would reinstate the pre-2015 definition. On December 30, 2022, the EPA and the Department of Army announced the final WOTUS rule that largely reinstated the pre-2015 definition.
The EPA and the USCG have also enacted rules relating to ballast water discharge, compliance with which requires the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial costs, and/or otherwise restrict our vessels from entering U.S. Waters. The EPA will regulate these ballast water discharges and other discharges incidental to the normal operation of certain vessels within United States waters pursuant to VIDA, which was signed into law on December 4, 2018 and replaces the VGP program (which authorizes discharges incidental to operations of commercial vessels and contains numeric ballast water discharge limits for most vessels to reduce the risk of invasive species in U.S. waters, stringent requirements for exhaust gas scrubbers, and requirements for the use of environmentally acceptable lubricants) and current Coast Guard ballast water management regulations adopted under the U.S. National Invasive Species Act (NISA), such as mid-ocean ballast exchange programs and installation of approved USCG technology for all vessels equipped with ballast water tanks bound for U.S. ports or entering U.S. waters. VIDA establishes a new framework for the regulation of vessel incidental discharges under Clean Water Act (CWA), requires the EPA to develop performance standards for those discharges within two years of enactment, and requires the U.S. Coast Guard to develop implementation, compliance and enforcement regulations within two years of EPA’s promulgation of standards. Under VIDA, all provisions of the 2013 VGP and USCG regulations regarding ballast water treatment remain in force and effect until the EPA and U.S. Coast Guard regulations are finalized. Non-military, non-recreational vessels greater than 79 feet in length must continue to comply with the requirements of the VGP, including submission of a Notice of Intent (NOI) or retention of a PARI form and submission of annual reports. We have submitted NOIs for our vessels where required. Compliance with the EPA, U.S. Coast Guard and state regulations could require the installation of ballast water treatment equipment on our vessels or the implementation of other port facility disposal procedures at potentially substantial cost, or may otherwise restrict our vessels from entering U.S. waters.
Clean Shipping Act of 2022 directs the Environmental Protection Agency (EPA) to require vessels on certain commercial voyages to comply with standards for the carbon intensity of the vessel's fuel, with vessels on such voyages utilizing 100% less than the carbon intensity baseline by 2040 and beyond. Moreover, the EPA must promulgate and continually revise standards to eliminate emissions of specified greenhouse gases and air pollutants associated with vessels at anchorage or at berth in the contiguous zone of the United States.
Ocean Shipping Reform Act of 2022 requires the Federal Maritime Commission to (1) investigate complaints about detention and demurrage charges (i.e., late fees) charged by common ocean carriers, (2) determine whether those charges are reasonable, and (3) order refunds for unreasonable charges. It also prohibits common ocean carriers, marine terminal operators, or ocean transportation intermediaries from unreasonably refusing cargo space when available or resorting to other unfair or unjustly discriminatory methods.
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European Union Regulations
In October 2009, the European Union amended a directive to impose criminal sanctions for illicit vessel-source discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Aiding and abetting the discharge of a polluting substance may also lead to criminal penalties. The directive applies to all types of vessels, irrespective of their flag, but certain exceptions apply to warships or where human safety or that of the vessel is in danger. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims. Regulation (EU) 2015/757 of the European Parliament and of the Council of April 29, 2015 (amending EU Directive 2009/16/EC) governs the monitoring, reporting and verification of carbon dioxide emissions from maritime transport, and, subject to some exclusions, requires companies with vessels over 5,000 gross tonnage to monitor and report carbon dioxide emissions annually, which may cause us to incur additional expenses.
The European Union has adopted several regulations and directives requiring, among other things, more frequent inspections of high-risk vessels, as determined by type, age, and flag as well as the number of times the vessel has been detained. The European Union also adopted and extended a ban on substandard vessels and enacted a minimum ban period and a definitive ban for repeated offenses. The regulation also provided the European Union with greater authority and control over classification societies, by imposing more requirements on classification societies and providing for fines or penalty payments for organizations that failed to comply. Furthermore, the EU has implemented regulations requiring vessels to use reduced sulfur content fuel for their main and auxiliary engines. The EU Directive 2005/33/EC (amending Directive 1999/32/EC) introduced requirements parallel to those in MARPOL Annex VI relating to the sulfur content of marine fuels. In addition, the EU imposed a 0.1% maximum sulfur requirement for fuel used by vessels at berth in the Baltic, the North Sea and the English Channel (the “SOx-Emission Control Area”). As of January 2020, EU member states must also ensure that ships in all EU waters, except the SOx-Emission Control Area, use fuels with a 0.5% maximum sulfur content.
The Ship Recycling Regulation adopted in 2013 by the European Parliament and the Council of the European Union aims to reduce the negative impacts linked to the recycling of ships flying the flag of Member States of the Union. The Regulation lays down requirements that ships and recycling facilities have to fulfill in order to make sure that ship recycling takes place in an environmental sound and safe manner.
The Regulation first prohibits or restricts the installation and use of hazardous materials (like asbestos or ozone-depleting substances) on board ships.
The EU Ship Recycling Regulation (EUSRR), adopted in 2013, contains requirements for EU-flagged ships, of 500 gross tonnage and above, to carry an inventory of hazardous materials (IHM). In addition, ships calling at EU ports from non-EU countries will also be required to carry an IHM identifying all the hazardous materials on board. EU-flagged ships must also be scrapped in an EU approved ship recycling facility.
On September 15, 2020, the European Parliament voted to include greenhouse gas emissions from the maritime sector in the European Union’s carbon market, or the EU Emissions Trading System (“EU ETS”). On July 14, 2021, the European Parliament formally proposed its plan, which would involve gradually including the maritime sector from 2023 and phasing the sector in over a three-year period. This will require shipowners to buy permits to cover these emissions. The Environment Council adopted a general approach on the proposal in June 2022. On December 18, 2022, the Environmental Council and European Parliament agreed to include maritime shipping emissions within the scope of the EU ETS on a gradual introduction of obligations for shipping companies to surrender allowances: 40% for verified emissions from 2024, 70% for 2025 and 100% for 2026. Most large vessels will be included in the scope of the EU ETS from the start. Big offshore vessels of 5,000 gross tonnage and above will be included in the 'MRV' on the monitoring, reporting and verification of CO2 emissions from maritime transport regulation from 2025 and in the EU ETS from 2027. General cargo vessels and off-shore vessels between 400-5,000 gross tonnage will be included in the MRV regulation from 2025 and their inclusion in EU ETS will be reviewed in 2026.
Greenhouse Gas Regulation
Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions with targets extended through 2020. International negotiations are continuing with respect to a successor to the Kyoto Protocol, and restrictions on shipping emissions may be included in any new treaty. In December 2009, more than 27 nations, including the U.S. and China, signed the Copenhagen Accord, which includes a non-binding commitment to reduce greenhouse gas emissions. The
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2015 United Nations Climate Change Conference in Paris resulted in the Paris Agreement, which entered into force on November 4, 2016 and does not directly limit greenhouse gas emissions from vessels. The U.S. initially entered into the agreement, but on June 1, 2017, the former U.S. President Trump announced that the United States intends to withdraw from the Paris Agreement, and the withdrawal became effective November 4, 2020. On January 20, 2021, U.S. President Biden signed an executive order to rejoin the Paris Agreement, which the U.S. officially rejoined on February 19, 2021.
At MEPC 70 and MEPC 71, a draft outline of the structure of the initial strategy for developing a comprehensive IMO strategy on reduction of greenhouse gas emissions from vessels was approved. In accordance with this roadmap, in April 2018, nations at the MEPC 72 adopted an initial strategy to reduce greenhouse gas emissions from vessels. The initial strategy identifies “levels of ambition” to reducing greenhouse gas emissions, including (1) decreasing the carbon intensity from vessels through implementation of further phases of the EEDI for new vessels; (2) reducing carbon dioxide emissions per transport work, as an average across international shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008 emission levels; and (3) reducing the total annual greenhouse emissions by at least 50% by 2050 compared to 2008 while pursuing efforts towards phasing them out entirely. The initial strategy notes that technological innovation, alternative fuels and/or energy sources for international shipping will be integral to achieve the overall ambition. These regulations could cause us to incur additional substantial expenses. At MEPC 77, the Member States agreed to initiate the revision of the Initial IMO Strategy on Reduction of GHG emissions from ships, recognizing the need to strengthen the ambition during the revision process. MEPC 79 revised the EEDI calculation guidelines to include a CO2 conversion factor for ethane, a reference to the updated ITCC guidelines, and a clarification that in case of a ship with multiple load line certificates, the maximum certified summer draft should be used when determining the deadweight. A final draft Revised IMO GHG Strategy would be considered by MEPC 80 (scheduled to meet in July 2023), with a view to adoption.
The EU made a unilateral commitment to reduce overall greenhouse gas emissions from its member states from 20% of 1990 levels by 2020. The EU also committed to reduce its emissions by 20% under the Kyoto Protocol’s second period from 2013 to 2020. Starting in January 2018, large vessels over 5,000 gross tonnage calling at EU ports are required to collect and publish data on carbon dioxide emissions and other information. As previously discussed, regulations relating to the inclusion of greenhouse gas emissions from the maritime sector in the European Union’s carbon market, EU ETS, are also forthcoming.
In the United States, the EPA issued a finding that greenhouse gases endanger the public health and safety, adopted regulations to limit greenhouse gas emissions from certain mobile sources, and proposed regulations to limit greenhouse gas emissions from large stationary sources. However, in March 2017, the former U.S. President Trump signed an executive order to review and possibly eliminate the EPA’s plan to cut greenhouse gas emissions, and in August 2019, the Administration announced plans to weaken regulations for methane emissions. On August 13, 2020, the EPA released rules rolling back standards to control methane and volatile organic compound emissions from new oil and gas facilities. However, U.S. President Biden recently directed the EPA to publish a proposed rule suspending, revising, or rescinding certain of these rules. On November 2, 2021, the EPA issued a proposed rule under the CAA designed to reduce methane emissions from oil and gas sources. The proposed rule would reduce 41 million tons of methane emissions between 2023 and 2035 and cut methane emissions in the oil and gas sector by approximately 74 percent compared to emissions from this sector in 2005. EPA also issued a supplemental proposed rule in November 2022 to include additional methane reduction measures following public input and anticipates issuing a final rule in 2023. If these new regulations are finalized, they could affect our operations.
Any passage of climate control legislation or other regulatory initiatives by the IMO, the EU, the U.S. or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol or Paris Agreement, that restricts emissions of greenhouse gases could require us to make significant financial expenditures which we cannot predict with certainty at this time. Even in the absence of climate control legislation, our business may be affected to the extent that climate change may result in sea level changes or certain weather events.
International Labour Organization
The International Labour Organization (ILO) is a specialized agency of the UN that has adopted the Maritime Labour Convention 2006 (MLC 2006), which has been amended in 2018 A Maritime Labour Certificate and a Declaration of Maritime Labour Compliance is required to ensure compliance with the MLC 2006 for all vessels above 500 gross tons in international trade. MLC is often called the “fourth pillar” of International maritime regulatory regime, because it stands beside the key IMO Conventions (SOLAS, MARPOL & STCW) that support quality shipping and held to eliminate substandard shipping. The MLC requires that vessel operators obtain an MLC Compliance certificate for each vessel they operate. All our vessels are in full compliance with and are certified to meet MLC 2006.
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Vessel Security Regulations
Since the terrorist attacks of September 11, 2001 in the United States, there have been a variety of initiatives intended to enhance vessel security such as the U.S. Maritime Transportation Security Act of 2002 (MTSA). To implement certain portions of the MTSA, the USCG issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States and at certain ports and facilities, some of which are regulated by the EPA.
Similarly, Chapter XI-2 of the SOLAS Convention imposes detailed security obligations on vessels and port authorities and mandates compliance with the International Ship and Port Facility Security Code (ISPS Code). The ISPS Code is designed to enhance the security of ports and vessels against terrorism. To trade internationally, a vessel must attain an International Ship Security Certificate (ISSC) from a recognized security organization approved by the vessel’s flag state.
The following are among the various requirements, some of which are found in SOLAS:
•Onboard installation of automatic identification systems to provide a means for the automatic transmission of safety-related information from among similarly equipped ships and shore stations, including information on a ship’s identity, position, course, speed and navigational status;
•Onboard installation of ship security alert systems, which do not sound on the vessel but only alert the authorities on shore;
•The development of vessel security plans;
•Ship identification number to be permanently marked on a vessel’s hull;
•A continuous synopsis record kept onboard showing a vessel’s history, including the name of the ship, the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship’s identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and
•Compliance with flag state security certification requirements.
Vessels operating without a valid certificate may be detained, expelled from, or refused entry at port until they obtain an ISSC.
The USCG regulations, intended to align with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security measures, provided such vessels have on board a valid ISSC that attests to the vessel’s compliance with the SOLAS Convention security requirements and the ISPS Code. Future security measures could have a significant financial impact on us. We intend to comply with the various security measures addressed by MTSA, the SOLAS Convention and the ISPS Code.
The cost of vessel security measures has also been affected by the escalation in the frequency of acts of piracy against ships, notably off the Gulf of Guinea, off the coast of Somalia, including the Gulf of Aden and Arabian Sea area. Substantial loss of revenue and other costs may be incurred as a result of detention of a vessel or additional security measures, and the risk of uninsured losses could significantly affect our business. Costs are incurred in taking additional security measures in accordance with Best Management Practices to Deter Piracy, notably those contained in the BMP5 industry standard
Inspection by Classification Societies
The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and SOLAS. Most insurance underwriters make it a condition for insurance coverage and lending that a vessel be certified “in class” by a classification society which is a member of the International Association of Classification Societies, the IACS. The IACS has adopted harmonized Common Structural Rules, or the Rules, which apply to oil tankers, among other vessels, constructed on or after July 1, 2015. The Rules attempt to create a level of consistency between IACS Societies. In complying with current and future environmental requirements, vessel-owners and operators may also incur significant additional costs in meeting new maintenance and inspection requirements, in developing contingency arrangements for potential spills and in obtaining insurance coverage. Government regulation of vessels, particularly in the areas of safety and environmental requirements, can be expected to become stricter in the future and require us to incur significant capital expenditures on our vessels to keep them in compliance.
A vessel must undergo annual surveys, intermediate surveys, drydockings and special surveys. In lieu of a special survey, a vessel’s machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a
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five-year period. Every vessel is also required to be drydocked every 30 to 36 months for inspection of the underwater parts of the vessel. If any vessel does not maintain its class and/or fails any annual survey, intermediate survey, drydocking or special survey, the vessel will be unable to carry cargo between ports and will be unemployable and uninsurable which could cause us to be in violation of certain covenants in our loan agreements. Any such inability to carry cargo or be employed, or any such violation of covenants, could have a material adverse impact on our financial condition and results of operations.
The operation of our vessels is affected by the requirements set forth in the IMO's International Management Code for the Safe Operation of Ships and Pollution Prevention, or the ISM Code. The ISM Code requires ship owners, ship managers and bareboat charterers to develop and maintain an extensive "Safety Management System" that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. Currently, all of our vessels are ISM Code-certified and we expect that any vessels that we acquire in the future will be ISM Code-certified when delivered to us. The failure of a shipowner or bareboat charterer to comply with the ISM Code may subject it to increased liability, may invalidate existing insurance or decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports. If we are subject to increased liability for non-compliance or if our insurance coverage is adversely impacted as a result of non-compliance, it may negatively affect our ability to pay dividends, if any, in the future. If any of our vessels are denied access to, or are detained in, certain ports, this may decrease our revenues.
Every seagoing vessel must be “classed” by a classification society. The classification society certifies that the vessel is “in class,’’ signifying that the vessel has been built and maintained in accordance with the rules of the classification society. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned and will certify that such vessel complies with applicable rules and regulations of the vessel’s country of registry and the international conventions of which that country is a member.
The classification society also undertakes on request other surveys and checks that are required by regulations and requirements of the flag state. These surveys are subject to agreements made in each individual case and/or to the regulations of the country concerned.
For maintenance of the class, regular and extraordinary surveys of hull, machinery, including the electrical plant, and any special equipment classed are required to be performed as follows:
•Annual Surveys. For seagoing ships, annual surveys are conducted for the hull and the machinery, including the electrical plant, and where applicable for special equipment classed, within three months before or after each anniversary date of the date of commencement of the class period indicated in the certificate.
•Intermediate Surveys. Extended annual surveys are referred to as intermediate surveys and are to be carried out either at or between the second and third Annual Surveys after Special Periodical Survey No. 1 and subsequent Special Periodical Surveys. Those items which are additional to the requirements of the Annual Surveys may be surveyed either at or between the second and third Annual Surveys. After the completion of the No.3 Special Periodical Survey the following Intermediate Surveys are of the same scope as the previous Special Periodical Survey.
•Special Periodical Surveys (or Class Renewal Surveys). Class renewal surveys, also known as Special Periodical Surveys, are carried out for the ship’s hull, machinery, including the electrical plant, and for any special equipment classed, and should be completed within five years after the date of build or after the crediting date of the previous Special Periodical Survey. At the special survey, the vessel is thoroughly examined, including ultrasonic-gauging to determine the thickness of the steel structures. Should the thickness be found to be less than the minimum class requirements, the classification society would prescribe steel renewals. A Special Periodical Survey may be commenced at the fourth Annual Survey and be continued with completion by the fifth anniversary date. Substantial amounts of money may have to be spent for steel renewals to pass a special survey if the vessel experiences excessive wear and tear.
As mentioned above for vessels that are more than 15 years old, the Intermediate Survey may also have a considerable financial impact.
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At an owner’s application, the surveys required for class renewal (for tankers only the ones in relation to machinery and automation) may be split according to an agreed schedule to extend over the entire five-year period. This process is referred to as continuous survey system. All areas subject to survey as defined by the classification society are required to be surveyed at least once per class period, unless shorter intervals between surveys are prescribed elsewhere. The period between two subsequent surveys of each area must not exceed five years.
Most vessels are subject also to a minimum of two examinations of the outside of a vessel’s bottom and related items during each five-year special survey period. Examinations of the outside of a vessel’s bottom and related items is normally to be carried out with the vessel in drydock but an alternative examination while the vessel is afloat by an approved underwater inspection may be considered. One such examination is to be carried out in conjunction with the Special Periodical Survey and in this case the vessel must be in drydock. For vessels older than 15 years (after the third Special Periodical Survey) the bottom survey must always be in the drydock. In all cases, the interval between any two such examinations is not to exceed 36 months.
In general, during the above surveys if any defects are found, the classification surveyor will require immediate repairs or issue a ‘‘recommendation’’ which must be rectified by the shipowner within prescribed time limits.
Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as “in-class” by a classification society which is a member of the International Association of Classification Societies, or the IACS. All our vessels are certified as being “in-class” by Lloyds Register or DNV who are both members of IACS. All new and secondhand vessels that we purchase must be certified prior to their delivery under our standard purchase contracts and memoranda of agreement. If the vessel is not certified on the scheduled date of closing, we have no obligation to take delivery of the vessel.
In addition to the classification inspections, many of our customers regularly inspect our vessels as a precondition to chartering them for voyages. We believe that our well-maintained, high-quality vessels provide us with a competitive advantage in the current environment of increasing regulation and customer emphasis on quality.
Risk of Loss and Liability Insurance
General
The operation of any cargo vessel includes risks such as mechanical failure, physical damage, collision, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, piracy incidents, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. OPA, which imposes virtually unlimited liability upon vessel owners, operators and bareboat charterers of any vessel trading in the exclusive economic zone of the United States for certain oil pollution accidents in the United States, has made liability insurance more expensive for vessel owners and operators trading in the United States market. We carry insurance coverage as customary in the shipping industry. However, not all risks can be insured, specific claims may be rejected, and we might not be always able to obtain adequate insurance coverage at reasonable rates.
Hull and Machinery Insurance
We procure hull and machinery insurance, protection and indemnity insurance, which includes environmental damage and pollution insurance and war risk insurance and freight, demurrage and defense insurance for our fleet. We generally do not maintain insurance against loss of hire which covers business interruptions that result in the loss of use of a vessel.
Marine and War Risks Insurance
We have in force marine and war risks insurance for all of our vessels. Our marine hull and machinery insurance covers risks of particular and general average and actual or constructive total loss from collision, fire, grounding, engine breakdown and other insured named perils up to an agreed amount per vessel. Our war risks insurance covers the risks of particular and general average and actual or constructive total loss from acts of war and civil war, terrorism, piracy, confiscation, seizure, capture, vandalism, sabotage, and other war-related named perils. We have also arranged coverage for increased value for each vessel. Under this increased value coverage, in the event of total loss of a vessel, we will be able to recover amounts in excess of those recoverable under the hull and machinery policy in order to compensate for additional costs associated with replacement of the loss of the vessel. Each vessel is covered up to at least its fair market value at the time of the insurance attachment and subject to a fixed deductible per each single accident or occurrence, but excluding actual or constructive total loss. As of the date of this annual report, nil deductible applies under the war risks insurance.
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Protection and Indemnity Insurance
Protection and indemnity insurance is provided by mutual protection and indemnity associations, or P&I Associations, and covers our third-party liabilities in connection with our shipping activities. This includes third-party liability and other related expenses of injury or death of crew, passengers and other third parties, loss or damage to cargo, claims arising from collisions with other vessels, damage to other third-party property, pollution arising from oil or other substances, and salvage, towing and other related costs, including wreck removal. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by protection and indemnity mutual associations (clubs).
Our current protection and indemnity insurance coverage for pollution is $1 billion per vessel per incident. The 13 P&I Associations that comprise the International Group insure approximately 90% of the world’s commercial tonnage and have entered into a pooling agreement to reinsure each association’s liabilities. The International Group’s website states that the Pool provides a mechanism for sharing all claims in excess of US $10 million up to, currently, approximately US $8.2 billion. As a member of a P&I Association, which is a member of the International Group, we are subject to calls payable to the associations based on our claim records as well as the claim records of all other members of the individual associations and members of the shipping pool of P&I Associations comprising the International Group.
Application of global Environmental and other regulations
FuelEU Maritime sets a limit on the overall lifecycle GHG intensity of fuels used in 2020 as a reference and start taking effect in 2025. It also introduces a mandate for using Onshore Power Supply for two ship types, i.e. passenger ships and container ships. The geographical scope covers energy used at berth and on intra-EU voyages as well as 50% of the energy sources used on voyages inbound and outbound to/from the EU. The proposed Regulation introduces a pooling mechanism for companies in order to meet the carbon intensity target as well as EU harmonized penalties for missing the targets. It also introduced an additional MRV system as well as a methodology of life cycle analysis of fuels. A key concern about these proposals is the complexity it would introduce for both users and suppliers of marine energy in order to prove and certify the full well to wake GHG lifecycle emissions of alternative non-fossil fuels. Certifying the real Well-to-Tank GHG emissions and the production pathway could be very complex, as it is quite likely that new alternative fuels similar to that of today’s oil-based fuels – will be blends of components from different producers and production method.
Increasing environmental concerns have created a demand for vessels that conform to stricter environmental standards. We are required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with international regulations. We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations. However, because such laws and regulations frequently change and may impose increasingly stricter requirements, we cannot predict our ability to comply and the ultimate cost of complying with these requirement unless valid and detailed regulatory information becomes available well in advance, and also, the impact of these requirements on the resale value or useful lives of our vessels. In addition, a future serious marine incident that causes significant adverse environmental impact could result in additional legislation or regulation that could negatively affect our profitability.
As one of the largest listed crude tanker shipping companies in the world, we recognize the need to operate a safe, responsible and sustainable business built for the long term. We are committed to implementing ESG practices into our operational and strategic decision-making to be a leader in sustainable crude tanker shipping. As such, we aim to exceed minimum compliance levels set forth in rules and regulations governing the maritime industry, including certain rules and regulations described below, if possible and appropriate for our business.
In this respect in terms of disclosure we report in accordance with the Marine Transportation framework established by the Sustainability Accounting Standards Board (SASB). The SASB standard allows us to identify, manage and report on material sustainability or ESG topics with industry specific performance metrics, based on SASB’s internationally recognized indicators and related definitions, scope and calculations. Additionally, we have incorporated the principles of the UN Sustainability Development Goals where applicable.
We believe that environmental actions, addressing climate change, and operating our business to the highest safety standards cannot be done without strong governance, which includes high ethical standards and oversight from an independent board and management. Environment and governance cannot do without the input of social or human capital. Sustainability at Euronav goes beyond emissions, climate change and environmental pollution. It is also about delivering a caring, respectful and supportive environment to our employees, prioritizing safety at all levels of our business, and ensuring accountability on these objectives.
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Our ESG Performance
We are committed to fully capture and embrace ESG-related measurements and have been embracing ESG as a set of principles that the Company wants to operate by. We not only wants to preserve the ocean, but also the environment and society that we operate in.
Our sustainability policy aligns with UN Sustainable Developments (SDGs) goals of a “shared blueprint for peace and prosperity for people and the planet, now and into the future". We are proud to be engaged with the SDGs and believe we can have influence over the delivery of ten of the 17 SDGs: Good Health and Well-being (SDG - 3), Gender Equality (SDG - 5), Clean Water and Sanitation (SDG - 6), Affordable and Clean Energy (SDG - 7), Decent Work and Economic Growth (SDG - 8), Industry, Innovation and Infrastructure (SDG - 9), Responsible Consumption and Production (SDG - 12), Climate Action (SDG - 13), Life Below Water (SDG - 14), and Partnerships for the Goals (SDG - 17).
We worked together with key stakeholders to build our 2022 materiality assessment. External stakeholders, such as banks, and internal stakeholders, our management team, have provided their ESG expectations to be prioritized during 2022 and beyond. Our materiality assessment will be conducted at least every two years as there are no (and we do not expect) significant changes in the company size, commercial strategy and sustainability strategy. Market trends also have been relatively stable, thus allowing us to conduct our materiality assessment. We have already established a strong governance framework to implement a decarbonisation strategy, and our internal business platforms have demonstrated a strong and tested foundation to drive growth.
Environmental
We continuously challenge ourselves in a highly volatile environment. Moreover, we comply with all applicable environmental regulations and industry's best practices, and we: a) map, b) measure, c) understand, d) disclose and e) mitigate our impact both on ambient and marine environment.
•In May 2022, we disclosed our decarbonization strategy with the ambition to reach net-zero emissions for our vessels by 2050.
•Our decarbonization strategy and operational milestones help ensure that we achieve our 2030, 2040 and 2050 targets.
•We have established a dedicated fuel procurement and management team to ensure compliant Very Low Sulfur Fuel Oil (VLSFO) fuel is managed effectively and complies with IMO regulations to reduce SOX emissions by 85%.
•We have an ongoing retrofit program across our entire fleet to comply with the IMO’s Ballast Water Management Convention, Carbon Intensity Index (CII) and Energy-Efficiency Design Index (EEDI) requirements.
•Despite our increased standards in 2022, we maintained a "B" performance rating from the Carbon Disclosure Project, which highlights our ongoing transparency and engagement for climate change.
•We actively participate in partnerships and alliances that promote sustainability in the maritime sector, including emission control and other environmental initiatives, such as the Global Maritime Forum, the Getting to Zero Coalition, International Tanker Owner Pollution Federation, Sea Cargo Charter, Hellenic Marine Environment Protection Association (HELMEPA) and International Association of Independent Tanker Owners (Intertanko).
•By introducing the Supplier Environmental Sustainability Index to more than 40 vendors, accounting for over $60 million spent, we have enhanced our sustainability policies and vendor assessments, helping us to further integrate vendors' sustainability performance into our Scope 3 GHG emission mapping project.
•We have initiated a project to expand our Scope 3 GHG emission coverage to the six most impactful categories and better understand our impact before applying the Supplier Environmental Sustainability Index to our vendors.
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•We expanded our ESG risks coverage in our enterprise risk management risk matrix by including risks related to marine biodiversity.
•We participate in two EU-funded projects structured to promote zero-emission waterborne transport, digital transformation, and wind propulsion, thus fulfilling the target for at least 55% GHG reduction in 2030.
•We joined the EU Waterborne Technology Platform, an EU research and development alliance.
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•We engaged with the Great Whale Conservancy and the Whales Guardian program with the intent to mitigate whale strikes in sensitive marine ecosystems. We instructed our crew members to follow specific navigation routes when entering whale habitats.
Social
•We focus to continuously improve our operational excellence and social impact on health, safety and wellbeing of employees, both on shore and at sea.
•We joined All Aboard Alliance, which is a platform to share knowledge and best practices regarding the promotion of equity, diversity and inclusiveness in the shipping sector.
•The health, safety and well-being of our people at sea and on shore is our top priority, especially during the COVID-19 pandemic. We are a signatory to the Neptune Declaration on Seafarer Wellbeing, which promotes the health and safety of seafarers.
•Our Euronav Hellas Ship Management has been contributing to a cross-industry study to ensure that shipping’s response to the climate emergency puts seafarers at the heart of the solution, supported by the Maritime Just Transition principles.
•We are dedicated to providing equal employment opportunities and treating our people fairly without regard to race, color, religious beliefs, age, sex, or any other classification.
•We maintain high retention rates both on board and ashore and work to facilitate the professional development and career advancement of our people.
•Euronav has been included in the Bloomberg Gender-Equality Index since 2017 and is the only shipping company to be including in this company-wide assessment of gender representation.
•Nationality diversity is substantiated by the 32 different nationalities at sea and 18 different nationalities on shore.
•Our community investment activities focus on, but are not limited to, supporting vulnerable groups and youth education.
Governance
•We endeavor to apply corporate governance best practices, adhere to high ethical principles and ensure the high commercial performance of our fleet.
•The Company is governed by a diverse and experienced Supervisory Board.
•Euronav's management team approved the inclusion of two climate-related management incentives under the management's short-term incentive planning (STIP).
•Established in 2019, Euronav is the only crude tanker company to have a dedicated committee comprising Supervisory and Management Board members as part of the Sustainability Committee. The role of this Sustainability Committee is to oversee Euronav’s management of and strategy toward sustainability and climate change.
•Euronav signed its first sustainability-linked loan including three sustainability key performance indicators (KPIs): two environmental and one first-ever social. The conclusion of this funding brings commitments in facilities with an integrated sustainability component to 52% of total commercial bank financings commitments.
•We have a transparent Code of Business Conduct and Ethics, Anti-Corruption Policy and Whistleblower Protection Policy in place.
•We implement robust risk management and strong internal controls.
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Our Decarbonization Strategy
We aim to lead the crude tanker and the shipping industry’s efforts to reduce greenhouse gas (GHG) emissions and comply with any set of regulations that we are liable to either globally or regionally. We intend to lead by example through the engagement with coalitions and broader industry collaboration with participants that aim to decarbonize the industry. We are focused on reducing emissions progressively going forward with yearly milestone targets in the short term and strategic commitments in the long-term.
Key drivers of our decarbonization strategy include:
•Continuing to lead by example by being transparent on reporting on our Scope 1, 2, and 3 GHG emissions
•Improving the energy efficiency of our existing fleet by applying innovative technologies and reducing fuel consumption, leading to the third consecutive time scoring (A) under the 'Emission Reduction Initiatives' field of the Carbon Disclosure Project (CDP).
•Conducting analyses on the energy transition and potential fuel pathways to shipping decarbonization - We support the energy transition by participating in research and development for new zero-emission technologies and alternative fuels.
•Activating operational measures where possible set forth by our people on board.
•Developing partnerships and participating in cross-industry alliances which aim at shipping decarbonization.
•Partnering with research and development EU zero-emission shipping alliances to support development of future research agendas in the decarbonization of the waterborne transport sector
•Implementing a fleet rejuvenation policy with the view to introduce a new and eco-efficient ship design aimed to reduce fuel consumption due to technology advancement
Our ambition is to achieve decarbonization of shipping operations by 2040. We have committed to net-zero emission by 2050, acknowledging the high degree of uncertainty regarding the energy transition. We aim to align with the IMO's emission reduction trajectories by 2030. We have and will continue to take various steps to reduce our carbon footprint and improve the environment, including, but not limited to, investments made to our fleet. Specifically, we have:
•Divested of certain older, less fuel-efficient vessels and replaced them with modern, more fuel-efficient vessels with lower fuel consumption in order to reduce our fleet’s GHG emissions.
•Installed ballast water treatment systems on 52 vessels in our current fleet.
•Engaged in investments designed to improve operational performance and reduce emissions, such as applying 26 green retrofit projects during our 2022 dry docking schedule and applying 10 foul reducing paints aimed to reduce our CO2 emissions.
Permits and Authorizations
We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our vessels. The kinds of permits, licenses and certificates required depend upon several factors, including the commodity transported, the waters in which the vessel operates, the nationality of the vessel’s crew and the age of the vessel. We have obtained all permits, licenses and certificates currently required to permit our vessels to operate. Additional laws and regulations, environmental or otherwise, may be adopted which could limit our ability to do business or increase the cost of us doing business.
Principal Executive Offices
Our principal executive Headquarters is located at De Gerlachekaai 20, 2000 Antwerpen, Belgium. Our telephone number at that address is +32 3 247 44 11.
We also have offices located in the United Kingdom, France, Greece, Hong Kong, Switzerland (canton Geneva) and Singapore. Please see section "Item 4 D. Property, Plants and Equipment" for a more detailed overview.
Our website is www.euronav.com. The information contained on our website does not form a part of this annual report.
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C. Organizational Structure
We were incorporated under the laws of Belgium on June 26, 2003. We own our vessels either directly at the parent level or indirectly through our wholly-owned vessel owning subsidiaries.
The ship management of our vessels is performed mainly by our wholly-owned subsidiaries Euronav Ship Management SAS, Euronav SAS, Euronav Singapore Pte. Ltd. and Euronav Ship Management (Hellas) Ltd.
Our subsidiaries are incorporated under the laws of Belgium, France, United Kingdom, Liberia, Luxembourg, Cyprus, Hong Kong, Singapore and the Marshall Islands.
Please see Exhibit 8.1 to this annual report for a list of our subsidiaries.
D. Property, Plants and Equipment
For a description of our fleet, please see "Item 4. Information on the Company—B. Business Overview—Our Fleet."
We own no properties other than our vessels. We lease office space in various jurisdictions, and have the following material leases in place for such use as of January 1, 2023:
•Belgium, located at Belgica Building, De Gerlachekaai 20, Antwerp, Belgium, for a yearly rent of $309,299.
•Greece, located at 31-33 Athinon Avenue, Athens, Greece 10447, for a yearly rent of $389,987.
•France, located at Quai Ernest Renaud 15, CS20421, 44104 Nantes Cedex 1, France, for a yearly rent of $30,435.
•United Kingdom, London, located at 81-99 Kings Road, Chelsea, London SW3 4PA, 1-3 floor, for a yearly rent of $898,080,646. We sublease part of this office space to third parties and received a yearly rent of $666,535.
•Singapore, located at 79 Anson Road, #23-06 Singapore (079906), for a yearly rent of $132,336.
•Hong Kong, located at Room 2503-05 25th Floor Harcourt House 39 Gloucester Road Wanchai Hong Kong, for a yearly rent of $49,419.
•United States of America, located at 299 Park Avenue, New York, for a yearly rent of $2,241,314. We sublease this office space to third parties and received a total yearly rent of $1,625,926. This lease expires in September 2025
•Switzerland, located at Place Bourg de Four #4, Geneva 1204 for a yearly rent of $31,126.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following management's discussion and analysis of the results of our operations and financial condition should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this annual report. This discussion includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, such as those set forth in "Item 3. Key Information—D. Risk Factors" and elsewhere in this report.
For a discussion of our results for the year ended December 31, 2021 compared to the year ended December 31, 2020, please see “Item 5. Operating and Financial Review and Prospects – A. Operating Results – Year ended December 31, 2021, compared to the year ended December 31, 2020” contained in our annual report on Form 20-F for the year ended December 31, 2021, filed with the SEC on April 14, 2022 and incorporated by reference herein.
Factors affecting our results of operations
The principal factors which have affected our results of operations and are expected to affect our future results of operations and financial position include:
•The spot rate and time charter market for VLCC and Suezmax tankers;
•The number of vessels in our fleet;
•Utilization rates on our vessels, including actual revenue days versus non-revenue ballast and off-hire days;
•Our ability to maintain and grow our customer relationships;
•Economic, financial, regulatory, political and government conditions that affect the supply and demand of crude oil and the tanker shipping industry;
•The earnings on our vessels;
•Gains and losses from the sale of assets and amortization of deferred gains;
•Vessel operating expenses, including in some cases, the fluctuating price of fuel expenses when our vessels operate in the spot or voyage market;
•Impairment losses on vessels or our fuel inventory on board of the Oceania;
•Administrative expenses;
•Potential liabilities arising from pending or future claims;
•Acts of piracy or terrorism;
•Depreciation;
•Drydocking and special survey days, both expected and unexpected;
•Our overall debt level and the interest expense and principal amortization;
•Equity gains (losses) of unconsolidated subsidiaries and associated companies;
•The European Ship Recycling regulation which is applicable as of January 1, 2019;
•IMO 2020: The MARPOL convention, Annex VI Prevention of Air Pollution from Ships which reduces the maximum amount of Sulfur that ships can emit into the air and is applicable since January 1, 2020;
•The International Convention for the Control and Management of Ships' Ballast Water and Sediments (BWM) which will be applicable;
•EU embargo on Russian oil;
•Acts of war disturbing normal business operations; and
•Changes in tax regimes in certain jurisdictions.
Russian trade
The Russian invasion of Ukraine in 2022 has had significant impact on the way oil trades across the world. Many EU and G7 nations have sanctioned Russian oil which has since become more formalized with the EU ban on Russian crude imports in December 2022. Russian crude oil that was previously sold to geographically close customers in Europe now trades in India, China and to a lesser extent Turkey, meaning Russia has felt very little impact on its crude exports to date, despite losing approximately 1.8 million barrels per day in the European export market. The volume of Russian crude exports is set to remain broadly unchanged in 2023. As of February 5, 2023, the EU ban and oil price cap was extended to include refined products too.
The EU ban also prohibits shipowners with European linked insurance coverage to carry Russian oil. Recent sale and purchase activity suggests that a “dark fleet” is developing to cover Russian business and that the size of the fleet will be large enough to avoid vessels supply setbacks. It is expected that any vessel carrying Russian oil will act as a dedicated Russian vessel. Traders and oil majors are increasingly adding clauses to charter parties that forbids Russian oil in a vessel’s cargo history.
Owners that do engage in the trading of Russian oil are incentivized by higher freight rates.
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While the Russian oil trade is likely to increasingly trade on dedicated ships, these ships will in effect exit the mainstream fleet. At the same time the trade routes into and out of Russian ports will disappear from the mainstream tanker business.
As most of the Russian crude oil will continue to be sold to India and China we have seen an increase of oil loaded on board, as opposed to when the oil was shipped to Europe. Vessel owners engaging in this business will be unable to triangulate, which will increase the average ballast time and employ more tonnage to move the same volume of cargo. The additional tonne-miles on the Russian trade will tighten fleet supply across the tanker space and benefit the international spot fleet.
The crude tanker segments involved directly in the loading oil in Russia are the Aframaxes and the Suezmaxes. Since the commencement of the EU ban on December 5, 2022, industry participants have reported smaller ship-to-ship transfer parcels of VLCCs to take the sanctioned oil to further away customers in larger vessels.
Impact of Inflation and Interest Rates Risk on our Business
We continue to see near-term impacts on our business due to elevated inflation in the United States of America, Eurozone and other countries, including ongoing global prices pressures in the wake of the war in Ukraine, driving up energy prices, commodity prices, which continue to affect our operating expenses. Interest rates have increased rapidly and substantially as central banks in developed countries raise interest rates in an effort to subdue inflation. The eventual implications of tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital for our business.
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS as issued by the International Accounting Standards Board), which requires us to make estimates in the application of accounting policies based on the best assumptions, judgments and opinions of management.
The following is a discussion of our accounting policies that involve a higher degree of judgment and the methods of their application. For a description of all of our material accounting policies, please see "Note 1—Summary of Significant Accounting Policies to our consolidated financial statements" included herein.
Revenue Recognition
We generate a large part of our revenue from voyage charters, including vessels in pools that predominantly perform voyage charters. Under IFRS 15, revenue from contracts with customers, voyage revenue is recognized ratably over the estimated length of each voyage, calculated on a load-to-discharge basis. Voyage expenses are capitalized between the previous discharge port, or contract date if later, and the next load port if they qualify as fulfillment costs under IFRS 15. To recognize costs incurred to fulfill a contract as an asset, the following criteria shall be met:
•The costs relate directly to the contract;
•The costs generate or enhance resources of the entity that will be used in satisfying performance obligations in the future, and
•The costs are expected to be recovered.
Capitalized voyage expenses are amortized ratably between load port and discharge port
Revenues from time charters are accounted for as operating leases and are thus recognized ratably over the rental periods of such charters, as service is performed. The Supervisory Board will, however, analyze each contract before deciding on its accounting treatment between operating lease and finance lease. We do not recognize time charter revenues during periods that vessels are off-hire.
For our vessels operating in the TI Pool, revenues and voyage expenses are pooled and allocated to the pool's participants on a Time Charter Equivalent (TCE) basis in accordance with an agreed-upon formula. The formulas in the pool agreements for allocating gross shipping revenues net of voyage expenses are based on points allocated to participants' vessels based on cargo carrying capacity and other technical characteristics, such as speed and fuel consumption. The selection of charterers, negotiation of rates and collection of related receivables and the payment of voyage expenses are the responsibility of the pool. The pool may enter into contracts that earn either voyage charter revenue or time charter revenue.
Through pooling mechanisms, we receive a weighted, average allocation, based on the total spot results earned by the total of pooled vessels, whereas results from direct spot employment are earned and allocated on a one-on-one basis to the individual vessel and thus owner of the according vessel.
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Vessel Useful Lives and Residual Values
The useful economic life of a vessel is variable. Elements considered in the determination of the useful lives of the assets are the uncertainty over the future market and future technological changes. The carrying value of each of our vessels represents its initial cost at the time it was delivered or purchased plus any additional capital expenditures less depreciation calculated using an estimated useful life of 20 years, except for FSO service vessels for which estimated useful lives of 30 years was used. Following the signing of an extension of the contract with North Oil Company until 2032, the end of the useful economic life was set equal to the contract end date or approximately 30 years since build date. Newbuildings are depreciated from delivery from the construction yard.
If the estimated economic lives assigned to our vessels prove to be too long because of new regulations, the continuation of weak markets, the broad imposition of age restrictions by our customers or other future events, this could result in higher depreciation expenses and impairment losses in future periods related to a reduction in the useful lives of any affected vessels.
The Company and its subsidiaries (the "Group") reviewed the residual value of its vessels, an accounting estimate, in accordance with the accounting policy. The Group considered its continued focus on sustainability, recent trends of the steel industry and the direction of the industry moving forward. Specifically, Euronav considered the steel industry’s commitment to be carbon neutral in 2050 and the impact of this on scrap steel.
Scrap steel is easily recoverable and infinitely recyclable and all scenarios leading to carbon neutrality in 2050 are likely to lead to an increased consumption of scrap steel. Further, the use of scrap steel to produce finished products instead of metal ore results in reduced greenhouse gas emissions.
The recycling of steel scrap obtained from end-of-life vessels also helps reduce air and water pollution. Steel scrap from end-of-life products can be recycled back into new steel products with potentially a very low CO2 footprint. This indicates that there will likely be a continuous need for scrap steel and, given the limited availability of scrap steel, this in turn should have a positive impact on the price of steel.
The costs of recycling a vessel with due respect for the environment and the safety of the workers in specialized yards is challenging to forecast as regulations and good industry practice leading to self-regulation can dramatically change over time. As a result, the Group has changed its residual value estimate of vessels from nil to a residual value equal to the lightweight tonnage of each vessel multiplied by a forecast scrap value per ton less supplemental costs such as repositioning the vessel, commissions and preparation fees, and after consideration of the impact of (changes in) worldwide recycling regulations (EU regulation versus other) and developments. The scrap value per ton is estimated by taking into consideration the historical four-year scrap market rate average, taking into account any significant impact of (changes in) worldwide recycling regulations (EU regulation versus other) and developments, which is updated annually. This change has been implemented in the re-assessment since December 31, 2021.
Vessel Impairment
The carrying values of our vessels may not represent their fair market values at any point in time since the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of constructing new vessels. We define our Cash Generating Unit (or CGU) as a single vessel, unless such vessel is operated in a pool, in that case such vessel, together with the other vessels in the pool, are collectively treated as a CGU. The carrying amounts of our CGUs are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset or Cash Generating Unit exceeds its recoverable amount. Impairment losses are recognized in the income statement.
Tankers
The following internal and external indicators are reviewed to assess whether tankers might be impaired:
•The obsolescence or physical damage of an asset;
•Significant changes in the extent or manner in which an asset is (or is expected to be) used that have (or will have) an adverse effect on the entity;
•A plan to dispose of an asset before the previously expected date of disposal;
•Indications that the financial, operational or environmental performance of an asset is, or will be, worse than expected;
•Cash flows for acquiring the asset, operating or maintaining it that are significantly higher than originally budgeted;
•Net cash flows or operating profits that are lower than originally budgeted;
•Net cash outflows or operating losses;
•Market capitalization below net asset value;
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•A significant and unexpected decline in market value;
•Significant adverse effects in the technological, market, economic or legal environment including, but not limited to, vessel and crude oil supply and demand trends; and
•Increases in market interest rates.
When events and changes in circumstances indicate that the carrying amount of the asset or CGU might not be recovered, the Group performs an impairment test whereby the carrying amount of the asset or CGU is compared to its recoverable amount, which is the greater of its value in use and its fair value less cost of disposal. For assessing value in use and the assumptions used we refer to the section "Calculation of recoverable amount" further down in the document.
Although management believes that its process to determine the assumptions used to evaluate the carrying amount of the assets, when required, are reasonable and appropriate, such assumptions are subject to judgment. Management is assessing continuously the resilience of its projections to the business cycles that can be observed in the tankers market, and concluded that a business cycle approach provides a better long-term view of the dynamics at play in the industry. By defining a shipping cycle from peak to peak over the last 20 years and including management's expectation of the completion of the current cycle, management is better able to capture the full length of a business cycle while also giving more weight to recent and current market experience. The current cycle is forecasted based on management judgment, analyst reports and past experience. Long term charter rates are used in the calculation in case available.
The Group performed a review of the internal as well as external indicators of impairment to consider whether further testing was necessary, and determined that there were no indications that vessels might be impaired as of December 31, 2022.
FSOs
The Group also reviews internal and external indicators, similar to the ones used for tankers, to assess whether the FSOs might be impaired. When events and changes in circumstances indicate that the carrying amount of the assets might not be recovered, the Group performs an impairment test on the FSO vessels owned by TI Asia Ltd and TI Africa Ltd, based on a value-in-use calculation to estimate the recoverable amount from the vessel. This method is chosen as there is no efficient market for transactions of FSO vessels as each vessel is often purposely built for specific circumstances. In assessing value-in-use, assumptions are made regarding the use of FSO, forecast charter rates, Weighted Average Cost of Capital (WACC), the useful life of the FSOs (30 years) and a residual value.
The value-in-use calculation for FSOs, when required, is based on the remaining useful life of the vessels as of the reporting date, and the charter rates are determined using the fixed daily rates as negotiated in the extension of the contract. The FSO Asia and the FSO Africa are on timecharter contract to North Oil Company, the operator of the Al-Shaheen oil field, whose shareholders are Qatar Petroleum Oil & Gas Limited and Total E&P Golfe Limited until 2032.
The Group performed this review of the internal as well as external indicators of impairment to consider whether further testing was necessary, and determined that no value-in-use computation was necessary as of December 31, 2022. Such computation will be implemented in future periods when events and changes in circumstances indicate that an impairment might exist and the carrying amount of the assets might not be recovered.
Calculation of recoverable amount
The recoverable amount of an asset or Cash Generating Unit (CGU) is the greater of its fair value less cost of disposal and value-in-use. In assessing value-in-use, the estimated future cash flows, which are based on current market conditions, historical trends as well as future expectations, are discounted to their present value using a pre-tax discount rate that reflects the time value of money and the risks specific to the asset or cash generating unit.
The carrying values of our vessels or our FSOs may not represent their fair market values or the amount that could be obtained by selling the vessels at any point in time since the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings. Historically, both charter rates and vessel values tend to be cyclical. The value of a FSO is highly dependent on the value of the service contract under which the unit is employed.
In developing estimates of future cash flows, we must make assumptions about future performance, with significant assumptions being related to charter rates, ship operating expenses, utilization, drydocking requirements, residual value and the estimated remaining useful lives of the vessels. These assumptions are based on historical trends and/or on future expectations. The Group uses a business cycle approach to forecast expected TCE rates. By defining a shipping cycle from peak to peak over the last 20 years and including management's expectation of the completion of the current cycle, management is better able to capture the full length of a business cycle while also giving more weight to recent and current market experience. The current cycle is forecasted based on management judgment, analyst reports and past experience.
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The WACC used to calculate the value-in-use of our assets is derived from our actual cost of debt and the cost of equity is calculated by using the beta as calculated by an external party with the country premium and market risk of our direct competitors, which we believe reflects the appropriate cost of equity.
Estimated outflows for operating expenses and drydocking requirements are based on historical and budgeted costs and are adjusted for assumed inflation. Finally, utilization is based on historical levels achieved over the last 5 years, vessels useful lifetime and estimates of residual values consistent with our depreciation policy.
The more significant factors that could impact management's assumptions regarding time charter equivalent rates include:
•Loss or reduction in business from significant customers;
•Unanticipated changes in demand for transportation of crude oil and petroleum products;
•Changes in production of or demand for oil and petroleum products, generally or in particular regions;
•Greater than anticipated levels of tanker newbuilding orders or lower than anticipated levels of tanker recycling;
•Changes in rules and regulations applicable to the tanker industry, including legislation adopted by international organizations such as IMO and the EU or by individual countries; and
•Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Indicator (CII) requirements.
Although management believes that the assumptions used to evaluate potential impairment are reasonable and appropriate at the time they were made, such assumptions are highly subjective and likely to change, possibly materially, in the future. There can be no assurance as to how long charter rates and vessel values will remain at their current levels.
Our Fleet—Vessel Carrying Values
During the past few years, the market values of vessels have experienced particular volatility, with substantial declines prior to 2018 in many vessel classes and a recovery since then. As a result, the charter-free market value, or basic market value, of certain of our vessels may have declined below the carrying amounts of those vessels. After undergoing the impairment indicator analysis and, if applicable, the impairment analysis discussed above, we have concluded that for the years ended December 31, 2022 and 2021, no impairment was required.
The following table presents information with respect to the carrying amount of our vessels by type and indicates whether their estimated market values are below their carrying values as of December 31, 2022 and December 31, 2021. The carrying value of each of our vessels does not necessarily represent its fair market value or the amount that could be obtained if the vessel were sold. Our estimates of market values for our vessels assume that the vessels are all in good and seaworthy condition without need for repair and, if inspected, would be certified as being in class without notations of any kind. Our estimates are based on the estimated market values for vessels received from independent ship brokers and are inherently uncertain. In addition, because vessel values are highly volatile, these estimates may not be indicative of either the current or future prices that we could achieve if we were to sell any of the vessels. We would not record a loss for any of the vessels for which the fair market value is below its carrying value unless and until we either determine to sell the vessel for a loss or determine that the vessel is impaired as discussed above in "Critical Accounting Policies—Vessel Impairment".
We believe that the future discounted cash flows expected to be earned over the estimated remaining useful lifetime for those vessels that have experienced declines in market values below their carrying values would exceed such vessels' carrying values (for Vessels or for the CGU as appropriate and defined in the Critical Accounting Policies - Vessel Impairment). For vessels that are designated as held for sale at the balance sheet date, we either use the agreed upon selling price of each vessel, if an agreement has been reached for such a sale, or an estimate of basic market value if an agreement for sale has not been reached as of the date of this annual report.
(In thousands of USD) | ||||||||||||||||||||||||||
Vessel Type | Numbers of Vessels at December 31, 2022 | Numbers of Vessels at December 31, 2021 | Carrying Value at December 31, 2022 | Carrying Value at December 31, 2021 | ||||||||||||||||||||||
VLCC (includes V PLUS (1)) | 39 | 42 | 2,229,373 | 2,347,531 | ||||||||||||||||||||||
Suezmax (2) | 19 | 22 | 615,982 | 620,256 | ||||||||||||||||||||||
FSO (3) | 2 | — | 212,579 | — | ||||||||||||||||||||||
Vessels held for sale | 1 | — | 18,459 | — | ||||||||||||||||||||||
Total | 61 | 64 | 3,076,393 | 2,967,787 |
(1)As of December 31, 2022, one of our VLCC owned vessels (December 31, 2021: six) had a carrying value which exceeded the individual market value. This vessel had a carrying value of $79.1 million (December 31, 2021:
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$333.7 million), which exceeded the market value by approximately $3.6 million (December 31, 2021: $44.9 million).
(2)As of December 31, 2022, no Suezmax owned vessels (December 31, 2021: eight) had carrying values which exceeded their individual market values. As of December 31, 2021, these eight vessels had an aggregate carrying value of $232.2 million which exceeded their aggregate market value by approximately $17.7 million.
(3)As of December 31, 2022, two Floating Storage and Offshore Units (FSO Asia and FSO Africa), are fully owned by the Company. Per December 31, 2021, these two Floating Storage and Offshore Units were only 50% owned.
The table above only takes into account the fleet that is 100% owned by Euronav and does not take into account the right-of-use assets (Suezmaxes Marlin Somerset and Marlin Sardinia and the VLCC Newton) and the vessels under construction.
Vessels held for sale
Vessels whose carrying values are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. This is the case when the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such vessels and its sale is highly probable (when it is significantly more likely than merely probable).
Immediately before classification as held for sale, the vessels are remeasured in accordance with our accounting policies. Thereafter the vessels are measured at the lower of their carrying amount and fair value less cost of disposal.
Impairment losses on initial classification as held for sale and subsequent gains and losses on remeasurement are recognized in profit or loss. Gains are not recognized in excess of any cumulative impairment loss. Vessels classified as held for sale are no longer depreciated.
On December 14, 2022, the Company sold the Suezmax Cap Charles (2006 - 158,881 dwt), for $41.4 million. This vessel was accounted for as a non-current asset held for sale as at December 31, 2022, and had a carrying value of $18.5 million as of that date. The vessel was delivered to its new owner on February 16, 2023. Taking into account the sales commission, the net gain on this vessel amounts to $22.1 million and was recorded in the consolidated statement of profit or loss in the first quarter of 2023 (see Note 3). No vessels were recorded as assets held for sale on December 31, 2021.
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Fleet Development
The following table summarizes the development of our fleet as of the dates presented below1:
Year ended December 31, 2022 | Year ended December 31, 2021 | Year ended December 31, 2020 | ||||||||||||||||||
VLCC | ||||||||||||||||||||
At start of period | 46.0 | 43.0 | 44.0 | |||||||||||||||||
Acquisitions | 2.0 | 4.0 | — | |||||||||||||||||
Disposals | (8.0) | (1.0) | (1.0) | |||||||||||||||||
Chartered-in | — | — | ||||||||||||||||||
At end of period | 40.0 | 46.0 | 43.0 | |||||||||||||||||
Newbuildings on order | 3.0 | 3.0 | 4.0 | |||||||||||||||||
SUEZMAX | ||||||||||||||||||||
At start of period | 24.5 | 25.5 | 26.0 | |||||||||||||||||
Acquisitions | 2.0 | — | — | |||||||||||||||||
Disposals | (4.5) | (1.0) | (2.5) | |||||||||||||||||
Chartered in | — | 2.0 | ||||||||||||||||||
At end of period | 22.0 | 24.5 | 25.5 | |||||||||||||||||
Newbuildings on order | 5.0 | 5.0 | — | |||||||||||||||||
FSO | ||||||||||||||||||||
At start of period | 1.0 | 1.0 | 1.0 | |||||||||||||||||
Acquisitions | 1.0 | — | — | |||||||||||||||||
Disposals | — | — | — | |||||||||||||||||
Chartered in | — | — | — | |||||||||||||||||
At end of period | 2.0 | 1.0 | 1.0 | |||||||||||||||||
Newbuildings on order | — | — | — | |||||||||||||||||
Total fleet | ||||||||||||||||||||
At start of period | 71.5 | 69.5 | 71.0 | |||||||||||||||||
Acquisitions | 5.0 | 4.0 | — | |||||||||||||||||
Disposals | (12.5) | (2.0) | (3.5) | |||||||||||||||||
Chartered in | — | — | 2.0 | |||||||||||||||||
At end of period | 64.0 | 71.5 | 69.5 | |||||||||||||||||
Newbuildings on order | 8.0 | 8.0 | 4.0 |
Vessel Acquisitions and Charter-in Agreements
On February 12, 2020 and March 6, 2020, we announced that Euronav has entered into an agreement for the acquisition through resale of three and one VLCC newbuilding contracts, respectively, with delivery dates in the first quarter of 2021.
During 2021, four newbuilding VLCCs were delivered from Daewoo Shipbuilding & Marine Engineering shipyard for an aggregate amount of $382.7 million.
In January 2021, we took delivery of the first two of four newbuildings, Delos (2021 – 300,200 dwt) and Diodorus (2021 – 300,200 dwt), which were purchased in February 2020. In March 2021, Euronav took delivery of the third and fourth newbuilding, Doris (2021 - 300,200 dwt) and Dickens (2021 - 300,200 dwt).
On February 10, 2021, we entered into an agreement for the acquisition through resale of two eco-Suezmax newbuilding contracts. Completing construction at the Daehan Shipyard in South Korea, these modern vessels were acquired for an en-
1 This table includes the vessels and the FSOs that we owned through joint venture entities as per December 31, 2021 and December 31, 2020, which we recognized in our income statement using the equity method, valued at our respective share of economic interest. This table does not include vessels that have been acquired but not yet delivered. Furthermore, the table also includes charter-in agreements.
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bloc price of $113.0 million. Both vessels were delivered in January 2022. The vessels were the latest generation of Suezmax Eco-type tankers. They have been fitted with Exhaust Gas Scrubber technology and Ballast Water Treatment systems. The vessels have the structural notation to be LNG Ready. Euronav is working closely with the shipyard to also have the structural notation to be Ammonia Ready. This provides the option to switch to other fuels at a later stage.
On April 22, 2021, we announced that we had entered into an agreement with the Hyundai Samho yard for two VLCC newbuilding contracts. In addition to being significantly more fuel efficient compared to the vessels they will replace, the newbuildings will also be fitted with Exhaust Gas Scrubber technology and Ballast Water Treatment Systems. These market leading units will be delivered during the first quarter of 2023, costing $186 million en-bloc, and including $4.2 million in additions and upgrades to the standard specifications. Euronav also has the option to contract a third VLCC with the same specifications that would be delivered in the second quarter of 2023.
In July 2021, we announced that it entered into new contracts for the building of three Suezmaxes The three firm Suezmaxes were contracted for a total cost of $199.2 million ($66.4 million each). The vessels will be delivered in the third quarter of 2023 and the first quarter of 2024.
On January 7, 2022, we took delivery of the Suezmax Cedar (2022 - 157,310 dwt).
On January 20, 2022, we took delivery of the Suezmax Cypress (2022 - 157,310 dwt).
On April 29, 2022, we announced the purchase of two eco-VLCCs, the Chelsea (renamed Dalis) (2020 – 299,995 dwt) and the Ghillie (renamed Derius) (2019 – 297,750 dwt), for $179 million in total in cash. They are sisters of our D-class vessels (Delos, (2021 – 300,200 dwt), Diodorus (2021 – 300,200 dwt), Doris (2021 – 300,200 dwt) and Dickens (2021 – 299,550 dwt). These vessels were all built in Korea at DSME, are fitted with scrubbers and are the latest generation of ecotype VLCC's. The vessels entered the fleet under their new names.
On June 7, 2022, we announced that it became the full owner of the FSO platform as previously held in its 50-50 joint venture with International Seaways, Inc. (INSW) The price paid amounted to $129.9 million.
On October 24, 2022, we announced that we entered into an agreement with Daehan Shipbuilding Co. Ltd. for two Suezmax newbuilding contracts. The vessels will be sister ships to Cedar (2022 -157,310 dwt) and Cypress (2022 – 157,310 dwt), built at the same yard. Both vessels are scheduled for delivery in the third quarter of 2024.
Vessel Sales and Redeliveries
On January 23, 2020, we sold the Suezmax Finesse (2003 - 149,994 dwt), for $21.0 million. This vessel was accounted for as a non-current asset held for sale as of December 31, 2019 and had a carrying value of $12.7 million. The vessel was delivered to its new owner on February 21, 2020 and the capital gain of $8.3 million was recorded in the first quarter of 2020.
On March 20, 2020, we sold the Suezmax Cap Diamant (2001 - 160,044 dwt) for a net sale price of $20.1 million. The Company recorded a capital gain of $12.8 million in the second quarter of 2020 upon delivery to its new owner on April 9, 2020.
On April 22, 2020, we sold the VLCC TI Hellas (2005 - 319,254 dwt) for a net sale price of $37.0 million. A capital gain of $1.6 million was recorded in the second quarter of 2020 upon delivery to its new owner on June 5, 2020.
On September 15, 2020, the Suezmax Bastia was sold for $20.5 million. A capital gain on the sale of $0.7 million (Euronav's share) was recorded in the joint venture company upon delivery to her new owners in the third quarter.
On February 22, 2021, we entered into a sale and leaseback agreement for the VLCC Newton (2009 – 307,284) with Taiping & Sinopec Financial Leasing Ltd Co. The vessel was sold for a net sale price of $35.4 million. The Company recorded a capital gain of $1.2 million in the first quarter of 2021 upon delivery to their new owners on February 22, 2021. We have leased back the vessel under a 36-months bareboat contract at an average rate of $22,500 per day. At the end of the bareboat contract, the vessel will be redelivered to its owners.
On June 7, 2021, we announced that we had sold the Suezmax Filikon (2002 – 149,989 dwt) for a net sale price of $16.0 million. We recorded a capital gain of $9.4 million in the second quarter of 2021 upon delivery to its owners on June 4, 2021.
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On December 15, 2021, the VLCC Nautilus (2006 - 307,284 dwt), one out of four VLCCs that were part of the sale and leaseback agreement with Quattro LLC, was redelivered. A capital gain of $4.5 million was recorded in the fourth quarter of 2021.
On January 26, 2022, we announced that upon the redelivery of the remaining three VLCCs, which occurred at the maturity of a five-year sale and lease-back agreement, the company booked a USD 13.5 million capital gain on the disposal of assets. The three VLCCs are: Navarin (2007 - 307,284 dwt), Neptun (2007 - 307,284 dwt) and the Nucleus (2007 - 307,284 dwt).
On March 24, 2022, the Suezmax Bari (2005 – 159,186 dwt) was sold for $21.5 million. The vessel was delivered to her new owners during the second quarter. The Suezmax Bari was 50% owned by Euronav.
On April 29, 2022, we announced the sale of four older S-class VLCCs for an en-bloc price of $198 million. The four vessels are the Sandra (2011 – 323,527 dwt), Sara (2011 – 322,000 dwt), Simone (2012 – 315,988 dwt) and the Sonia (2012 – 314,000 dwt). The vessels were delivered to their new owners respectively on May 9, 17 and 20, 2022 and October 10 , 2022. A net capital gain of $1.8 million was recorded on the sale of the four vessels of which $1.4 million in the second and $0.4 million in the fourth quarter of 2022.
On June 13, 2022, we announced that we sold our two eldest Suezmax vessels: the Cap Pierre (2004 - 159,048 dwt) and the Cap Leon (2003 - 159,048 dwt). The combined capital gain realised on these sales amounted to $18.4 million.
On October 17, 2022, Euronav announced that we sold the ULCC (Ultra Large Crude Carrier) Europe (2002 – 441,561 dwt). The vessel was debt free and the sale generated a capital gain of $34.7 million.
On October 19, 2022, we announced that we sold the Suezmax Cap Philippe (2006 – 158,920 dwt), generating a capital gain of $12.9 million The vessel was debt free.
On November 10, 2022, we announced that we sold the Suezmax Cap Guillaume (2006 - 158,889 dwt). The vessel was debt free and the sale generated a capital gain of $14.6 million.
Digital Transformation Efforts
As a market leader, Euronav would like to be a pioneer in the Maritime Industry and be innovative in every facet of its business. One of our underlying drivers is striving to be a front-runner in the leverage of digitalization, while improving our visions, goal and strategy.
Digitalization and innovation are at our highest esteem and ensures our future relevance and competitiveness. As a market leader in our segment, we acknowledge our responsibility to support innovation towards decarbonizing the transportation of oil, while protecting and building value with the capital our shareholders have entrusted us with. Innovation is also the bedrock of our fleet management, with investments in the latest technologies and the ordering of eco-vessels, driving improvements to meet our ambitious CO2-emissions targets set in our decarbonization strategy.
Euronav has its own IT Innovation team that strives for excellence and top-notch innovative solutions. In recent years, several projects were launched within the organization, both on-board our vessels and in the Euronav offices. In 2022, the following initiatives were rolled-out:
Optimized fuel consumption using AI models through Fleet Automatic Statistics & Tracking (FAST)
We have partnered with THEYR, a company delivering an extensive operational metocean data platform for maritime sectors, who built a state-of-the-art multi-objective optimization algorithm for Euronav.
Our FAST platform integrated with their solution, allows our fleet and operators to optimize the route-based weather predictions, leading to reduction in fuel consumption.
Additionally, we integrated with TOQUA’s dynamic performance models solution (a company bringing in fuel-saving potential of cutting-edge AI for ship performance modelling) to all players and systems across the industry. Our sensor data onboard of our vessels is now being used to produce dynamic performance models, allowing us to predict the fuel consumption of our fleet with much more efficacy and certainty, doubling the potential of the weather routing solution.
As a result, we have increased the awareness of cost- and energy saving and reduced the time to action by implementing notification- and alerting features.
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Both onboard of our vessels and on various shore departments, people now are notified of important events triggered by sensor data.
Furthermore, sensor data driving decisions enables us to capture data from 300+ sensors every second and provides us with the level of detail we require in our daily vessel monitor performance. Insights in this data led to data driven decision making and resulted further into adequate efficiency onboard, optimization of processes and fine-tuning the use of equipment. The captured sensor values are also used to automate our reporting and to drastically reduce the workload for onboard crew.
More FAST improvements efforts to come
Rolling out FAST becomes easier with FAST Light, a stripped-down cloud version. This version entitles no required hardware or sensors in the first phase, allowing vessels to easily but safely access the unified FAST platform in an early stage and whereof the hardware will be implemented later.
The reporting workload onboard has also been decreased by optimizing existing input on the platform in regard to daily noon- and cargo data reporting.
The onboard installation of Euronav’s Internet of Things data acquisition system has been completed on 41 of the vessels. The installations across the remaining vessels and new build vessels will continue in 2023.
We have an exciting year ahead with various developments planned for the FAST platform.
2023 will be the year where we focus on :
•Improving the platform’s performance and allowing speedier visualization of large amounts in sensor data;
•Voyage optimisation module, we want to go beyond the current weather routing that is in place and take the whole commercial voyage of our vessel into account when calculating and making decisions on most cost-effective routes;
•Another feature is Port Call Optimisation, which will focus on digitizing the port call planning process. Today this process is a very email, phone call and meeting based process. Port Call Optimisation will make the process more transparent, increase collaboration between vessel and shore and reduce port call costs due to visualization of costs when planning activities in a certain port. It will also consist of a port call activities timeline, which will increase the safety and transparency of all planned activities.
Robotics Process Automation (RPA)
In 2020 we launched our first Robotics Process Automation (RPA) projects. RPA is a software technology in which software robots are programmed to automate repetitive actions. Many RPA processes currently operate with minimum oversight and administration and deliver valuable assistance to shore employees also carry out mundane and repetitive IT tasks that were previously time-consuming and caused frustration. RPA has contributed to FTE (full-time equivalent) savings and streamlining procedures in the Procurement, Accounting and Crew departments. Current automations include updating airway bills, auto-validation of scanned invoices, auto-creation of Requests-for-Quote and Purchase Orders, auto-creation of lubricants requisitions, and more.
Inventory Management Project (IMIP)
Inventory management is a cumbersome, yet crucial task on board of our fleet. It is key from both an operational and a financial perspective to have a correctly updated inventory and control of what the vessels have on board as spare parts. That is why Euronav initiated the Inventory Management Project. The project is supported by new technologies such as label printers and mobile smartphone/scanners on the vessels.
Following the successful launch of the project and the fleet wide implementation, we managed to streamline the processes to all vessels. As such, the inventory value on board our vessels remains stable; the majority of purchase orders received on board is recorded by scanning QR codes; and our crew reduced the average time for locating a spare on board their ships by proper logging into the ERP system.
The frequent training and visits on board ships, as well as close monitoring by tailor-made dashboards complement the inventory management. Our main forwarding partner is also engaged and supports the project by tagging the spares in one of the main warehouses prior delivery on board.
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A. Operating Results
This section comments on the operating results of the year ended December 31, 2022, compared to the year ended December 31, 2021.
Total shipping revenues and voyage expenses and commissions
2022 was a turnaround year for Euronav fleet earnings. The long awaited improvement of the large tanker market finally came after 2 years of depressed earnings caused by the COVID-led economic downturn. This improvement was furthermore positively affected by the fallout of the Russia- Ukraine conflict, causing significant rate volatility.
Following the Russia – Ukraine conflict and the introduction of related sanctions, global oil trade flows further shifted. Europe’s move away from Russian oil bolstered Suezmax markets. Short haul imports from Russia were replaced by West African and US crude.
The biggest transformation in the tanker sector in the second half of 2022, however, was the swing in earnings for VLCCs. VLCCs were increasingly utilized on trades that would normally have been performed on Aframaxes or Suezmaxes given the strength in earnings for those sectors, such as from the US Gulf to Europe. Increasing demand from Europe for Middle East Gulf crude raised trading opportunities for VLCCs and Suezmaxes.
The tanker market was also lifted by recovering oil consumption post-pandemic and therefore greater import demand, with refineries ramping up output. This was underpinned by rising OPEC output from Middle East Gulf producers as OPEC+ steadily relaxed their productions cuts.
Shifts in crude futures pricing spreads also made Atlantic basin crudes more attractive to Asian buyers again. As the Brent-Dubai spread had narrowed from July, this lifted tanker tonne miles for the VLCC sector and supported rates.
Rising US crude exports to record levels after the US triggered massive releases from its Strategic Petroleum Reserve (and as domestic oil production climbed), had not only rallied Aframax and Suezmax rates, but increased VLCC demand from the US Gulf. US Government Trade data showed a significant uptick in exports to Asia in the second half of 2022, so necessitating the use of the larger tankers.
The final quarter of the year also witnessed a shift in Brazil’s trade flows from moving supply to Europe to a rebound in demand from China, thereby adding to the need for VLCCs in the Southern Atlantic basin.
As most of Euronav’s fleet is employed on the spot market, the Company was well placed to take advantage of the improved market conditions. Fleet renewal continued and it was decided to keep the modern (and more competitive) vessels on the spot market. We were able to dispose of our older tonnage at improved second hand prices.
The following table sets forth our total shipping revenues and voyage expenses and commissions for the years ended December 31, 2022 and 2021:
(USD in thousands) | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||
Voyage charter and pool revenues | 737,280 | 348,439 | 388,841 | 112 | % | |||||||||||||||||||||
Time charter revenues | 117,389 | 71,331 | 46,058 | 65 | % | |||||||||||||||||||||
Other operating income | 15,141 | 10,255 | 4,886 | 48 | % | |||||||||||||||||||||
Gains on disposal of vessels/other tangible assets | 96,160 | 15,068 | 81,092 | 538 | % | |||||||||||||||||||||
Total shipping revenues | 965,970 | 445,093 | 520,877 | 117 | % | |||||||||||||||||||||
Voyage expenses and commissions | (175,187) | (118,808) | (56,379) | 47 | % |
Total shipping revenues increased by 117%, or $520.9 million, to $966.0 million for the year ended December 31, 2022, compared to $445.1 million for 2021.
Our voyage charter and pool revenues increased by 112%, or $388.8 million, to $737.3 million for the year ended December 31, 2022, compared to $348.4 million for 2021.
Time charter revenues increased by 65%, or $46.1 million, to $117.4 million for the year ended December 31, 2022, compared to $71.3 million for 2021.
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The other income increased by 48% or $4.9 million, to $15.1 million for the year ended December 31, 2022, compared to $10.3 million for 2021. Other operating income includes revenues related to the standard business operation of the fleet and that are not directly attributable to an individual voyage. The increase is mainly due to the liquidated damages incurred on the sale of the 4 S-class vessels Sara, Sandra, Simone and Sonia.
For the gains on disposal of vessels/other tangible assets, please see below.
The increase in the revenues was partially offset by the increase in voyage expenses and commissions, which rose by 47% or $(56.4) million, to $(175.2) million for the year ended December 31, 2022, compared to $(118.8) million for 2021. Key driver was the increase in bunker cost following the increase in crude oil prices since the beginning of the year due to the war between Russia and Ukraine and the economic sanctions that have been imposed.
To conclude, our 2022 revenues fully recovered from a weak 2021, benefiting from improved market conditions.
Net gain (loss) on lease terminations and net gain (loss) on the sale of assets
The following table sets forth our gain (loss) on lease terminations and gain (loss) on the sale of assets for the years ended December 31, 2022 and 2021:
(USD in thousands) | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||
Net gain on sale of assets (including impairment on non-current assets held for sale) | 95,813 | 15,068 | 80,745 | 536% |
Net gain on sale of assets (including impairment on non-current assets held for sale). Net gain (loss) increased by 536%, or $80.7 million, to a net gain of $95.8 million for the year ended December 31, 2022, compared to a net gain of $15.1 million for 2021.
The net gain on the sale of assets amounted to $95.8 million in 2022, resulting from the sale of the following vessels:
•ULCC: Europe ($34.7 million)
•VLCC: Sara ($1.5 million), Sandra ($0.2 million), Simone ($0.4 million), and Sonia ($(0.3) million)
•Suezmax: Cap Pierre ($7.5 million), Cap Leon ($10.8 million), Cap Philippe ($12.9 million) and Cap Guillaume ($14.6 million)
•Bareboats: Navarin ($4.5 million), Neptun ($4.5 million) and Nucleus ($4.5 million)
The net gain on sale of assets of $15.1 million in 2021, represents the aggregate of a gain of $9.4 million recorded on the sale of the Suezmax Filikon, a gain of $1.2 million recorded on the sale and leaseback agreement for the VLCC Newton, and a gain of $4.5 million on the redelivery of the VLCC Nautilus.
Vessel Operating Expenses
The operating expenses relate mainly to the crewing expenses (including crew bonuses), technical and other costs (including shore staff working entirely on ship management) which are needed to operate tankers. In 2022, these expenses were lower compared to 2021, resulting from a smaller fleet size on average in 2022 compared to 2021, although taking into account the compensating increase due to the FSO Asia and FSO Africa fully owned as of June, 2022.
The following table sets forth our vessel operating expenses for the years ended December 31, 2022 and 2021:
(USD in thousands) | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||
Total VLCC operating expenses | 127,898 | 145,219 | (17,321) | (12) | % | |||||||||||||||||||||
Total Suezmax operating expenses | 74,381 | 75,487 | (1,106) | (1) | % | |||||||||||||||||||||
Total FSO operating expenses | 13,815 | — | 13,815 | |||||||||||||||||||||||
Total vessel operating expenses | 216,094 | 220,706 | (4,612) | (2) | % |
Total vessel operating expenses slightly decreased by (2)%, or $(4.6) million , to $216.1 million during the year ended December 31, 2022, compared to $220.7 million for 2021.
Time charter-in expenses and bareboat charter-hire expenses
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The charter-hire expenses in 2022 are entirely attributable to the internal short term time charter agreement with our joint venture Bari Shipholding Ltd. and the hire expenses for the barge (Cougar Satu) in relation to our fuel compliance program (see Note 12). The Group elected to apply the short-term lease exemption and accordingly, the lease payments were recognized as an expense and right-of-use assets and lease liabilities were not recognized. The decrease noted in 2022 compared to 2021 is due to the sale of Suezmax Bari (2005 - 159,186 dwt) on March 24, 2022.
The bareboat hire is related to four bareboat contracts ended on December 15, 2021 with one vessel (VLCC Nautilus) redelivered to the owners before December 31, 2021. The expenses for the bareboat hire days upon redelivery of the three remaining vessels (VLCCs Navarin, Neptun and Nucleus) were recorded as bareboat hire instead of accounting for a lease modification. All vessels were redelivered during the first quarter of 2022.
The following table sets forth our chartered-in vessel expenses and bareboat charter-hire expenses for the years ended December 31, 2022 and 2021:
(USD in thousands) | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||
Time charter-in expenses | 3,912 | 8,473 | (4,561) | (54) | % | |||||||||||||||||||||
Bareboat charter-hire expenses | 1,857 | 1,277 | 580 | 45 | % | |||||||||||||||||||||
Total charter hire expense | 5,769 | 9,750 | (3,981) | (41) | % |
Total charter hire expenses decreased by 41%, or $(4.0) million, to $5.8 million during the year ended December 31, 2022, compared to $9.8 million for 2021. The decrease was mainly related to the drop in time charter-in expenses, which decreased by 54%, or $(4.6) million, to $3.9 million during the year ended December 31, 2022, compared to $8.5 million for 2021.
General and administrative expenses
The following table sets forth our general and administrative expenses for the years ended December 31, 2022 and 2021:
(USD in thousands) | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||
General and administrative expenses | 51,702 | 32,408 | 19,294 | 60 | % |
General and administrative expenses include, amongst others, shore staff wages excluding shore staff working entirely on ship management, directors' fees, office rental, consulting fees, audit fees and tonnage tax, increased by 60%, or $19.3 million, to $51.7 million for the year ended December 31, 2022, compared to $32.4 million for 2021.
The increase in administrative expenses is mainly due to legal and other fees incurred in relation to the potential merger discussions with Frontline Plc, following the Combination Agreement, as well as the vesting of variable stock option plans of the Management Board (TBIP 2019).
The share-based payments (SBP) are lower compared to 2021 mainly due to the reversal of the provision on cash-settled share-based payments as the TBIP 2019 was fully vested during 2022 and for which the payout is reflected in the administrative expenses. In 2022, the LTIP 2015, LTIP 2019, LTIP 2020 and LTIP 2021 were recognized in the equity-settled share-based payment expenses.
The increase in tonnage tax for the year ended in 2022 is mainly driven by the unilateral decision of the Greek Authority to increase the tax regime.
Depreciation and amortization expenses
The following table sets forth our depreciation and amortization expenses for the years ended December 31, 2022 and 2021:
(USD in thousands) | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||
Depreciation and amortization expenses | 222,597 | 344,994 | (122,397) | (35) | % |
Depreciation and amortization expenses decreased by 35%, or $(122.4) million, to $222.6 million for the year ended December 31, 2022, compared to $345.0 million for 2021. Main drivers are twofold. On the one hand, there is the re-assessment of the residual value as per December 31, 2021 which was taken into account prospectively and therefore having the largest effect on 2022 (compared to 2021). This impact amounted to $103.7 million fewer depreciation expenses
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compared to 2021. On the other hand, the change in vessel portfolio, following a large number of vessel sales during 2022, resulted in a decrease of the depreciation expenses of $19.6 million compared to 2021.
Net Finance Expenses
The following table sets forth our finance expenses for the years ended December 31, 2022 and 2021:
Recognized in profit or loss
(in thousands of USD) | 2022 | 2021 | $Change | %Change | ||||||||||||||||
Interest income | 7,063 | 1,896 | 5,167 | 273 | % | |||||||||||||||
Change in fair value of fuel derivatives recognized in P&L | 6,132 | 1,668 | 4,464 | 268 | % | |||||||||||||||
Foreign exchange gains | 13,945 | 11,370 | 2,575 | 23 | % | |||||||||||||||
Finance income | 27,140 | 14,934 | 12,206 | 82 | % | |||||||||||||||
Interest expense on financial liabilities measured at amortized cost | (85,418) | (57,961) | (27,457) | 47 | % | |||||||||||||||
Interest leasing | (1,237) | (2,378) | 1,141 | (48) | % | |||||||||||||||
Change in fair value of fuel derivatives recognized in P&L | (26,388) | (8,966) | (17,422) | 194 | % | |||||||||||||||
Fair value adjustment on interest rate swaps | (507) | (78) | (429) | 550 | % | |||||||||||||||
Other financial charges | (5,930) | (14,265) | 8,335 | (58) | % | |||||||||||||||
Foreign exchange losses | (13,529) | (11,893) | (1,636) | 14 | % | |||||||||||||||
Finance expense | (133,009) | (95,541) | (37,468) | 39 | % | |||||||||||||||
Net finance expense recognized in profit or loss | (105,869) | (80,607) | (25,262) | 31 | % |
Finance income is higher during the year ended December 31, 2022 compared to December 31, 2021 which is mainly due to an increased interest income received on the interest swaps enhanced by an increase in change in fair value of fuel derivatives recognized through P&L.
Finance expenses increased during the year ended December 31, 2022 compared to December 31, 2021. This is mainly due to an increase in interest expenses on financial liabilities enhanced by an increase in change in fair value of fuel derivatives recognized through P&L. The increased interest expenses on financial liabilities are mainly related to an increase in interest expenses on bank loans due to an increasing interest rate environment and a higher average outstanding debt compared to the period ended December 31, 2021. The increased expense in change in fair value of fuel derivatives is mainly due to the higher negative result on the fuel derivatives related to the hedging program of the bunker fuel on board of the Oceania.
The decrease in other financial charges is related to the bond renewal completed in 2021 as well as a decrease in commitment fees incurred during 2022 compared to 2021.
Interest leasing is the interest on lease liabilities.
Share of results of equity accounted investees, net of income tax
The following table sets forth our share of results of equity accounted investees (net of income tax) for the years ended December 31, 2022 and 2021:
(USD in thousands) | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||
Share of results of equity accounted investees | 17,650 | 22,976 | (5,326) | (23) | % |
The result of the equity accounted investees decreased by 23%, or $(5.3) million, to $17.7 million for the year ended December 31, 2022, compared to a result of $23.0 million for 2021. The decrease is driven by the fact that Euronav acquired 100% of the FSOs early June 2022, and so the results of the FSOs were no longer reported via the equity accounting method since then, instead they were fully consolidated in the different Profit and Loss line items of the Consolidated Statement of Profit or Loss.
More details can be found under Note 26 - equity accounted investees.
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Income tax benefit/(expense)
The following table sets forth our income tax benefit/(expense) for the years ended December 31, 2022 and 2021:
(USD in thousands) | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||
Income tax benefit (expense) | (2,804) | 427 | (3,231) | (757) | % |
The income tax expenses increased by 757%, or $(3.2) million, to $2.8 million for the year ended December 31, 2022, compared to a benefit of $0.4 million for 2021.
More details can be found under Note 7 - Income tax benefit (expense).
B. Liquidity and Capital Resources
We operate in a capital intensive industry and have historically financed our purchase of tankers and other capital expenditures through a combination of cash generated from operations, equity capital, borrowings from commercial banks and the occasional issuance of convertible notes. Our ability to generate adequate cash flows on a short- and medium-term basis depends substantially on the trading performance of our vessels. Historically, market rates for charters of our vessels have been volatile. Periodic adjustments to the supply of and demand for oil tankers cause the industry to be cyclical in nature. We expect continued volatility in market rates for our vessels in the foreseeable future with a consequent effect on our short- and medium-term liquidity.
Our funding and treasury activities are conducted within corporate policies to maximize investment returns while maintaining appropriate liquidity for our requirements. Cash and cash equivalents are held primarily in U.S. dollars with some balances held in British Pounds, Euros, and other currencies we may hold for limited amounts.
As of December 31, 2022 and December 31, 2021, we had $179.9 million and $152.5 million in cash and cash equivalents, respectively.
Our short-term liquidity requirements relate to payment of operating costs (including drydocking repairs, installation of water ballast treatment systems and green retrofits), lease payments for our chartered-in fleet, funding working capital requirements, maintaining cash reserves against fluctuations in operating cash flows as well as maintaining some cash balances on accounts pledged under borrowings from commercial banks.
Sources of short-term liquidity include cash balances, restricted cash balances, syndicated credit lines, short-term investments and receipts from our customers. Revenues from time charters and bareboat charters are generally received monthly in advance. Revenues from FSO service contracts are received monthly in arrears while revenues from voyage charters are received upon completion of the voyage. As of December 31, 2022 and December 31, 2021, we had $100 million and $100 million in available syndicated credit lines, respectively.
Our medium- and long-term liquidity requirements include funding the equity portion of investments in new or replacement vessels and funding all the payments we are required to make under our loan agreements with commercial banks. Sources of funding for our medium- and long-term liquidity requirements include new loans, refinancing of existing arrangements, drawdown under committed secured revolving credit facilities, issuance of new notes or refinancing of existing ones via public and private debt offerings, equity issues, vessel sales and sale and leaseback arrangements. As of December 31, 2022 and December 31, 2021, we had $671.3 million and $595.3 million in available committed secured revolving credit facilities, respectively.
Net cash from (used in) operating activities during the year ended December 31, 2022 was $255.6 million, compared to $(25.3) million during the year ended December 31, 2021. Our partial reliance on the spot market contributes to fluctuations in cash flows from operating activities as a result of its exposure to highly cyclical tanker rates. Any increase or decrease in the average TCE rates earned by our vessels in periods subsequent to December 31, 2022 will have a positive or negative comparative impact, respectively, on the amount of cash provided by operating activities.
We believe that our working capital resources are sufficient to meet our requirements for the next 12 months from the date of this annual report.
As of December 31, 2022 and December 31, 2021, our total indebtedness was $1,795.6 million and $1,807.9 million respectively.
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We expect to finance our funding requirements with cash on hand, operating cash flow and bank debt or other types of debt financing. In the event that our cash flow from operations does not enable us to satisfy our short-term or medium- to long-term liquidity requirements, we will also have to consider alternatives, such as raising equity, or new convertible notes, which could dilute shareholders, or selling assets (including investments), which could negatively impact our financial results, depending on market conditions at the time, establish new loans or refinancing of existing arrangements.
Our Borrowing Activities
Amounts Outstanding as of | ||||||||||||||
(USD in thousands) | December 31, 2022 | December 31, 2021 | ||||||||||||
Euronav NV Credit Facilities | ||||||||||||||
$750.0 Million Senior Secured Credit Facility | — | — | ||||||||||||
$409.5 Million Senior Secured Credit Facility | — | 65,000 | ||||||||||||
$108.5 Million Senior Secured Credit Facility | 68,748 | 75,985 | ||||||||||||
$173.6 Million Senior Secured Credit Facility | 117,002 | 130,307 | ||||||||||||
$200.0 Million Senior Secured Credit Facility | 90,000 | 55,000 | ||||||||||||
$100.0 Million Sustainability Linked Senior Secured Credit Facility | — | — | ||||||||||||
$700.0 Million Senior Secured Credit Facility | 470,000 | 370,000 | ||||||||||||
$713.0 Million Sustainability Linked Senior Secured Credit Facility | 350,756 | 524,135 | ||||||||||||
$73.45 Million Sustainability Linked Senior Secured Credit Facility | 71,155 | — | ||||||||||||
$150.0 Million Sustainability Linked Senior Secured Credit Facility | 141,747 | — | ||||||||||||
$377.0 Million Sustainability Linked Senior Secured Credit Facility | 40,000 | — | ||||||||||||
Credit Line Facilities | ||||||||||||||
Credit Lines | — | — | ||||||||||||
Senior unsecured bond | ||||||||||||||
Senior Unsecured Bond | 200,000 | 267,200 | ||||||||||||
Treasury notes program | ||||||||||||||
Treasury Notes Program | 50,663 | 104,006 | ||||||||||||
Other borrowings | ||||||||||||||
Other borrowings | 86,198 | 100,056 | ||||||||||||
Total interest bearing debt | 1,686,269 | 1,691,689 | ||||||||||||
Joint Venture Credit Facilities (at 50% economic interest) | ||||||||||||||
$220.0 Million Senior Secured Facility (TI Asia and TI Africa) | — | 19,756 | ||||||||||||
Total interest bearing debt - joint ventures | — | 19,756 |
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Euronav NV Credit Facilities
$750.0 Million Senior Secured Credit Facility
On August 19, 2015, we entered into a $750.0 million secured loan facility with a syndicate of banks and Nordea Bank Norge SA, as Agent and Security Agent. This facility is comprised of a $500.0 million revolving credit facility, a $250.0 million revolving acquisition facility, and an uncommitted $250.0 million upsize facility. We used the proceeds of this facility to refinance all remaining indebtedness under our $750.0 million senior secured credit facility (2011) and our $65.0 million secured credit facility and for the acquisition of the Metrostar Acquisition Vessels in June 2015. This facility was secured by 24 of our wholly-owned vessels. The facility was available for the purpose of (i) refinancing 21 vessels; (ii) financing four newbuilding VLCCs vessels as well as (iii) Euronav's general corporate and working capital purposes. This facility bore interest at LIBOR plus a margin of 195 bps. In September 2020, five vessels under this facility were refinanced under the $713.0 million Sustainability linked Senior Secured Credit Facility. The $750.0 million facility matured in July 2022 and the remainder of the vessels in the facility were refinanced in the new $377.0 million Sustainability linked Senior Secured Credit Facility in December 2022. As of December 31, 2022, and December 31, 2021, the outstanding balance on this facility was $0.0 million and $0.0 million, respectively. The credit facility was cancelled on June 30, 2022.
$409.5 Million Senior Secured Credit Facility
On December 16, 2016, we entered into a $409.5 million senior secured amortizing revolving credit facility with a syndicate of banks and Nordea Bank Norge SA, as Agent and Security Agent. We used the proceeds of this facility to refinance all remaining indebtedness under our $500.0 Million Senior Secured Credit Facility. This facility was secured by 11 of our wholly-owned vessels. The revolving credit facility was reduced in 12 installments of consecutive six-month interval and a final $129.2 million repayment was due at maturity in January 2023. This facility bore interest at LIBOR plus a margin of 2.25%. Following the sale and lease back of the VLCC Nautica, Nectar and Noble in December 2019, this facility was reduced by $56.9 million. Following the sale of the VLCC Newton in February 2021, the total revolving credit facility was reduced by $16.3 million. Following the sale of VLCC Sara, Sandra, Sonia in the second quarter of 2022 and Simone in the fourth quarter of 2022 the commitment was reduced by $68.6 million. The facility was cancelled on December 1, 2022 and the vessels remaining in the facility VLCC Iris, Ingrid, Ilma were refinanced with the new $377.0 million Sustainability linked Senior Secured Credit Facility. As of December 31, 2022 and December 31, 2021, the outstanding balance on the $409.5 Million facility was $0.0 million and $65.0 million, respectively. The credit facility has been repaid and cancelled on September 30, 2022.
$108.5 Million Senior Secured Credit Facility
On January 30, 2017, the Group signed a loan agreement for a nominal amount of $110.0 million with the purpose of financing the Ardeche and the Aquitaine. On April 25, 2017, following a successful syndication, the loan was replaced with a new Korean Export Credit facility for a nominal amount of $108.5 million with Korea Trade Insurance Corporation (K-sure) as insurer. The new facility is comprised of (i) $27.1 million “commercial tranche”, which bears interest at LIBOR plus a margin of 1.95% per annum and (ii) a $81.4 million tranche insured by K-sure which bears interest at LIBOR plus a margin of 1.50% per annum. The facility is repayable over a term of 12 years, in 24 installments at successive six month intervals, each in the amount of $3.6 million together with a balloon installment of $21.7 million payable with the 24th installment on January 12, 2029. The K-sure insurance premium and other related transaction costs for a total amount of $3.2 million are amortized over the lifetime of the instrument using the effective interest rate method. As of December 31, 2022 and December 31, 2021, the outstanding balance on this facility was $68.7 million and $76.0 million, respectively in aggregate. This facility is secured by the VLCCs the Ardeche and the Aquitaine. The facility agreement also contains a provision that entitles the lenders to require us to prepay to the lenders, on January 12, 2024, with 180 days’ notice, their respective portion of any advances granted to us under the facility. The facility agreement also contains provisions that allow the remaining lenders to assume an outgoing lender’s respective portion(s) of the advances made to us or to allow us to suggest a replacement lender to assume the respective portion of such advances.
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$173.6 Million Senior Secured Credit Facility
On March 22, 2018, we entered into a $173.6 million revolving credit facility with Crédit Agricole Corporate and Investment Bank, as Agent and Security Trustee. This facility is comprised of (i) a term loan of $69.4 million from a syndicate of commercial lenders which we refer to as the “commercial tranche” and (ii) a term loan of $104.1 million provided by the Export-Import Bank of Korea, which we refer to as “Kexim tranche”. We used the proceeds of this facility to finance our acquisition of the Suezmax newbuildings Cap Quebec, Cap Pembroke, Cap Port Arthur, and Cap Corpus Christi, which were delivered to us on March 26, 2018, April 25, 2018, August 8, 2018 and August 29, 2018, respectively, and which serve as security under this facility. The commercial tranche bears interest at LIBOR plus a margin of 2.00% per annum plus applicable mandatory costs and is reduced in 24 installments of consecutive six-month interval and a final $13.9 million repayment is due at maturity in 2030.The Kexim tranche bears interest at LIBOR plus a margin of 2.00% per annum plus applicable mandatory costs and is reduced in 24 installments of consecutive six-month interval till maturity in 2030. The facility agreement contains a provision that entitles the lenders to require us to prepay to the lenders, on March 28, 2025, with 13 months' notice, their respective portion of any advances granted to us under the facility. The facility agreement also contains provisions that allow the remaining lenders to assume an outgoing lender’s respective portion(s) of the advances made to us or to allow us to suggest a replacement lender to assume the respective portion of such advances. As of December 31, 2022 and December 31, 2021, the outstanding balance on this facility was $117.0 million and $130.3 million, respectively.
$200.0 Million Senior Secured Credit Facility
On September 7, 2018, we entered into a $200.0 million senior secured credit facility with a syndicate of banks and Nordea Bank Norge SA, as Agent and Security Agent. We used the proceeds of this facility to refinance all remaining indebtedness under our $581.0 million senior secured loan facility, our $67.5 million senior secured loan facility (Larvotto), and our $76.0 million secured loan facility (Fiorano). This facility is secured by nine of our wholly-owned vessels. This revolving credit facility is reduced in 12 installments of consecutive six-month interval and a final $55.0 repayment is due at maturity in 2025. This facility bears interest at LIBOR plus a margin of 2.0% per annum plus applicable mandatory costs. As of December 31, 2022 and December 31, 2021, the outstanding balance on this facility was $90.0 million and $55.0 million, respectively.
$100.0 Million Senior Secured Credit Facility
On June 27, 2019, the Group entered into a $100.0 million senior secured amortizing revolving credit facility with a syndicate of banks of which ABN Amro Bank also acting as Coordinator, Agent and Security Trustee. The facility, secured by the Oceania and the bunker inventory bought in anticipation of the new IMO legislation starting in January 1, 2020, was due to mature on December 31, 2021 and carried a rate of LIBOR plus a margin of 2.10%. On June 30, 2021, the Group terminated the facility. As of December 31, 2020, the outstanding balance on this facility was $0.0 million and was not used any longer during the first half year of 2021.
$700.0 Million Senior Secured Credit Facility
On August 28, 2019, we entered into a $700.0 million senior secured amortizing revolving credit facility with a syndicate of banks and Nordea Bank Norge SA, as Agent and Security Agent. We used the proceeds of this facility to refinance all remaining indebtedness under our $633.5 million senior secured loan facility. This facility is secured by 13 of our wholly-owned vessels. This revolving credit facility is reduced in 12 installments of consecutive six-month interval and a final $407.0 repayment is due at maturity on January 31, 2026. This facility bears interest at LIBOR plus a margin of 1.95% per annum plus applicable mandatory costs. Targets to reduce our GHG emissions with compliance being rewarded with a reduced interest coupon by five basis points Following the achievement of the sustainability performance target for 2021 the margin was reduced to 2.30% as from May 2022. As of December 31, 2022 and December 31, 2021, the outstanding balance on this facility was $470.0 million and $370.0 million, respectively.
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$713.0 Million Sustainability Linked Senior Secured Credit Facility
On September 11, 2020, the Group entered into a $713.0 million sustainability linked loan with specific targets to emission reduction, or the $713.0 Million Sustainability Linked Senior Secured Credit Facility. This facility is secured by 16 of our wholly-owned vessels, 13 VLCCs and three Suezmaxes. The credit facility will mature on March 31, 2026 and carries a rate of LIBOR plus a margin of 2.35% with margin adjustment of plus or minus 0.05%. The facility consists of (i) a revolver of 469.0 million to refinance the $340.0 million senior secured credit facility and part of the $750.0 million senior secured credit facility and (ii) a term loan of 244.0 million to finance the acquisition of four newbuilding VLCCs with delivery in the first quarter of 2021. The facility includes terms with clear targets to reduce our GHG emissions with compliance being rewarded with a reduced interest coupon of five basis points. Following the achievement of the sustainability performance target for 2021 the margin was reduced to 2.30% as from May 2022. As of December 31, 2022 and December 31, 2021 the outstanding balance under this facility was $350.8 million and $524.1 million, respectively.
€80.0 Million Unsecured Credit Line Facility
On April 7, 2021, the Group entered into an €80 million ($100 million) unsecured revolving credit facility. This new facility has been concluded with a range of commercial banks and the support of Gigarant, with sustainability and emission reductions as a component of the margin pricing points. A range of measurable sustainability features such as year-on-year reduction in carbon emissions starting from 2021 will be supported by compliance with the Poseidon principles.Following the achievement of the sustainability performance target for 2021 the margin was reduced to 1.45 % as from May 2022. The facility has a duration of minimum three years, with two one-year extension options of which the first 1-year extension option has been exercised. As of 2022, and December 31, 2021 the outstanding balance on this facility was $0.0 million and $0.0 million.
$73.45 Million Sustainability-linked Senior Secured Credit Facility
On December 2, 2021, the Group entered into a secured $73.45 million sustainability linked loan at LIBOR to finance two newbuilding Suezmaxes which have been delivered in the first quarter of 2022. The loan has been concluded with DNB and includes terms with clear targets to reduce our GHG emissions on the basis of the Poseidon Principles with compliance being rewarded with a reduced interest coupon of five basis points.The facility will have a duration of six years. As of 2022, and December 31, 2021 the outstanding balance on this facility was $71.2 million and $0.0 million.
$150.0 Million Sustainability-linked Senior Secured Credit Facility
On June 21, 2022, the Group entered into a $150 million senior secured amortizing term loan facility to finance the acquisition of the 50% ownership in the FSO joint ventures. The new facility has been concluded with ING and ABN Amro who were also the supporting banks in the existing facility. At the same time the existing facilities for the FSO JV companies which were maturing in July 2022 and September 2022 have also been repaid (see Note 26). The new facility carries a rate of daily compounded SOFR plus a margin of 2.15% with margin adjustment of plus or minus 10 bps. The new facility is linked to the sustainability performance of the Company. The commercial terms include a reduction of the interest rate when the Company achieves its targets in relation to two sustainability KPI's. The facility has a duration of 7.75 years with maturity on March 30, 2030. As of December 31, 2022, the outstanding balance on this facility was $141.7 million.
€ 377.0 Million Sustainability-linked Senior Secured Credit Facility
On December 6, 2022, the Group entered into a $377.0 million senior secured amortizing facility comprising a revolving credit facility of up to $307.0 million and a newbuild term loan facility of up to $70.0 million and an upsize term loan facility of, initially, $0 which may be increased to up to $70 million and has been concluded with a syndicate of banks and Nordea Bank Norge SA acting as Agent and Security Trustee. The facility was concluded to refinance the $750.0 million senior secured amortizing revolving credit facility dated August 19, 2015 and the $409.5 million senior secured amortizing revolving credit facility dated December 16, 2016. Additionally the facility was used to finance the purchase of two second hand eco scrubber fitted VLCC’s purchased in the second quarter of 2023 and to finance one newbuilding VLCC with the option of a second one. The new facility will mature on January 10, 2028 and is based on Term SOFR plus a margin of 1.90% with a margin adjustment possibility of 0.10% based on 3 sustainability KPI’s. As of December 31, 2022, the outstanding balance on this facility was $40.0 million. The credit facility is currently secured by 8 of our wholly-owned vessels.
$200.0 Million Senior Unsecured Bond
On May 31, 2017, we completed an issuance of $150.0 million of senior unsecured bonds with a fixed coupon of 7.50% and maturity in May 2022. Euronav NV served as guarantor of the bonds. The net proceeds from the bond issuance were being used for general corporate purposes. DNB Markets, Nordea and Arctic Securities AS acted as joint lead managers in
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connection with the placement of the bonds. The related transaction costs for a total of $2.7 million were amortized over the lifetime of the bonds using the effective interest rate method. The bonds were listed on the Oslo Stock Exchange on October 23, 2017.
On June 14, 2019, we successfully completed a tap issue of $50 million under the existing senior unsecured bonds. The bonds were guaranteed by Euronav NV, maturing in May 2022 and were carrying a coupon of 7.50% The tap issue was priced at 101% of par value.
In the course of the first quarter of 2020, the company bought back $1.0 million face value of its $200.0 Million Senior Unsecured Notes at an average price of 15% below face value.
On September 2, 2021, we announced a successful placement of $200 million senior unsecured bonds. The bonds mature in September 2026 and carry a coupon of 6.25%. The bonds were successfully listed on the Oslo Stock Exchange as of March 22, 2022. The related transaction costs of $3.3 million are amortized over the lifetime of the instrument using the effective interest rate method. The net proceeds from the bond issue are used for general corporate purposes and/or refinancing of the existing $200 million bond (ISIN: NO0010793888) that matured in May 2022. As part of this transaction, we bought back $132 million of the $200 million senior bonds issued in 2017 and due to mature in May 2021. DNB Markets, Nordea, SEB and Arctic Securities AS acted as joint bookrunners in connection with the placement of the bond issue. In line with the successful placement of the new $200 million senior unsecured bond, the old bond has been fully repaid during the second quarter of 2022.
As of December 31, 2022, and December 31, 2021, the outstanding balance under these Unsecured Notes was $200.0 million and $267.2 million, respectively.
€150.0 Million Treasury Notes Program
On June 6, 2017, we entered into an agreement, or the Dealer Agreement, with BNP Paribas Fortis SA/NV to act as arranger and dealer for a Treasury Notes Program with a maximum outstanding amount of €50.0 million. On October 1, 2018, we amended the agreement to increase the maximum outstanding amount to €150.0 million, while appointing KBC Bank NV as additional dealer for the program. Pursuant to the terms of the Dealer Agreement, we may issue the treasury notes to the dealer from time to time upon such terms and such prices as we and the dealer agree. As of December 31, 2022 and December 31, 2021, the outstanding balances under this program was $50.7 million (€47.5 million) and $104.0 million (€91.8 million), respectively
Other borrowings
On December 30, 2019, the Company entered into a sale and leaseback agreement for three VLCCs. The three VLCCs are the Nautica (2008 – 307,284), Nectar (2008 – 307,284) and Noble (2008 – 307,284). The vessels were sold and were leased back under a 54-months bareboat contract at an average rate of $20,681 per day per vessel. In accordance with IFRS, this transaction was not accounted for as a sale but Euronav as seller-lessee will continue to recognize the transferred assets, and recognized a financial liability equal to the net transfer proceeds of $124.4 million. At the end of the bareboat contract, the vessels will be redelivered to their new owners. Euronav may, at any time on and after the 1st anniversary, notify the owners by serving an irrevocable written notice at least three months prior to the proposed purchase option date of the charterers' intention to terminate this charter on the purchase option date and purchase the vessel from the owners for the applicable purchase option price.
Joint Venture Credit Facilities (at 50% economic interest)
$220.0 Million Secured Loan Facility (TI Asia and TI Africa)
On March 29, 2018, two of our 50%-owned joint ventures, TI Asia Ltd. and TI Africa Ltd. entered into a $220.0 million senior secured credit facility. The facility consisted of a term loan of $110.0 million and a revolving loan of $110.0 million for the purpose of refinancing the two FSOs as well as for general corporate purposes. The term loan consisted of two tranches; the FSO Asia Term loan of $54.0 million, maturing on June 21, 2022 and the FSO Africa Term loan of $56.0 million, maturing on September 22, 2022. The revolving credit facility consisted of two tranches; the FSO Asia revolving loan of $54.0 million, maturing on June 21, 2022 and the FSO Africa revolving loan of $56.0 million, maturing on September 22, 2022. On June 21, 2022, the Group entered into a new $150 million senior secured amortizing term loan facility to finance the acquisition of the 50% ownership in the FSO joint ventures (see above). At the same time the existing facilities for the FSO JV companies which were maturing in July 2022 and September 2022 have been repaid (see Note 26).
As of December 31, 2022 and December 31, 2021, the outstanding balance under the $220.0 Million Secured Loan Facility was $0.0 million and $19.8 million.
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Security
Our secured indebtedness is generally secured by:
•a first priority mortgage in all collateral vessels;
•a general pledge of earnings generated by the vessels under mortgage for the specific facility; and
•a parent guarantee when the indebtedness is not taken at the level of the parent.
Loan Covenants
Our debt agreements discussed above generally contain financial covenants, which require us to maintain, among other things:
•an amount of current assets that, on a consolidated basis, exceeds our current liabilities. Current assets may include undrawn amount of any committed revolving credit facilities and credit lines having a maturity of more than one year;
•an aggregate amount of cash, cash equivalents and available aggregate undrawn amounts of any committed loan of at least $50.0 million or 5% of our total indebtedness (excluding guarantees), depending on the applicable loan facility, whichever is greater;
•an aggregate cash balance of at least $30.0 million;
•a ratio of stockholders' equity to total assets of at least 30%; and
•and a minimum asset coverage ratio.
All existing financing Arrangements, including the Bonds, contain a change of control (CoC) clause, which is triggered if a shareholder would acquire 50%+1 of the shares or voting rights in Euronav. In certain existing financing arrangements (e.g., the $713,000,000 facility agreement or the €80,000,000 facility agreement) the threshold would be 30%+1 of the shares or voting rights in Euronav.
In connection to the senior secured FSO loan of $150 million, the facility contains a specific covenant whereby each borrower need to ensure that its financial position shall at all times during the Security Period be such that the Debt Service Cover Ratio in respect of it shall be equal or higher than 1.1x.
Under the existing facility agreements, the occurrence of a CoC would, trigger a mandatory prepayment and cancellation event. Except for the €80,000,000 ($100 million) facility agreement, the existing facility agreements do not contain the option or right of lenders not to ask for prepayment.
Under the bonds, the occurrence of a CoC would trigger a put option event, allowing each bondholder to require that Euronav Luxembourg SA (Euronav Luxembourg) purchases all or some of the bonds held by that bondholder at a price equal to 101 per cent. of the nominal amount (i.e., at a premium of 1%) .
Under most of the existing financing arrangements, including the bonds, Euronav undertook not to consolidate, amalgamate or merge with any other entity which may, in the reasonable opinion of the majority lenders, have a material adverse effect under the respective arrangement. The conclusion on whether the contemplated merger would have a material adverse effect, ultimately depends on the factual interpretation of the transaction by the majority lenders. The $173,550,300 facility agreement does not contain a material adverse effect qualifier, prohibiting any merger, irrespective of its (material adverse) effects. A breach of the "no merger undertaking" would trigger an event of default under the existing financing Arrangements.
Under the facility agreements, Euronav could, in theory, request a waiver of the "no merger undertaking" together with a suspension of other relevant undertakings (e.g., "maintenance of status"), in order to execute the contemplated merger. The consent of all lenders would be required for the waiver to be effective, with the exemption of the €80,000,000 facility agreement, for which a consent from the majority lenders would suffice.
Our credit facilities discussed above also contain restrictions and undertakings which may limit our and our subsidiaries' ability to, among other things:
•effect changes in management of our vessels;
•transfer or sell or otherwise dispose of all or a substantial portion of our assets;
•declare and pay dividends; and
•incur additional indebtedness.
A violation of any of our financial covenants or operating restrictions contained in our credit facilities may constitute an event of default under our credit facilities, which, unless cured within the grace period set forth under the applicable credit facility, if applicable, or waived or modified by our lenders, provides our lenders with the right to, among other things,
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require us to post additional collateral, enhance our equity and liquidity, increase our interest payments, pay down our indebtedness to a level where we are in compliance with our loan covenants, sell vessels in our fleet, reclassify our indebtedness as current liabilities and accelerate our indebtedness and foreclose their liens on our vessels and the other assets securing the credit facilities, which would impair our ability to continue to conduct our business.
Furthermore, certain of our credit facilities contain a cross-default provision that may be triggered by a default under one of our other credit facilities. A cross-default provision means that a default on one loan would result in a default on certain other loans. Because of the presence of cross-default provisions in certain of our credit facilities, the refusal of any one lender under our credit facilities to grant or extend a waiver could result in certain of our indebtedness being accelerated, even if our other lenders under our credit facilities have waived covenant defaults under the respective credit facilities. If our secured indebtedness is accelerated in full or in part, it would be very difficult in the current financing environment for us to refinance our debt or obtain additional financing and we could lose our vessels and other assets securing our credit facilities if our lenders foreclose their liens, which would adversely affect our ability to conduct our business.
Moreover, in connection with any waivers of or amendments to our credit facilities that we may obtain, our lenders may impose additional operating and financial restrictions on us or modify the terms of our existing credit facilities. These restrictions may further restrict our ability to, among other things, pay dividends, make capital expenditures or incur additional indebtedness, including through the issuance of guarantees. In addition, our lenders may require the payment of additional fees, require prepayment of a portion of our indebtedness to them, accelerate the amortization schedule for our indebtedness and increase the interest rates they charge us on our outstanding indebtedness.
In addition, we have provided, and may provide in the future, unsecured loans to our joint ventures which we consider economically as equivalent to investments in the joint ventures. Accordingly, in the event our joint ventures do not repay these loans as they become due and payable, the value of our investment in such entities may decline. Furthermore, we have provided, and may continue to provide in the future, guarantees to certain banks with respect to commercial bank indebtedness of our joint ventures. Failure on behalf of any of our joint ventures to service its debt requirements and comply with any provisions contained in its commercial loan agreements, including paying scheduled installments and complying with certain covenants, may lead to an event of default under its loan agreement. As a result, if our joint ventures are unable to obtain a waiver or do not have enough cash on hand to repay the outstanding borrowings, their lenders may foreclose their liens on the vessels securing the loans or seek repayment of the loan from us, or both, which would have a material adverse effect on our financial condition, results of operations, and cash flows. As of December 31, 2022 and December 31, 2021, $0 million and $39.5 million was outstanding respectively under these joint venture loan agreements, of which we guaranteed $0.0 million and $19.8 million.
As of December 31, 2022 and December 31, 2021, we were in compliance with all of the covenants contained in our debt agreements, and our joint ventures were in compliance with all of the covenants contained in their respective debt agreements.
Guarantees
We have provided guarantees to financial institutions that have provided credit facilities in 2019 to two of our joint ventures, in the aggregate amount of $0.0 million as of December 31, 2022 and $19.8 million as of December 31, 2021.
In addition, on July 14, 2017 and September 22, 2017, TI Asia Ltd. and TI Africa Ltd., two former 50%-owned joint ventures and as of June 7, 2022 100% owned, which own the FSO Asia and FSO Africa, two FSO vessels, respectively, entered into two guarantees of up to $5.0 million each with ING Bank, in favor of North Oil Company in connection with its use of the FSO Asia and FSO Africa. These guarantees terminated on October 21, 2022 for the FSO Asia and December 21, 2022 for the FSO Africa. These guarantees have not been called upon.
Recent Developments
Changes in Fleet Composition
On February 21, 2023, the Company reported on the sale of Suezmax Cap Charles (2006 - 158,881 DWT). This sale is part of our ongoing fleet renewal strategy and in response to new regulations such as EEXI (Energy Efficiency Existing Ship Index) which came into force earlier this year. This transaction generated a capital gain of $22.1 million. The Cap Charles was debt free and was delivered to her new owner on February 16, 2023.
On January 11, 2023, Euronav took delivery of the VLCC newbuilding Cassius (2023 – 299,158 dwt) and on February 28, 2023 of the VLCC newbuilding Camus (2023 – 299,158 dwt), which have been purchased in April 2021.
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On March 10, 2023, Euronav announced it signed an agreement with the United Nations (UN) to sell the Nautica, a VLCC, as part of a wider salvage operation for the FSO Safer located in Yemen. The vessel will replace the FSO Safer (1976 – 406,639 dwt) and will stay there. Euronav will help operate the vessel including after the transfer of the oil for several months afterwards.
On April 1, 2023, Euronav lifted the purchase option of the Nautica, and since then the vessel is again part of its owned fleet.
Conflicts
The war between Russia and Ukraine has and will continue to impact our business in the following areas:
•Freight Rates – Structural ton mile enhancement from Russian dislocation has positively impacted the freight rates. The Company has suspended its operations with Russian customers which has in the past represented an insignificant portion of the Company’s turnover.
•Bunker Fuel Cost – due to the risk within the market, and the self-sanctioning of Russian oil flows, the price of marine fuels has increased and will continue to be high for the foreseeable future. This is due to Russia supplying bunker markets with 20% of the global fuel demand in HSFO, VLSFO and MGO markets. These price increases will negatively impact the cost structure of the vessels making it more expensive to ship freight on long haul voyages. The spread between HSFO and VLSFO was at a high level, prior to Russia’s invasion of Ukraine, but has begun to decrease as the removal of Russian origin HSFO from the market has begun to tighten up supplies in Europe and in the Mediterranean.
•The Company acknowledges that Cybersecurity risks have increased by taking appropriate mitigating actions.
•Crew – the impact to our officers and crew that are from Russia and Ukraine remain limited.
Frontline Merger
During the first months of 2023, Euronav has responded to the unilateral termination of the Combination Agreement by Frontline.
On January 18, 2023, the Company announced that it had filed an application request for urgent interim and conservatory measures in relation to Frontline’s unilateral action in pursuing the termination of the Combination Agreement. Euronav requested to suspend such termination pending a determination on the merits pursuing primarily the specific performance of the Combination Agreement.
On January 30, 2023, the Company announced that it had filed an application request for arbitration on the merits in relation to Frontline’s unilateral action in pursuing the termination of the Combination Agreement.
On February 7, 2023, the Company received an arbitration decision in the context of its application request for urgent interim and conservatory measures in relation to Frontline’s unilateral action in pursuing the termination of the Combination Agreement. The emergency arbitrator dismissed Euronav’s request for provisional and interim measures on the basis of the specific and procedural rules applicable to the emergency proceedings and in particular a lack of urgency for Euronav in obtaining the requested interim and provisional measures.
Famatown Finance Limited (“Famatown”), a related-party to Frontline’s largest shareholder, has continued to accumulate shares of Euronav. The total of these transactions means that Famatown (together with Frontline), hold 50,426,478 shares in Euronav, or 24.99% of the shares outstanding (excluding treasury shares). The Supervisory Board of Euronav has reached out pro-actively to Famatown to understand its intentions and intends to maintain a constructive dialogue, as it pursues with all Euronav shareholders and stakeholders. CMB NV and its affiliates (“CMB”) jointly own 25% of the voting shares of Euronav (excluding treasury shares).
Special General Meeting
On January 16, 2023, the Company received a letter from CMB requesting that the Supervisory Board convenes a general meeting of Euronav (Special General Meeting), pursuing the replacement of all members of the Supervisory Board of Euronav.
On March 23, 2023, the Company organized the Special General Meeting. Shareholders voted to maintain independent directors Grace Reksten Skaugen, Anita Odedra, Carl Trowell. They approved a resolution proposed by CMB to terminate the mandates of the other independent Board members Anne-Hélène Monsellato and Steven Smith. In line with the Supervisory Board’s recommendations, shareholders also approved the appointments of four new directors: John Fredriksen
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and Cato H. Stonex, representing Famatown; and Marc Saverys and Patrick De Brabandere, representing CMB. The resulting composition of the new Supervisory Board is as follows:
•Grace Reksten Skaugen (independent)
•Anita Odedra (independent)
•Carl Trowell (independent)
•John Fredriksen (non-independent)
•Cato H. Stonex (non-independent)
•Marc Saverys (non-independent)
•Patrick De Brabandere (non-independent)
Inflation and Interest Rates Risk
We continue to see near-term impacts on our business due to elevated inflation in the United States of America, Eurozone and other countries, including ongoing global prices pressures in the wake of the war in Ukraine, driving up energy prices, commodity prices, which continue to affect our operating expenses. Interest rates have increased rapidly and substantially as central banks in developed countries raise interest rates in an effort to subdue inflation. The eventual implications of tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital for our business.
C. Research and Development, Patents and Licenses
Not applicable.
D. Trend information
The supply and demand patterns for ships continue to have the biggest impact on revenues. Generally, the global demand for oil transportation on ships is affected by the global demand for crude oil, which in turn is highly dependent on the state of the global economy. Economies across the world have now largely recovered from the outbreak of COVID-19, which brought about restrictions on economic activity, which in turn heavily affected global oil demand. Most forecasting agencies view 2022 oil demand to be in line with, if not above, pre-COVID levels. The tanker market are in recovery mode and along with oil demand, tanker demand has returned to similar levels to 2019. Platts currently estimates that demand for oil in 2022 to have averaged 100.5 million barrels per day, an increase of 2.2 million barrels compared to 2021.
The rate at which a change in oil demand impacts the demand for oil tankers depends not only on the nominal change in oil demand but also on how this oil is traded. For example, the market has continued to see a significant uptick in exports emanating from the US Gulf and other Atlantic based producers, most of which have been destined for China, India, and other Far Eastern customers. This oil travels a substantially longer distance than crude oil originating from the Arabian Gulf traveling to the same destination, and hence the transportation of this oil entails a larger employment of the crude tankers. The current trend is a rise in crude exports from the Atlantic basin combined with demand growth centered in the Far East providing longer employment times for crude tankers for the incremental barrel produced. Freight markets have been returned to positive territory and the outlook for the medium term is for this trend to continue. The trend for financing of shipping companies is likely to remain challenging with sustainability features and targets becoming more standard in all finance facilities.
The supply of tankers is influenced by the number of vessels delivered to the fleet, the number of vessels removed from the fleet (through recycling or conversion) and the number of vessels tied up in alternative employment such as storage. The tanker orderbook is at historically low levels, with the VLCC orderbook equal to 3% of the fleet and Suezmax orderbook equal to 2% of the current fleet. The fleet exit program has been measured over the past year, though several factors point to the possibility of more recycling in the near term. We expect regulatory requirements to push a number of ships out of the trading fleet as owners are faced with the alternative of putting their older vessels through costly upgrades to comply with new directives, such as the Ballast Water Management Convention. The requirement for vessels to now burn low sulfur fuel and adhere to strict EEXI requirements starting this year is among other factors that may cause ship owners to re-evaluate the longevity of some of their older tonnage.In addition, 15% of the VLCC fleet and 19% of the Suezmax fleet is currently at an age at which shipowners would naturally look at divesting the tonnage (18+ years old).
Our revenues are also affected by our strategy to employ certain of our vessels on time charters, which have a fixed income for a pre-set period of time as opposed to trading ships in the spot market where vessel earnings are heavily impacted by the supply and demand balance. Our management team continuously evaluates the value of both strategies and makes informed decisions on the chartering mix based on anticipated earnings, and through this process we aim to always maximize each vessel’s return
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We believe that in view of our strong funding and liquidity structure, as supported by a proven management team, strict capital discipline and an established dividend distribution policy, we are well positioned to weather the volatility of the sector.
Please see "Item 4. Information on the Company—B. Business Overview—Industry and Market Conditions.
E. Critical Accounting Estimates
Not applicable
F. Safe Harbour
Forward-looking information discussed in this Item 5 includes assumptions, expectations, projections, intentions and beliefs about future events. These statements are intended as "forward-looking statements." We caution that assumptions, expectations, projections, intentions and beliefs about future events may and often do vary from actual results and the differences can be material. Please see the section entitled "Cautionary Statement Regarding Forward-Looking Statements" in this annual report.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
Set forth below are the names, ages and positions of the members of our Supervisory Board or the Supervisory Board Members, and of our Management Board, or the Management Board Members as of the date of this annual report. Our Supervisory Board is elected annually on a staggered basis, and each member holds office for a term of maximum four years, until his or her term expires or until his or her death, resignation, removal or the earlier termination of his or her term of office. All members of the Supervisory Board whose term expires are eligible for re-election. Officers are appointed from time to time by our Supervisory Board and hold office until a successor is appointed or their engagement is terminated. The business address of each of our Supervisory Board Members and Management Board Members listed below is Euronav NV, De Gerlachekaai 20, 2000 Antwerp, Belgium.
Name | Age | Position | Date of Expiry of Current Term (for Supervisory Board) | |||||||||||||||||
Grace Reksten Skaugen | 69 | Chairwoman of the Supervisory Board | Annual General Meeting 2024 | |||||||||||||||||
Anita Odedra | 52 | Supervisory Board Member | Annual General Meeting 2023 | |||||||||||||||||
Carl Trowell | 54 | Supervisory Board Member | Annual General Meeting 2023 | |||||||||||||||||
Marc Saverys* | 69 | Supervisory Board Member | Annual General Meeting 2026 | |||||||||||||||||
Patrick De Brabandere* | 64 | Supervisory Board Member | Annual General Meeting 2026 | |||||||||||||||||
John Fredriksen* | 78 | Supervisory Board Member | Annual General Meeting 2026 | |||||||||||||||||
Cato H. Stonex* | 59 | Supervisory Board Member | Annual General Meeting 2026 | |||||||||||||||||
Hugo De Stoop1 | 50 | Chief Executive Officer, Management Board Member | ||||||||||||||||||
Lieve Logghe2 | 54 | Chief Financial Officer, Management Board Member | ||||||||||||||||||
Alex Staring3 | 57 | Chief Operating Officer, Management Board Member | ||||||||||||||||||
Egied Verbeeck4 | 48 | General Counsel, Management Board Member | ||||||||||||||||||
Brian Gallagher | 52 | Head of Investor Relations, Management Board Member | ||||||||||||||||||
Michail Malliaros | 49 | General Manager Euronav Ship Management Hellas, Management Board Member | ||||||||||||||||||
Sofie Lemlijn | 37 | Secretary General, Management Board Member |
1 Mr. Hugo De Stoop is acting as permanent representative of Hecho BV;
2 Ms. Lieve Logghe is acting as permanent representative of Tincc BV;
3 Mr. Alex Staring is acting as permanent representative of AST projects BV;
4 Mr. Egied Verbeeck is acting as permanent representative of Echinus BV;
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* At our Special General Meeting (the “SGM”) on March 23, 2023, shareholders approved the appointments of four new directors: Mr. Marc Saverys and Mr. Patrick De Brabandere, whose appointment to the Supervisory Board had been called for by CMB, one of our major shareholders, and Mr. John Fredriksen and Mr. Cato H. Stonex, whose appointment to the Supervisory Board had been called for by Famatown Finance Limited, one of our major shareholders. At the SGM, our shareholders also voted to reelect our independent directors Grace Reksten Skaugen, Anita Odedra and Carl Trowell and approved a resolution proposed by CMB to terminate the mandates of the other independent Board members, Anne-Hélène Monsellato and Steven Smith. Biographical information concerning the Members of the Supervisory Board and Management Board listed above is set forth below.
Supervisory Board Members
Grace Reksten Skaugen, chairwoman of our Supervisory Board Members, serves and has served on the Supervisory Board since the AGM on May 12, 2016 and is Chair of the Remuneration Committee and a member of the Corporate Governance and Nomination Committee, as well as of the Sustainability Committee. Ms. Reksten Skaugen is a Trustee member of The International Institute of Strategic Studies in London. From 2002 until 2015, she was a member of the Board of Directors of Statoil ASA. She is presently a Board member of Investor AB, Lundin Petroleum AB, and PJT Partners, a US boutique investment bank. In 2009 she was one of the founders of the Norwegian Institute of Directors, of which she continues to be a member of the Board. From 1994 to 2002 she was a Director in Corporate Finance in SEB Enskilda Securities in Oslo. She has previously worked in the fields of venture capital and shipping in Oslo and London and carried out research in microelectronics at Columbia University in New York. She has a doctorate in Laser Physics from Imperial College of Science and Technology, University of London. In 1993 she obtained an MBA from the BI Norwegian School of Management. The Company’s Supervisory Board has determined that Ms. Skaugen is considered “independent” under Rule 10A-3 promulgated under the Exchange Act and under the rules of the NYSE.
Anita Odedra has served on the Supervisory Board since her appointment at the AGM of May 2019, and is member of the Audit and Risk Committee and of the Sustainability Committee. Ms. Odedra brings 25 years’ experience in the energy industry, and is currently Chief Commercial Officer at Tellurian Inc. Prior roles include Executive Vice President at the Angelicoussis Shipping Group Ltd (ASGL), where she led the LNG and oil freight trading businesses and Vice President, Shipping & Commercial Operations for Cheniere. Ms. Odedra spent 19 years at BG Group, where she worked across all aspects of BG’s business including exploration, production, trading, marketing, business development, commercial operations and shipping; latterly holding the position of VP, Global Shipping. She began her career with ExxonMobil in 1993 as a Geoscience analyst. Ms. Odedra was on the Board for the Society of International Gas Tanker and Terminal Operators (SIGGTO) from 2013 to 2016 and was Chair of GIIGNL’s Commercial Study Group from 2010 to 2015. She completed her PhD in Rock Physics from University College London & University of Tokyo and has a BSc in Geology from Imperial College, University of London. The Company’s Supervisory Board has determined that Ms. Odedra is considered “independent” under Rule 10A-3 promulgated under the Exchange Act and under the rules of the NYSE.
Carl Trowell serves on the Supervisory Board since his appointment at the AGM of May 2019, and is a member of the Remuneration Committee and Chair of the Corporate Governance and Nomination Committee. Since June 2020, Carl Trowell is the Chief Executive Officer of Acteon Group Ltd., a marine energy and infrastructure services company serving the renewables, near-shore construction and oil and gas sectors. Prior to join Acteon, Carl served as Chief Executive Officer of Ensco PLC, a NYSE listed London-based offshore drilling company, since 2014, where he was also a member of the Board of Directors and took up the position of Executive Chairman in April 2019 upon closing of the merger with Rowan PLC (subsequently becoming Valaris PLC) until April 2020. Prior to this Carl had an international executive career with Schlumberger Ltd., holding the roles of President of the Integrated Project Management, the Production Management and the WesternGeco Seismic divisions of the company. Prior to these roles, he held a variety of international management positions within Schlumberger including corporate VP for Marketing and Sales and Managing Director North-Sea/Europe region. Mr Trowell began his career as a petroleum engineer with Royal Dutch Shell before joining Schlumberger. Carl has been a member of several energy industry advisory boards, he was formally a supervisory board member for EV Private Equity and served as a non-executive director on the board of Ophir Energy PLC from 2016 to 2019. Mr Trowell has a PhD in Earth Sciences from the University of Cambridge, a Master of Business Administration from the Open University (UK), and a Bachelor of Science degree in Geology from Imperial College London.
Marc Saverys serves on the Supervisory Board since the SGM of March 23, 2023 as a non-independent member. Marc Saverys holds a degree in law from the University of Ghent. In 1975 he joined Bocimar’s chartering department, the dry bulk division of the CMB Group. In 1985 he left Bocimar and became Managing Director of Exmar, which at that time became a diversified shipowning company, where he was in charge of the drybulk division. He became a director of CMB Group in 1991 and was Managing Director of CMB Group from April 1992 through September 2014 when he was appointed as chairman. During the period from 2003 through July 2014, he served as the Chairman of the Board of Euronav, and served as a Vice-Chairman of the Board of Euronav from July 2014 until December 2015.
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Patrick De Brabandere serves on the Supervisory Board since the SGM of March 23, 2023 as a non-independent member. He is the Chairman of the Audit and Risk Committee and a member of the Remuneration Committee and of the Corporate Governance and Nomination Committee. Patrick De Brabandere holds a degree in Applied Economic Sciences from UCL Louvain-la Neuve. He started his career at the audit firm Arthur Andersen. In 1987, he joined Almabo, the former holding company of the Saverys family, as Project Controller. He became CFO of CMB NV in 1998 and was appointed director of CMB NV in 2002. In 2003, following the partial demerger of Exmar NV from CMB NV, he became director and CFO of Exmar NV, then COO. In 2020 he became CFO of Exmar NV again until June 2022. He currently is a director of CMB NV and he also sits on the board of CMB.TECH NV since April 2021.
John Fredriksen serves on the Supervisory Board since the SGM of March 23, 2023 as a non-independent member. John Fredriksen is a Norwegian-born Cypriot businessman based in London. Trusts settled by Mr. Fredriksen for the benefit of his close family members control significant interests in shipping, offshore, property, fish farming and other industries where the most known shipping interests are the publicly listed companies Frontline Plc, Golden Ocean Ltd, SFL Corp. Ltd, Flex LNG Ltd and Avance Gas ASA. He has over the last seven decades become one of the most prominent figures in the shipping industry with the key philosophy being efficient and transparent business operations focused on generating shareholder returns.
Cato H. Stonex serves on the Supervisory Board since the SGM of March 23, 2023 as a non-independent member. He is a member of the Remuneration Committee and a member of the Corporate Governance and Nomination Committee. Mr. Stonex has had a long career in fund management, initially with J Rothschild Investment Management. He was a founder partner of institutional equity portfolio firm Taube Hodson Stonex, where he spent 20 years, after which he established Partners Investment Company. He is a founder and director of Obotritia and has been a director of Axiare and Arima since 2016. Mr. Stonex holds a degree from the London School of Economics and Political Science, where he served as a governor and is now an emeritus governor. He has chaired LSE’s Development Committee, and is now an advisor to the Endowment Investment Committee.
Management Board Members
Hugo De Stoop serves on the Management Board as Chief Executive Officer as of May 2019. During 2020, he took up the role of Chair of the Sustainability Committee. Mr. De Stoop served as our Chief Financial Officer since 2008, after serving as our Deputy Chief Financial Officer and Head of Investor Relations beginning in 2004. Mr. De Stoop has been a member of our Management Board since 2008. Mr. De Stoop started his career in 1998 with Mustad International Group, an industrial group with over 30 companies located in five continents where he worked as a project manager on various assignments in the United States, Europe and Latin America, in order to integrate recently acquired subsidiaries. In 1999, Mr. De Stoop founded First Tuesday in America, the world's largest meeting place for high tech entrepreneurs, venture capitalists and companies and helped develop the network in the United States and in Latin America and, in 2001, was appointed member of the Board of Directors of First Tuesday International. In 2000, he joined Davos Financial Corp., an investment manager for UBS, specializing in Asset Management and Private Equity, where he became an Associate and later a Vice President in 2001. He conducted several transactions, including private placement in public equities and investments in real estate. Mr. De Stoop studied in Oxford, Madrid and Brussels and graduated from ULB (École Polytechnique) with a Master of Science in engineering. He also holds an MBA from INSEAD.
Lieve Logghe joined Euronav as Chief Financial Officer on January 1, 2020, succeeding Hugo De Stoop who took on the role of CEO. Ms. Logghe is member of the Euronav Management Board. She started her career in international finance with an initial 3-year period as Audit Senior with PriceWaterhouseCoopers in Belgium. In 1995 Ms. Logghe joined Sidmar (currently ArcelorMittal Belgium) and she progressively moved through the finance organization in different European geographies after the merger between Arbed, Usinor, Aceralia and Mittal to her position of Vice President CFO for ArcelorMittal Flat Europe in Luxemburg. As of July 2018, she was VP Head of Energy for the ArcelorMittal Europe perimeter. In this role, she extended her expertise in the fields of sustainability and was also confronted with the numerous challenges the industry faced in their transition to embrace the ESG principles. Ms. Logghe graduated from University of Brussels with a Master in Economics, from Vlerick School for Management with a Master in Accounting and from EHSAL Management School with an expertise in Fiscal Sciences. She is a Certified Internal Auditor (IIA) since 1997.
Alex Staring serves and has served as our Chief Operating Officer since 2005 and as of July 2010 he is also in charge of the offshore segment. Captain Staring has been a Director of Euronav Hong Kong Ltd. since 2007, a Director of Euronav SAS and Euronav Ship Management since 2002 and a Director of Euronav Luxembourg SA since 2000. In 2000, international shipping companies, AP Moller, Euronav, Frontline, OSG, Osprey Maritime and Reederei "Nord" Klaus E Oldendorff consolidated the commercial management of their VLCCs by operating them in a pool, Tankers International, of which Captain Staring became Director of Operations. In 1988, Captain Staring gained his master's and chief engineer's license and spent the majority of his time at sea on Shell Tankers and CMB tankers, the last three years of which he attained the title of Master. From 1997 to 1998, Captain Staring headed the SGS S.A. training and gas centre. In 1998, Captain Staring rejoined CMB and moved to London to head the operations team at their subsidiary, Euronav UK. Captain Staring
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graduated with a degree in Maritime Sciences from the Maritime Institute in Flushing, The Netherlands and started his career at sea in 1985.
Egied Verbeeck serves and has served as General Counsel of the Company since 2009 and became a member of the Management Board of the Company in January 2010. Mr. Verbeeck is also a member of the Sustainability Committee. From 2006 until June 2014, Mr. Verbeeck served as Secretary General of the Company. Prior to joining Euronav he was a managing associate at Linklaters De Bandt from 1999-2005. Mr. Verbeeck has been a Director of Euronav Ship Management SAS since 2012, a Director of Euronav Hong Kong Ltd. since 2007 and a Director of Euronav Luxembourg S.A. since 2008. Mr. Verbeeck graduated in law from the Catholic University of Louvain in 1998. He also holds a Master Degree in international business law from Kyushu University (Japan) as well as a postgraduate degree in corporate finance from the Catholic University of Louvain.
Brian Gallagher serves and has served as Head of Investor Relations of the Company since March 2014 and joined the Euronav Management Board on January 1, 2019. Mr. Gallagher is also a member of the Sustainability Committee. Mr. Gallagher began his fund management career at the British Coal Pension fund unit, CIN Management, before moving to Aberdeen Asset Management in 1996. Managing and marketing a range of UK investment products Mr. Gallagher then progressed to Murray Johnstone in 1999 and then was headhunted by Gartmore Investment Management in 2000 to manage a range of UK equity income products. In 2007 he then set up a retail fund at UBS Global Asset Management before switching into Investor Relations as IR Director at APR Energy in 2011. Mr. Gallagher graduated in Economics from Birmingham University in 1992.
Michail Malliaros joined Euronav Ship Management Hellas in 2005 and was appointed as General Manager Ship Management Hellas in June 2022. Mr. Malliaros started as Chief Mate and later as Marine Master, after which he became HSQE Superintendent in 2012, holding also the roles of Deputy Designated Person Ashore and Deputy Company Security Officer. In 2015, he was appointed as General Manager to the Euronav Singapore Office at its inception and held this position until 2018. From 2017 onwards, Mr. Malliaros was assigned with the role of Fleet Personnel Manager. Prior to Euronav, Michail held the position of Marine Operator and gained seagoing experience in various shipping companies. He graduated from the Public Academy of Merchant Marine of Aspropyrgos as a Second Officer in 1996. He is an Associate Member of the Hellenic Marine Environment Protection Association (HELMEPA), a member of Intertanko Nautical Subcommittee, a Fellow of the Institute of Chartered Shipbrokers and a Chartered Shipbroker.
Sofie Lemlijn joined Euronav in 2019 and was appointed Senior Legal Counsel. Since 2022, she also picked up the role of Secretary General. Before joining Euronav, she worked almost 10 years for the privately owned Dutch Ship-owner Vroon where she took up various roles (i.e. Legal Counsel, Business Development Analyst and Sale & Purchase Manager) and therefore gained excessive experience in the various fields of the Shipping industry accordingly. Sofie Lemlijn graduated as Master of Laws (LLM) at the Catholic University of Leuven in 2008 after which she obtained two additional Masters, i.e. Intellectual Property Law at the Catholic University of Brussels in 2009 and Shipping & Transport Law at the University of Antwerp in 2011. In 2019 she graduated as executive Master of Business Administration (MBA) at the Vlerick Business School.
B. Compensation
B.1. Compensation of the Supervisory Board Members
The compensation of our Supervisory Board is determined on the basis of four regular meetings of the full board per year. The actual amount of remuneration is determined by the Remuneration Committee and approved at the annual general meeting and is benchmarked periodically with Belgian listed companies and international peer companies.
The remuneration in 2022 of the members of the Supervisory Board is reflected in the table below:
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Name | Fixed fee | Attendance fee Board | Audit and Risk committee | Attendance fee Audit and Risk Committee | Remuneration Committee | Attendance fee Remuneration Committee | Corporate Governance and Nomination Committee | Attendance fee Corporate Governance and Nomination Committee | Sustainability committee | Attendance fee Sustainability Committee | Total | |||||||||||||||||||||||||||
Grace Reksten Skaugen | €135,000 | €40,000 | €0 | €0 | €5,625 | €20,000 | €5,000 | €20,000 | €5,000 | €20,000 | €250,625 | |||||||||||||||||||||||||||
Carl Steen | €71,667 | €10,000 | €5,000 | €5,000 | €1,250 | €5,000 | €1,250 | €5,000 | €0 | €104,167 | ||||||||||||||||||||||||||||
Anne-Hélène Monsellato | €60,000 | €40,000 | €40,000 | €20,000 | €0 | €0 | €0 | €0 | €0 | €0 | €160,000 | |||||||||||||||||||||||||||
Anita Odedra | €60,000 | €40,000 | €20,000 | €20,000 | €0 | €0 | €0 | €0 | €5,000 | €20,000 | €165,000 | |||||||||||||||||||||||||||
Carl Trowell | €60,000 | €40,000 | €0 | €0 | €5,000 | €20,000 | €7,500 | €20,000 | €0 | €0 | €152,500 | |||||||||||||||||||||||||||
Steven Smith | €45,000 | €30,000 | €15,000 | €15,000 | €5,625 | €15,000 | €3,750 | €15,000 | €0 | €0 | €144,375 | |||||||||||||||||||||||||||
Total | €431,667 | €200,000 | €80,000 | €60,000 | €17,500 | €60,000 | €17,500 | €60,000 | €10,000 | €40,000 | €976,667 |
B.2. Compensation of the Management Board Members
The fixed and variable remuneration in 2022 of the members of the Management Board is reflected in the table below:
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Remuneration of Management Board Members for the previous financial year
Name | Position | Fixed remuneration | One-year variable remuneration (1) | Extra ordinary items | Pension | Total Remuneration | Proportion of fixed remuneration | Proportion of variable remuneration | ||||||||||||||||||||||||
Base Remuneration | Director Fees | Fringe benefits | ||||||||||||||||||||||||||||||
De Stoop Hugo, represented by HECHO Management | CEO | €314,496 | €292,000 | €17,142 | €334,875 | €958,513 | 65.06% | 34.94% | ||||||||||||||||||||||||
Staring Alex, represented by AST Projects | COO | €255,732 | €295,000 | €0 | €172,951 | €723,683 | 76.10% | 23.90% | ||||||||||||||||||||||||
Verbeeck Egied, represented by ECHINUS BV | General Counsel | €219,960 | €180,000 | €17,142 | €174,135 | €591,237 | 70.55% | 29.45% | ||||||||||||||||||||||||
Logghe Lieve, represented by TINCC BV | CFO | €372,500 | €90,000 | €0 | €202,134 | €664,634 | 69.59% | 30.41% | ||||||||||||||||||||||||
Gallagher Brian | IR Manager | £121,917 | £0 | £0 | ||||||||||||||||||||||||||||
Bourboulis Stamatis | GM Hellas | €365,625 | €0 | €11,730 | €48,582 | €18,281 | €444,218 | 89.06% | 10.94% |
(1) Only takes into account the remuneration under the STIP, for information in respect of remuneration under the Company’s Long Term Incentive Plans (LTIPs) please refer to table under Item 6. E. Share Ownership.
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Remuneration of Management Board Members for the reported financial year
Name | Position | Fixed remuneration | One-year variable remuneration (1) | Extra ordinary items (2) | Pension | Total Remuneration | Proportion of fixed remuneration | Proportion of variable remuneration | ||||||||||||||||||||||||
Base Remuneration | Director Fees | Fringe benefits | ||||||||||||||||||||||||||||||
De Stoop Hugo, represented by HECHO Management | CEO | €314,496 | €292,000 | €17,142 | €662,250 | €1,285,888 | 48.50% | 51.50% | ||||||||||||||||||||||||
Staring Alex, represented by AST Projects | COO | €255,732 | €295,000 | €0 | €513,906 | €1,064,638 | 51.73% | 48.27% | ||||||||||||||||||||||||
Verbeeck Egied, represented by ECHINUS BV | General Counsel | €219,960 | €180,000 | €17,142 | €430,463 | €847,565 | 49.21% | 50.79% | ||||||||||||||||||||||||
Logghe Lieve, represented by TINCC BV | CFO | €372,500 | €90,000 | €0 | €463,575 | €627,600 | €1,553,675 | 70.16% | 29.84% | |||||||||||||||||||||||
Gallagher Brian | IR Manager | £190,000 | £0 | £0 | £133,921 | £7,917 | £331,838 | 59.64% | 40.36% | |||||||||||||||||||||||
Bourboulis Stamatis | GM Hellas | €233,010 | €0 | €0 | €0 | €182,000 | €18,281 | €433,291 | 100.00% | —% |
(1) Only takes into account the remuneration under the STIP, for information in respect of remuneration under the Company’s Long Term Incentive Plans (LTIPs) please refer to table under Item 6. E. Share Ownership.
(2) Amounts related to Mr. Bourboulis's retirement compensation as per Greek law and Ms. Logghe's signing bonus.
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C. Board Practices
Effective as of February 20, 2020, Euronav's governance structure was revised to adopt a two tier governance model. As of February 20, 2020, the body formerly known as the Board of Directors was converted into a Supervisory Board and the former Executive Committee ceased to exist and was replaced by the existing Management Board, in accordance with relevant provisions of the Belgian Code of Companies and Associations. For the date of expiration of the current term of office of each member of our Supervisory Board, please see “Item 6. Directors, Senior Management and Employees – A. Directors and Senior Management.”
Our Supervisory Board currently consists of seven members, three of which are considered "independent" under Rule 10A-3 promulgated under the Exchange Act and under the rules and regulations of the NYSE: Ms. Skaugen, Ms. Odedra and Mr. Trowell.
Our Supervisory Board has established the following committees, and may, in the future, establish such other committees as it determines from time to time:
Audit and Risk Committee
Our Audit and Risk Committee consists of three members (all three members of whom are independent under the Exchange Act and NYSE rules and regulations): Mr. De Brabandere, as Chair, Ms. Skaugen and Ms. Odedra. Our Audit and Risk Committee is responsible for ensuring that we have an independent and effective internal and external audit system. Additionally, the Audit and Risk Committee advises the Supervisory Board in order to achieve its supervisory oversight and monitoring responsibilities with respect to financial reporting, internal controls and risk management. Our Supervisory Board has determined that Mr. De Brabandere qualifies as an "audit committee financial expert" for purposes of SEC rules and regulations.
Corporate Governance and Nomination Committee
Our Corporate Governance and Nomination Committee consists of five members: Mr. Trowell, as Chair, Ms. Skaugen, Ms. Odedra, Mr. De Brabandere and Mr. Stonex. Our Corporate Governance and Nomination Committee is responsible for evaluating and making recommendations regarding the size, composition and independence of the Supervisory Board and the Management Board, including the recommendation of new Supervisory Board members and the appointment of new Management Board members.
Remuneration Committee
Our Remuneration Committee consists of five members: Ms. Skaugen, as Chair, Mr. Trowell, Ms. Odedra, Mr. De Brabandere and Mr. Stonex. Our remuneration committee is responsible for assisting and advising the Supervisory Board on determining compensation of its members, members of the Management Board and other employees and administering our compensation programs.
Sustainability Committee
Our Sustainability Committee (formerly known as ESG & Climate Committee) consists of five members: Mr. De Stoop, as Chair, Ms. Skaugen, Ms. Odedra, Mr. Verbeeck, Mr. Gallagher and Mr. Bourboulis was a member until July 4, 2022 at which time he retired. The Sustainability Committee is an advisory body to the Supervisory Board. The main role of the Sustainability Committee is to assist and advise the Supervisory Board in monitoring the performance as well as key risks and opportunities that the Company faces in relation to environmental, social and climate matters. In this respect the Sustainability Committee will oversee the Company’s conduct and performance on ESG matters as well as its reporting thereon, in order to inform the Supervisory Board and make recommendations it deems appropriate on any area within its remit where action or improvement is needed.
D. Employees
As of December 31, 2022, we employed approximately 2,946 (2021: 3,147 and 2020: 3,720) people, of which:
•approximately 198 onshore employees (2021: 193 and 2020: 220) based in our offices in Greece, Belgium, United Kingdom, France, Switzerland, Hong Kong, Geneva, and Singapore, and
•approximately 2,752 seagoing officers and crew (2021: 2,954 and 2020: 3,500).
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Some of our employees are represented by collective bargaining agreements. As part of our obligations in some of these agreements, we are required to contribute certain amounts to retirement funds and pension plans and have restricted ability to dismiss certain employees.
In addition, many of these represented individuals are working under agreements that are subject to salary negotiation. These negotiations could result in higher personnel costs, other increased costs or increased operating restrictions that could adversely affect our financial performance.
We consider our relationships with the various unions as satisfactory. As of the date of this annual report, there are no ongoing salary negotiations or material outstanding issues.
E. Share Ownership
The ordinary shares beneficially owned by the members of the Supervisory Board and Management Board and senior managers are disclosed in "Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders.
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Equity Incentive Plans
![EquityIncentivePlans.jpg](https://capedge.com/proxy/20-F/0001604481-23-000004/eurn-20221231_g31.jpg)
(1) validity of the plan
(2) retired in the course of 2022
2015 Long Term Incentive Plan
In 2015, our Board of Directors adopted a long-term incentive plan, pursuant to which key management personnel are eligible to receive options to purchase ordinary shares at a predetermined price and restricted stock units (RSUs) that represent the right to receive ordinary shares or payment of cash in lieu thereof, in accordance with the terms of the plan. On February 12, 2015, we granted options to purchase an aggregate of 236,590 ordinary shares at €10.0475 per share, subject to customary vesting provisions, and 65,433 RSUs which vested automatically on the third anniversary of the grant.
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In the course of 2022, all beneficiaries have exercised their stock options. The company has paid each beneficiary a cash amount, equal to the number of options totals (closing price on the date of exercise minus the exercise price), as reflected in the table above.
The following table provides a summary of the number of options that have been granted pursuant to this plan, together with the amount of options that have vested and that have been exercised as of the date of this annual report:
Options Granted | Options Vested | Options Exercised | |||||||||
Former CEO | 80,518 | 80,518 | 80,518 | ||||||||
Former CFO | 58,716 | 58,716 | 58,716 | ||||||||
COO | 54,614 | 54,614 | 54,614 | ||||||||
General Counsel | 42,742 | 42,742 | 42,742 |
2018 Long Term Incentive Plan
In February 2018, our Board of Directors adopted a long-term incentive plan, or the 2018 Long Term Incentive Plan, pursuant to which members of the Management Board as well as the Head of Investor Relations, Research & Communications are eligible to receive phantom stock unit grants. References in the tabular disclosure immediately under the heading “Item 6.E.—Share Ownership-Equity-Incentive Plans” to “LTIP 2018” are to the 2018 Long Term Incentive Plan. Other senior employees may in the future be invited to participate in this long-term incentive plan by the Supervisory Board upon recommendation of the Remuneration Committee. Upon the vesting of each phantom stock unit and subject the terms of the 2018 Long Term Incentive Plan, each phantom stock unit grants the holder a conditional right to receive an amount of cash equal to the fair market value of one share of the Company on the settlement date. On February 16, 2018, we granted 154,432 phantom stock units to certain of our executive officers. The phantom stock units will mature one-third each year on the second, third, fourth anniversary of the award. All of the beneficiaries have accepted the phantom stock units granted to them. The number of phantom stock units granted was calculated on the basis of a share price of €7.2368 which equals the weighted average of the share price of the three days preceding the announcement of our preliminary full year results of 2017. The following table provides a summary of the number of phantom stock units that were granted pursuant to this plan and the amount that has vested as of the date of this annual report.
Phantom Stock Units Granted | Phantom Stock Units Vested | |||||||
Former CEO | 46,652 | N/A* | ||||||
Former CFO | 37,620 | 37,620 | ||||||
COO | 36,480 | 36,480 | ||||||
General Counsel | 27,360 | 27,360 | ||||||
Head of Investor Relations | 6,319 | 6,319 |
* The former CEO waived further entitlements as a result of termination of his employment, announced by press release on February 4, 2019.
Transaction Based Incentive Plan
On January 12, 2019, the members of the Executive Committee and certain other senior employees were granted a transaction based incentive award in the form of 1,200,000 phantom stock units or the Transaction Based Incentive Plan. References in the tabular disclosure immediately under the heading “Item 6.E.—Share Ownership-Equity-Incentive Plans” to “TBIP” are to the Transaction Based Incentive Plan. The vesting and settlement of the awards under the Transaction Based Incentive Plan is spread over a timeframe of five years. The phantom stock awarded matures in four tranches as follows:
•the first tranche of 12% vests when the Company's share price reaches $12;
•the second tranche of 19% vests when the Company's share price reaches $14;
•the third tranche of 25% vests when the Company's share price reaches $16; and
•the fourth tranche of 44% vests when the Company's share price reaches $18.
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Phantom Stock Units Granted | Phantom Stock Units Vested | |||||||
Former CEO | 400,000 | N/A* | ||||||
Former CFO | 300,000 | 300,000 | ||||||
COO | 150,000 | 150,000 | ||||||
General Counsel | 170,000 | 170,000 | ||||||
Head of Investor Relations | 80,000 | 80,000 | ||||||
General Manager Hellas | 50,000 | 50,000 |
* The former CEO waived further entitlements as a result of termination of his employment, announced by press release on February 4, 2019.
2019 Long Term Incentive Plan
In December 2019, the Supervisory Board, upon recommendation of the Remuneration Committee, has adopted a variable compensation structured as a long term incentive plan comprised of restricted stock units, or RSUs for certain of our Management Board Members. Each RSU grants the applicable holder of the RSU, or the RSU Holder a conditional right to receive one (1) ordinary share for free upon vesting of the RSU.
The maximum value at grant:
•In the case of the CEO, 100% of absolute base salary for the CEO; and
•In the case of the other Management Board Members, ranges from 30% to 75% of absolute base salary of such Members.
The vesting is subject for:
•75% to a relative total shareholder return (TSR) performance measurement compared to a peer group over a three year period. Each yearly measurement to be worth 1/3rd of 75% of the award; and
•25% to an absolute TSR of the Company’s Shares measured each year for 1/3rd of 25% of the award.
The RSUs held by an RSU Holder may vest in accordance with the principles of the plan during a period of three years and will only be acquired by the RSU holder after three years.
Restricted Stock Units Granted | Restricted Stock Units Vested | |||||||
CEO | 67,069 | 46,468 | ||||||
COO | 39,034 | 27,044 | ||||||
General Counsel | 21,797 | 15,102 | ||||||
Head of Investor Relations | 9,677 | 6,705 | ||||||
Former General Manager Hellas | 14,769 | 10,232 |
2020 Long Term Incentive Plan
On March 24, 2020 the Supervisory Board, upon recommendation of the Remuneration Committee, has adopted a variable compensation structured as a long term incentive plan comprised of RSUs for certain of our Management Board Members. Each RSU grants the RSU Holder a conditional right to receive one (1) ordinary shares for free upon vesting of the RSU.
The maximum value at grant:
•In the case of the CEO and CFO is 100% of absolute base salary; and
•In the case of the other Management Board Members, ranges from 30% to 75% of absolute base salary of such Members.
The vesting is subject for:
•75% to a relative total shareholder return (TSR) performance measurement compared to a peer group over a three year period. Each yearly measurement to be worth 1/3rd of 75% of the award; and
•25% to an absolute TSR of the Company’s Shares measured each year for 1/3rd of 25% of the award.
The RSU held by an RSU Holder may vest in accordance with the plan during a period of three years and will only be acquired by the RSU holder after three years.
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Restricted Stock Units Granted | Restricted Stock Units Vested | |||||||
CEO | 48,856 | 25,747 | ||||||
COO | 28,434 | 14,985 | ||||||
General Counsel | 15,878 | 8,368 | ||||||
CFO | 34,199 | 18,023 | ||||||
Head of Investor Relations | 6,267 | 3,303 | ||||||
Former General Manager Hellas | 10,758 | 5,669 |
2021 Long Term Incentive Plan
On March 25, 2022 the Supervisory Board, upon recommendation of the Remuneration Committee, has adopted a variable compensation structured as a LTIP Grant composed out of RSUs. Each RSU grants the RSU Holder a conditional right to receive one (1) Share for free upon vesting of the RSU.
The maximum value at grant:
•In the case of the CEO and CFO is 100% of absolute base salary; and
•In the case of the other Management Board members, ranges from 30 to 75% of their respective absolute base salary.
The vesting is subject for:
•75% to a relative Total Shareholder Return performance measurement compared to a peer group over a three year period. Each yearly measurement to be worth 1/3rd of 75% of the award; and
•25% to an absolute Total Shareholder Return of the Company’s Shares measured each year for 1/3 of 25% of the award.
The RSUs vested will only be acquired by the RSU holder as of the third anniversary. The RSU held by an RSU Holder may vest in accordance with the plan during a period of three years and will only be acquired by the RSU holder after three years.
Restricted Stock Units Granted | Restricted Stock Units Vested | |||||||
CEO | 65,355 | 21,769 | ||||||
COO | 38,037 | 12,669 | ||||||
General Counsel | 21,240 | 7,075 | ||||||
CFO | 45,749 | 15,238 | ||||||
Head of Investor Relations | 8,614 | 2,869 | ||||||
Former General Manager Hellas | 14,391 | 4,793 |
2022 Long Term Incentive Plan
On March 25, 2022 the Supervisory Board, upon recommendation of the Remuneration Committee, has adopted a variable compensation structured as a LTIP Grant composed out of RSUs. Each RSU grants the RSU Holder a conditional right to receive one (1) Share for free upon vesting of the RSU.
The maximum value at grant:
•In the case of the CEO and CFO is 100% of absolute base salary; and
•In the case of the other Management Board members, ranges from 30 to 75% of their respective absolute base salary.
The vesting is subject for:
•75% to a relative Total Shareholder Return performance measurement compared to a peer group over a three year period. Each yearly measurement to be worth 1/3rd of 75% of the award; and
•25% to an absolute Total Shareholder Return of the Company’s Shares measured each year for 1/3 of 25% of the award.
The RSUs vested will only be acquired by the RSU holder as of the third anniversary. The RSU held by an RSU Holder may vest in accordance with the plan during a period of three years and will only be acquired by the RSU holder after three years.
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Restricted Stock Units Granted | Restricted Stock Units Vested | |||||||
CEO | 71,003 | — | ||||||
COO | 27,549 | — | ||||||
General Counsel | 15,384 | — | ||||||
CFO | 33,135 | — | ||||||
Head of Investor Relations | 15,951 | — |
F. DISCLOSURE OF A REGISTRANT’S ACTION TO RECOVER ERRONEOUSLY AWARDED
COMPENSATION.
Not applicable
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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
A. Major shareholders
The following table sets forth information regarding beneficial ownership of our ordinary shares for (i) owners of more than five percent of our ordinary shares and (ii) our directors and officers as a group, of which we are aware as of April 1, 2023.
Shareholder | Number | Percentage (1) | ||||||||||||
Famatown Finance Ltd* | 39,736,865 | 18.06 | % | |||||||||||
Frontline Plc* | 13,664,613 | 6.21 | % | |||||||||||
Euronav (treasury shares) | 18,241,181 | 8.29 | % | |||||||||||
CMB NV | 50,425,600 | 22.92 | % | |||||||||||
Directors and Executive Officers as a Group ** | — | — |
*C.K. Limited is the trustee of two trusts (the “Trusts”) settled by Mr. John Fredriksen. The Trusts indirectly hold all of the shares of Greenwich Holdings Limited, Famatown Finance Limited and Hemen Holding Limited. Accordingly, C.K. Limited, as trustee, may be deemed to beneficially own the ordinary shares that are beneficially owned by Greenwich Holdings Limited and Hemen Holding Limited and owned by Famatown Finance Limited and Frontline plc. The beneficiaries of the Trusts are members of Mr. Fredriksen’s family. Mr. Fredriksen is neither a beneficiary nor a trustee of either Trust. Therefore, Mr. Fredriksen has no economic interest in such ordinary shares and Mr. Fredriksen disclaims any control over such ordinary shares, save for any indirect influence he may have with C.K. Limited, as the trustee of the Trusts, in his capacity as the settlor of the Trusts.
**Individually each owning less than 1.0% of our outstanding ordinary shares.
(1)Calculated based on 220,024,713 ordinary shares outstanding as of April 1, 2023 (of which the Company holds 18,241,181 ordinary shares in treasury).
As of April 1, 2023, our issued share capital amounted to $239,147,505.82 divided into 220,024,713 ordinary shares with no par value (of which the Company holds 18,241,181 shares in treasury). On the same date, 60,594,267 of our shares, our U.S. Shares, representing approximately 28% of our share capital, were reflected on the U.S. Register, and are held by nine holders including CEDE & CO, acting as nominee holder for the Depository Trust Company.
In accordance with a May 2, 2007 Belgian law relating to disclosure of major holdings in issuers whose shares are admitted to trading on a regulated market and containing miscellaneous provisions requiring investors in certain publicly-traded corporations whose investments reach certain thresholds to notify the Company and the Belgian Financial Services and Markets Authority, or the FSMA, of such change as soon as possible and in any event within four trading days. The minimum disclosure threshold is 5% of the Company's issued voting share capital. Further details can be found on the website of the FSMA: https://www.fsma.be/en/shareholding-structure-0. The information contained on this website does not form a part of this annual report.
To our knowledge, we are neither directly nor indirectly owned nor controlled by any other corporation, by any government or by any other natural or legal person severally or jointly. Pursuant to Belgian law and our organizational documents, to the extent that we may have major shareholders at any time, we may not give them different voting rights from any of our other shareholders.
As of the date of this report, to our knowledge, there are no arrangements which may at a subsequent date result in a change in control of our Company.
B. Related party transactions
Equity Incentive Plans and Ordinary Shares Issued Thereunder
See “Item 6.A Directors, Senior Management and Employees - E.Share Ownership - Equity Incentive Plans.”
Loan Agreements of Our Joint Ventures
For a description of our Joint Venture Loan Agreements, please see "Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Joint Venture Credit Facilities (at 50% economic interest)".
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Guarantees
For a description of our guarantees, please see "Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Guarantees" and our consolidated financial statements included herein.
Properties
We sublease office space in our London, United Kingdom office, through our subsidiary Euronav (UK) Agencies Limited, pursuant to a sublease agreement, dated September 25, 2014, with Tankers (UK) Agencies Limited, a joint venture with International Seaways, Inc. (INSW). This sublease expires on April 27, 2023.
Both Euronav NV and Euronav Ship Management SAS (Antwerp Branch) lease office space in Antwerp from MCA Facilities NV, a 100% subsidiary of CMB NV, pursuant to a lease agreement dated September 1, 2021. This lease expires on September 1, 2024.
Commercial agreements
Since December 2019, Euronav NV entered into several supply agreements with CMB NV to supply Residual Marine Fuel Oil (RMG380) with a maximum of 0.5% sulfur in Linggi, Malaysia. Since July 2020, similar supply agreements were also agreed with Bocimar Hong Kong Ltd and Bocimar International NV. The fuel is sold on exchange where CMB NV, Bocimar Hong Kong Ltd and Bocimar International NV return the purchased fuel back to Euronav NV in other markets. The exchange is set to match volume and dollar amounts where any differences are settled at the end of the quarter.
C. Interests of experts and counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
See "Item 18. Financial Statements."
Legal Proceedings
The Group is currently involved in two litigations. If applicable, the necessary provisions related to legal and arbitration proceedings are recorded in accordance with the accounting policy as described in Note 1.17.
The first claim relates to the Suezmax vessel Sienna. The claim was submitted on January 15, 2021 by Unicredit Bank in London with the High Court of Justice of England and Wales. The claim relates to an alleged misdelivery of 101,809 metric tons of low sulfur fuel oil that was transported by the Suezmax vessel Sienna. The charterer, Gulf Petrochem FZC, a company of GP Global, instructed the vessel to discharge the cargo at Sohar without presentation of the bill of lading but against a letter of indemnification issued by the charterer as is customary practice in the crude oil shipping industry. Unicredit bank, who had financed the cargo for an amount of $26,367,200 and allegedly had become the holder of the bill of lading, was not repaid in accordance with the financing arrangements agreed with Gulf Petrochem FZC. As alleged holder of the bill of lading, Unicredit Bank is now claiming that amount of $26,367,200 together with interest from Euronav NV. The case went to Trial in London in March 2022 and judgement was handed down in April 2022. Euronav were successful in defending the claims which were dismissed with costs awarded to Euronav. Unicredit however filed an application and received permission to appeal the decision of the Commercial Court judge, Mrs Justice Moulder. The Court of Appeal hearing was held on March 29, 2023. Management believes that it has followed well established standard working practices and that it has valid defense arguments. Based on an external legal advice, management believes that it has strong arguments that the risk of an outflow is less than probable and therefore no provision is recognized.
The second claim relates to advisory services provided by RMK Maritime (RMK). RMK have commenced legal proceedings in the London High Court against Euronav seeking US$12,993,720 in damages in relation to unpaid advisory services provided by RMK to Euronav concerning its merger with Gener8 in 2016 and 2017. RMK are trying to argue that they are entitled to additional compensation beyond the sums they agreed to accept in a written Advisory Agreement. RMK issued the legal proceedings on September 30, 2022, Euronav’s Defense was served on December 29, 2022 and RMK’s Reply was due on February 16, 2023, but no reply was served. On May 5, 2023, a case management conference (CMC) hearing is scheduled.
Management believes that RMK faces a heavy burden to persuade a Court that they should be entitled to additional remuneration in view of the clear terms of the written Advisory Agreement. Based on an external legal advice, management
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believes that it has strong arguments that the risk of an outflow is less than probable and therefore no provision is recognized.
We are not involved in any other legal proceedings which we believe may have, or have had, a significant effect on our business, financial position and results of operations or liquidity, nor are we aware of any other proceedings that are pending or threatened which may have a significant effect on our business, financial position, results of operations or liquidity. From time to time, we may be subject to other legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. We expect that these claims would be covered by insurance, subject to customary deductibles. Any such claims, even if lacking merit, could result in the expenditure of managerial resources and materially adversely affect our business, financial condition and results of operations.
Capital Allocation Policy & Dividend Policy
Our Supervisory Board may from time to time, declare and pay cash distributions in accordance with our Coordinated Articles of Association and applicable Belgian law. The declaration and payment of distributions, if any, will always be subject to the approval of either our Supervisory Board (in the case of “interim dividends”) or of the shareholders (in the case of “regular dividends” (intermediary dividends) or "repayment of share premium".
Our current distribution policy is the following: we intend to pay a minimum fixed distribution of at least $0.12 in total per share per year provided (a) the Company has in the view of the Supervisory Board, sufficient balance sheet strength and liquidity combined (b) with sufficient earnings visibility from fixed income contracts. In addition, if the results per share are positive and exceed the amount of the fixed distribution, that additional income will be allocated to either: additional cash distributions, share buy-back, accelerated amortization of debt or the acquisition of vessels which the Supervisory Board considers at that time to be accretive to shareholders’ value.
Additional guidance to the above stated policy was applied to our final results for the year ended on December 31, 2019 and to our quarterly results as from 2020 onwards, as provided by our Supervisory Board by way of a press release dated January 9, 2020, as follows: Each quarter the Company will target to return 80% of net income (including the fixed element of $0.03 per quarter) to shareholders.
•This return to shareholders will primarily be in the form of a cash dividend and the Company will always look at stock repurchase as an alternative if it believes more value can be created for shareholders.
•The Company retains the right to return more than 80% should the circumstances allow it.
As part of its distribution policy the Company, the dividend calculation will not include capital gains ( reserved for fleet renewal) and deferred tax assets or liabilities but will include capital losses while the policy will at all times be subject to freight market outlook, company balance sheet and cyclicality along with other factors and regulatory requirements. Supervisory Board believes that this approach has the flexibility to manage the Company through the cycle, retaining sufficient capital for fleet renewal whilst simultaneously rewarding shareholders.
Our Supervisory Board will continue to assess the declaration and payment of distributions upon consideration of our financial results and earnings, restrictions in our debt agreements, market prospects, current capital expenditures, commitments, investment opportunities, and the provisions of Belgian law affecting the payment of distributions to shareholders and other factors. We may stop paying distributions at any time and cannot assure you that we will pay any distributions in the future or of the amount of such distributions. For instance, we did not declare or pay any dividends from 2010 until 2014.
In general, under the terms of our debt agreements, we are not permitted to pay dividends if there is or will be as a result of the dividend a default or a breach of a loan covenant. Our credit facilities also contain restrictions and undertakings which may limit our and our subsidiaries' ability to declare and pay dividends (for instance, with respect to each of our joint ventures, no dividend may be distributed before its loan agreement, as applicable, is repaid in full). Please see “Item 5. Operating and Financial Review and Prospects” for more information relating to restrictions on our ability to pay dividends under the terms of the agreements governing our indebtedness. Belgian law generally prohibits the payment of dividends unless net assets on the closing date of the last financial year do not fall beneath the amount of the registered capital and, before the dividend is paid out, 5% of the net profit is allocated to the legal reserve until this legal reserve amounts to 10% of the share capital. No distributions may occur if, as a result of such distribution, our net assets would fall below the sum of (i) the amount of our registered capital, (ii) the amount of such aforementioned legal reserves, and (iii) other reserves which may be required by our Coordinated Articles of Association or by law, such as the reserves not available for distribution in the event we hold treasury shares. We may not have sufficient surplus in the future to pay dividends and our subsidiaries may not have sufficient funds or surplus to make distributions to us. We can give no assurance that dividends will be paid at a level anticipated by stockholders or at all. In addition, the corporate law of jurisdictions in which our subsidiaries are organized may impose restrictions on the payment or source of dividends under certain circumstances.
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For a discussion of the material tax consequences regarding the receipt of dividends we may declare, please see "Item 10. Additional Information—E. Taxation."
B. Significant Changes
Please see Note 28 - Subsequent Events to our Audited Consolidated Financial Statements included herein.
ITEM 9. OFFER AND THE LISTING
A. Offer and Listing Details.
Our share capital consists of ordinary shares issued without par value. Under Belgian law, shares without par value are deemed to have a "nominal" value equal to the total amount of share capital divided by the number of shares. As of April 1, 2023, our issued (and fully paid up) share capital was $239,147,505.82 which is represented by 220,024,713 ordinary shares with no par value. The fractional value of our ordinary shares is $1.086912 per share.
Our ordinary shares have traded on Euronext Brussels, since December 1, 2004 and on the NYSE since January 23, 2015, under the symbol "EURN". We maintain the Belgian Register and, for the purposes of trading our shares on the NYSE, the U.S. Register.
All shares on Euronext Brussels trade in euros, and all shares on the NYSE trade in U.S. dollars.
B. Plan of Distribution
Not applicable
C. Markets.
Our ordinary shares trade on the NYSE and Euronext Brussels under the symbol "EURN".
For a discussion of our ordinary shares which are listed and eligible for trading on the NYSE and Euronext Brussels, please see "Item 10. Additional Information — B. Memorandum and Coordinated Articles of Association — Share Register."
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
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ITEM 10. ADDITIONAL INFORMATION
A.Share capital.
Not applicable.
B. Memorandum and Coordinated Articles of Association
We are a public limited liability company incorporated in the form of a naamloze vennootschap / société anonyme under Belgian law (Register of Legal Entities number 0860.402.767 (Antwerpen)).
The following is a description of the material terms of our current Coordinated Articles of Association (CAA) (amended as of November 10, 2021). Because the following is a summary, it does not contain all information that you may find useful. For more complete information, you should read our CAA which are filed as Exhibit 1.1 to this annual report.
Purpose
Our objectives are set forth in Section I, Article 3 of our Coordinated Articles of Association. Our purpose, as stated therein, is to engage in operations related to maritime transport and shipowning, particularly the chartering in and out, the acquisition and sale of ships, and the opening and operation of regular shipping lines, but is not restricted to these activities.
Ordinary Shares
Each outstanding ordinary share entitles the holder to one vote on all matters submitted to a vote of shareholders. Each share represents an identical fraction of the share capital and is either in registered or dematerialized form.
Share Register
Our Belgian Shares are reflected in the Belgian Register, that is maintained by Euroclear Belgium. The Belgian Shares have ISIN BE0003816338. Only these shares, which are reflected in the Belgian Register, may be traded on Euronext Brussels.
Our U.S. Shares are reflected in our U.S. Register that is maintained by Computershare. The U.S. Shares have CUSIP B38564 108. Only these shares, which are reflected in the U.S. Register, may be traded on the NYSE.
For Belgian Shares, including shares that were either acquired on Euronext Brussels or prior to our initial public offering, to be traded on the NYSE and for U.S. Shares to be traded on Euronext Brussels, shareholders must reposition their shares to the appropriate component of our share register (the U.S. Register for listing and trading on the NYSE and the Belgian Register for listing and trading on Euronext Belgium). As part of the repositioning procedure, the shares to be repositioned would be debited from the Belgian Register or the U.S. Register, as applicable, and canceled from the holder's securities account, and simultaneously credited to the relevant register (the Belgian Register for shares to be eligible for listing and trading on Euronext Brussels and the U.S. Register for shares to be eligible for listing and trading on the NYSE) and deposited in the holder's securities account. The repositioning procedure is normally completed within three trading days, but may take longer and the Company cannot guarantee the timing. The Company may suspend the repositioning of shares for periods of time, which we refer to as "freeze periods" for certain corporate events, including the payment of dividends or shareholder meetings. In such cases, the Company plans to inform its shareholders about such freeze periods on its website.
Please see the Company's website www.euronav.com for instructions on how to reposition your shares to be eligible for trading on either the NYSE or Euronext Brussels. The information contained on our website does not form a part of this annual report.
Dividend Rights
For a summary of our dividend policy and legal basis for dividends under Belgian law, see "Item 8: Financial Information – Capital Allocation Policy & Dividend Policy ".
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Liquidation Rights
In the event of the dissolution and liquidation of the Company, the assets remaining after payment of all debts, liquidation expenses and taxes shall be distributed to the holders of our ordinary shares, each receiving a sum proportional to the number of our shares held by them, subject to prior liquidation rights of any preferred stock that may be outstanding.
Directors
Prior to February 20, 2020, before implementation of the Belgian Code of Companies and Associations (CCA), the board of directors was the ultimate decision-making body of the Company, with the exception of the matters reserved to the Shareholders’ Meeting as provided by law or the Articles of Association.
On February 20, 2020 the extraordinary shareholders meeting implemented the CCA and adopted new Articles of Association including a two-tier governance model, comprising a Supervisory Board and a Management Board. The powers of the Supervisory Board are those outlined in article 7:109 of the CCA. A copy of our current Coordinated Articles of Association can be consulted at Exhibit 1.1. to our annual report on Form 20-F filed with the SEC on April 15, 2021.
Our Coordinated Articles of Association (CAA) provide that our Supervisory Board shall consist of at least five and maximum ten members. Our Supervisory Board currently consists of seven members. The CAA provide that the members of the Supervisory Board remain in office for a period not exceeding four years and are eligible for re-election. The term of a member of the Supervisory Board comes to an end immediately after the annual shareholders' meeting of the last year of his term. Members of the Supervisory Board can be dismissed at any time by the vote of a majority of our shareholders. Each year, there may be one or more directors who have reached the end of their current term of office and may be reappointed.
Belgian law does not regulate specifically the ability of directors to borrow money from the Company. Our Corporate Governance Charter provides that as a matter of principle, no loans or advances will be granted to any director (except for routine advances for business-related expenses in accordance with our rules for reimbursement of expenses).
Article 7:115 of the CCA provides that if one of our Supervisory Board members directly or indirectly has a personal financial interest that conflicts with a decision or transaction that falls within the authority of the Supervisory Board, the conflicted member shall inform the other members of such conflict before the Supervisory Board has decided on the relevant matter. The statutory auditor must also be notified. The conflicted member’s statement and explanation as to the nature of the conflict of interest shall be included in the meeting minutes enacting the decision on the relevant matter and shall be disclosed in accordance within article 7:115 of the CCA. The Supervisory Board shall deliberate and decide on the relevant matter without participation of the conflicted member(s). The Supervisory Board may not delegate this decision. If all members of the Supervisory Board have such conflict of interest, the relevant matter is referred to by the Supervisory Board to a general meeting of shareholders. If the General Meeting approves the relevant decision or transaction is approved at such general meeting, the Supervisory Board is authorized to execute same.
Shareholder Meetings
The annual general shareholders' meeting is generally held annually on the third Thursday of May at 10:30 a.m. (Central European Time). If this day is a legal holiday, the meeting is held on the preceding business day.
The Supervisory Board or the statutory auditor (or, as the case may be, the liquidators) can convene a special or extraordinary general shareholders' meeting at any time if the interests of the Company so require. Such general meetings must also be convened whenever requested by the shareholders who together represent a tenth of our share capital within three weeks of their request, provided that the reason of convening a special or extraordinary general shareholders' meeting is given.
A shareholder only has the right to be admitted to and to vote at the general shareholders' meeting on the basis of the registration of the shares on the fourteenth calendar day at 12 p.m. (Belgian time) preceding the date of the meeting, the day of the meeting not included, or such fourteenth calendar day the "Record Date", either by registration in the Company's register of registered shares, either by their registration in the accounts of an authorized custody account keeper or clearing institution, regardless of the number of shares owned by the shareholder on the day of the general shareholders' meeting.
The shareholder must notify the Company or a designated person of its intention to take part in the general shareholders' meeting at the sixth calendar day preceding the date of the meeting, the day of the meeting not included, in the way mentioned in the convening notice.
The financial intermediary of the authorized custody account keeper or clearing institution delivers a certificate to the shareholders of dematerialized shares which are tradable on Euronext Brussels stating the number of dematerialized shares
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which are registered in the name of the shareholder on its accounts at the Record Date and with which the shareholder intends to take part in the general shareholders' meeting.
A shareholder of shares which are tradable on the New York Stock Exchange only has the right to be admitted to and vote at a general meeting of shareholders if such shareholder complies with the conditions and formalities set out in the convening notice, as decided upon by the Supervisory Board in compliance with all applicable legal provisions.
The convening notice for each general shareholders' meeting shall be disclosed to our shareholders in compliance with all applicable legal terms and provisions, including on our website www.euronav.com
In general, there is no quorum requirement for the general shareholders' meeting and decisions are taken with a simple majority of the votes, except as provided by law on certain matters.
Preferential Subscription Rights
In the event of a share capital increase for cash by way of the issue of new shares, or in the event of an issue of convertible bonds or warrants, our existing shareholders have a preferential right to subscribe, pro rata, to the new shares, convertible bonds or warrants.
In accordance with the provisions of the Belgian Code of Companies and Associations and our Coordinated Articles of Association, the Company, when issuing shares, has the authority to limit or cancel the preferential subscription right of the shareholders in the interest of the Company in respect of such issuance. This limitation or cancellation can be decided upon in favor of one or more particular persons subscribing to that issuance.
When canceling the preferential right of the shareholders, priority may be given to the existing shareholders for the allocation of the newly issued shares.
Disclosure of Major Shareholdings
In accordance with a May 2, 2007 Belgian law relating to disclosure of major holdings in issuers whose shares are admitted to trading on a regulated market and containing miscellaneous provisions requiring investors in certain publicly-traded corporations whose investments reach certain thresholds to notify the Company and the Belgian Financial Services and Markets Authority (FSMA), of such change as soon as possible and in any event within four trading days. The minimum disclosure threshold is 5% of the Company's issued voting share capital. Further details in this respect can be found on the website of the FSMA: https://www.fsma.be/en/shareholding-structure-0. The information contained on this website does not form a part of this annual report.
Purchase and Sales of Our Own Shares
Article 13 of the Articles of Association contains the principle that the Company and its direct and indirect subsidiaries may acquire and sell the Company’s own shares under the conditions laid down by law. With respect to the acquisition of the Company’s own shares, a prior resolution of the General Meeting is required to authorize the Company to acquire its own shares. Such an authorization was granted by at a special general meeting on June 23, 2021 and remains valid for a period of five years as from the publication in the Annexes to the Belgian Official Gazette of the decision taken by such general meeting.
Pursuant to this authorization, the Company may acquire a maximum of ten percent (10%) of the existing shares of the Company at a price per share not exceeding the maximum price allowed under applicable law and not to be less than EUR 0.01. Acquired shares are held in treasury and are not allowed to vote.
Anti-Takeover Effect of Certain Provisions of Our Articles of Association
Our Articles of Association contain provisions which may have anti-takeover effects. These provisions are intended to avoid costly takeover battles, lessen our vulnerability to a hostile change of control and enhance the ability of our Supervisory Board to maximize shareholder value in connection with any unsolicited offer to acquire us. However, these anti-takeover provisions could also discourage, delay or prevent (1) the merger or acquisition of us by means of a tender offer, a proxy contest or otherwise that a shareholder may consider in its best interest and (2) the removal of incumbent officers and directors.
For example, a shareholder's voting rights can be suspended with respect to ordinary shares that give such shareholder the right to voting rights above 5% (or a multiple of 5%) of the total number of voting rights attached to our ordinary shares on the date of the relevant general shareholder's meeting, unless we and the Belgian Financial Services and Markets Authority
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have been informed at least 20 days prior to the date of the relevant general shareholder's meeting in which the holder wishes to vote.
Limitations on the Right to Own Securities
Neither Belgian law nor our articles of association imposes any general limitation on the right of non-residents or foreign persons to hold our ordinary shares or exercise voting rights on our ordinary shares other than those limitations that would generally apply to all shareholders.
Transfer agent
The registrar and transfer agent for our ordinary shares in the United States is Computershare Trust Company N.A. Our Belgian Register is maintained by Euroclear Belgium.
C. Material contracts.
We have not entered into any material contracts, other than contracts entered into in the ordinary course of business, attached as exhibits hereto or otherwise described herein.
D. Exchange controls.
There are no Belgian exchange control regulations that would affect the import or export of capital, including the availability of cash and cash equivalents for use by the company's group or the remittance of dividends, interest or other payments to nonresident holders of the Company's securities.
See "Item 10. Additional information—E. Taxation" for a discussion of the tax treatment of dividends.
E. Taxation
United States Federal Income Tax Considerations
In the opinion of Seward & Kissel LLP, our United States counsel, the following are the material United States federal income tax consequences to us and our U.S. Holders and Non-U.S. Holders, each as defined below, of our activities and the ownership of our ordinary shares. This discussion does not purport to deal with the tax consequences of owning ordinary shares to all categories of investors, some of which, such as banks, insurance companies, real estate investment trusts, regulated investment companies, grantor trusts, tax-exempt organizations, dealers in securities or currencies, traders in securities that elect the mark-to-market method of accounting for their securities, investors whose functional currency is not the United States dollar, investors that are or own our ordinary shares through partnerships or other pass-through entitles, investors that own, actually or under applicable constructive ownership rules, 10% or more of our ordinary shares, persons that will hold the ordinary shares as part of a hedging transaction, “straddle” (conversion transaction) persons who are deemed to sell the ordinary shares under constructive sale rules, persons required to recognize income for U.S. federal income tax purposes no later than when such income is reported on an “applicable financial statement,” persons subject to the “base erosion and anti-avoidance” tax, and persons who are liable for an alternative minimum tax may be subject to special rules. The following discussion of United States federal income tax matters is based on the United States Internal Revenue Code of 1986, as amended, or the Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the United States Department of the Treasury, or the Treasury Regulations, all of which are subject to change, possibly with retroactive effect. This discussion deals only with holders who purchase ordinary and hold the ordinary shares as a capital asset. The discussion below is based, in part, on the description of our business as described herein and assumes that we conduct our business as described herein. Unless otherwise noted, references in the following discussion to the “Company,” “we” and “us” are to Euronav NV and its subsidiaries on a consolidated basis.
United States Federal Income Taxation of the Company
Taxation of Operating Income: In General
Unless exempt from U.S. federal income taxation under the rules discussed below, a foreign corporation is subject to U.S. federal income taxation in respect of any income that is derived from the use of vessels, from the hiring or leasing of vessels for use on a time, voyage or bareboat charter basis, from the participation in a pool, partnership, strategic alliance, joint operating agreement, code sharing arrangements or other joint venture it directly or indirectly owns or participates in that generates such income, or from the performance of services directly related to those uses, which we refer to as “shipping income,” to the extent that the shipping income is derived from sources within the United States. For these purposes, 50% of
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shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States constitutes income from sources within the United States, which we refer to as “U.S.-source shipping income.”
Shipping income attributable to transportation that both begins and ends in the United States is considered to be 100% from sources within the United States. We are not permitted by law to engage in transportation that produces income which is considered to be 100% from sources within the United States.
Shipping income attributable to transportation exclusively between non-U.S. ports will be considered to be 100% derived from sources outside the United States. Shipping income derived from sources outside the United States will not be subject to any U.S. federal income tax.
In the absence of exemption from tax under Section 883 of the Code or an applicable U.S. income tax treaty, our gross U.S.-source shipping income would be subject to a 4% tax imposed without allowance for deductions as described below.
Exemption of Operating Income from U.S. Federal Income Taxation
Under the U.S.-Belgium income tax treaty, or the Belgian Treaty, we will be exempt from U.S. federal income tax on our U.S.-source shipping income if (1) we are resident in Belgium for Belgian income tax purposes and (2) we satisfy one of the tests under the Limitation on Benefits Provision of the Belgian Treaty. We believe that we satisfy the requirements for exemption under the Belgian Treaty for our 2022 taxable year and expect to continue to do so for our future taxable years. Alternatively, we may qualify for exemption under Section 883, as discussed below.
Under Section 883 of the Code and the regulations there under, we will be exempt from U.S. federal income tax on our U.S.-source shipping income if:
(1) we are organized in a foreign country, or our country of organization, that grants an “equivalent exemption” to corporations organized in the United States; and
(2) either
(A) more than 50% of the value of our stock is owned, directly or indirectly, by individuals who are “residents” of our country of organization or of another foreign country that grants an “equivalent exemption” to corporations organized in the United States, which we refer to as the “50% Ownership Test,” or
(B) our stock is “primarily and regularly traded on an established securities market” in our country of organization, in another country that grants an “equivalent exemption” to United States corporations, or in the United States, which we refer to as the “Publicly-Traded Test”.
Each of the jurisdictions where our ship-owning subsidiaries are incorporated grant an “equivalent exemption” to U.S. corporations. Therefore, we will be exempt from U.S. federal income tax with respect to our U.S.-source shipping income if either the 50% Ownership Test or the Publicly-Traded Test is met.
We do not currently anticipate circumstances under which we would be able to satisfy the 50% Ownership Test given the widely held nature of our ordinary shares. Our ability to satisfy the Publicly-Traded Test is discussed below.
Treasury Regulations provide, in pertinent part, that stock of a foreign corporation will be considered to be “primarily traded” on an established securities market if the number of shares of each class of stock that are traded during any taxable year on all established securities markets in that country exceeds the number of shares in each such class that are traded during that year on established securities markets in any other single country. Our ordinary shares are “primarily traded” on the NYSE for this purpose even though the ordinary shares are also listed and traded on Euronext Brussels.
Under the Treasury Regulations, our ordinary shares will be considered to be “regularly traded” on an established securities market if one or more classes of our stock representing more than 50% of our outstanding shares, by total combined voting power of all classes of stock entitled to vote and total value, is listed on the market which we refer to as the listing threshold. Our ordinary shares are listed on the NYSE and therefore we satisfy the listing requirement.
It is further required that with respect to each class of stock relied upon to meet the listing threshold, (i) such class of stock be traded on the market, other than in minimal quantities, on at least 60 days during the taxable year or one-sixth of the days in a short taxable year, which we refer to as the “trading frequency test”; and (ii) the aggregate number of shares of such class of stock traded on such market is at least 10% of the average number of shares of such class of stock outstanding
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during such year or as appropriately adjusted in the case of a short taxable year, which we refer to as the “trading volume test”. We believe we satisfied the trading frequency and trading volume tests for the 2022 taxable year. Even if this was not the case, the Treasury Regulations provide that the trading frequency and trading volume tests will be deemed satisfied if, as is the case with our ordinary shares, such class of stock is traded on an established securities market in the United States and such stock is regularly quoted by dealers making a market in such stock.
Notwithstanding the foregoing, the Treasury Regulations provide, in pertinent part, that a class of our stock will not be considered to be “regularly traded” on an established securities market for any taxable year if 50% or more of the vote and value of the outstanding shares of such class of stock are owned, actually or constructively under specified stock attribution rules, on more than half the days during the taxable year by persons who each own 5% or more of the vote and value of the outstanding shares of such class of stock, which we refer to as the “5 Percent Override Rule.”
For purposes of being able to determine the persons who own 5% or more of our stock (5% Shareholders) the Treasury Regulations permit us to rely on those persons that are identified on Schedule 13G and Schedule 13D filings with the SEC, as having a 5% or more beneficial interest in our ordinary shares. The Treasury Regulations further provide that an investment company identified on a SEC Schedule 13G or Schedule 13D filing which is registered under the Investment Company Act of 1940, as amended, will not be treated as a 5% shareholder for such purposes.
In the event the 5 Percent Override Rule is triggered, the Treasury Regulations provide that the 5 Percent Override Rule will not apply if we can establish that among the closely-held group of 5% Shareholders, there are sufficient 5% Shareholders that are considered to be qualified shareholders for purposes of Section 883 of the Code to preclude non-qualified 5% Shareholders in the closely-held group from owning 50% or more of each class of our stock for more than half the number of days during such year.
We believe that we and each of our subsidiaries qualify for exemption under Section 883 of the Code for our 2022 taxable year. We also expect that we and each of our subsidiaries will qualify for this exemption for our subsequent taxable years. However, there can be no assurance in this regard. For example, if our 5% Stockholders own 50% or more of our ordinary shares, we would be subject to the 5% Override Rule unless we can establish that among the closely-held group of 5% Stockholders, there are sufficient 5% Stockholders that are qualified stockholders for purposes of Section 883 of the Code to preclude non-qualified 5% Stockholders in the closely-held group from owning 50% or more of our ordinary shares for more than half the number of days during the taxable year. In order to establish this, sufficient 5% Stockholders that are qualified stockholders would have to comply with certain documentation and certification requirements designed to substantiate their identity as qualified stockholders. These requirements are onerous and there is no assurance that we will be able to satisfy them.
Taxation in the Absence of Exemption under Section 883 of the Code
To the extent the benefits of Section 883 of the Code are unavailable, our U.S.-source shipping income, to the extent not considered to be “effectively connected” with the conduct of a U.S. trade or business, as described below, would be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions, which we refer to as the “4% gross basis tax regime”. Since under the sourcing rules described above, no more than 50% of our shipping income would be treated as being derived from U.S. sources, the maximum effective rate of U.S. federal income tax on our shipping income would never exceed 2% under the 4% gross basis tax regime.
To the extent the benefits of the exemption under Section 883 of the Code are unavailable and our U.S.-source shipping income is considered to be “effectively connected” with the conduct of a U.S. trade or business, as described below, any such “effectively connected” U.S.-source shipping income, net of applicable deductions, would be subject to the U.S. federal corporate income tax imposed at a rate of 21%. In addition, we may be subject to the 30% “branch profits” tax on earnings effectively connected with the conduct of such U.S. trade or business, as determined after allowance for certain adjustments, and on certain interest paid or deemed paid attributable to the conduct of such U.S. trade or business.
Our U.S.-source shipping income would be considered “effectively connected” with the conduct of a U.S. trade or business only if:
•We have, or are considered to have, a fixed place of business in the United States involved in the earning of shipping income; and
•Substantially all of our U.S.-source shipping income is attributable to regularly scheduled transportation, such as the operation of a vessel that follows a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the United States.
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We do not currently have, nor intend to have or permit circumstances that would result in having, any vessel operating to the United States on a regularly scheduled basis. Based on the foregoing and on the expected mode of our shipping operations and other activities, we believe that none of our U.S.-source shipping income will be “effectively connected” with the conduct of a U.S. trade or business.
U.S. Taxation of Gain on Sale of Vessels
Regardless of whether we qualify for exemption under Section 883 of the Code, we will not be subject to U.S. federal income taxation with respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United States under U.S. federal income tax principles. In general, a sale of a vessel will be considered to occur outside of the United States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States. It is expected that any sale of a vessel by us will be considered to occur outside of the United States.
United States Federal Income Taxation of U.S. Holders
As used herein, the term “U.S. Holder” means a beneficial owner of ordinary shares that is a United States citizen or resident, United States corporation or other United States entity taxable as a corporation, an estate the income of which is subject to United States federal income taxation regardless of its source, or a trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust or (ii) the trust has a valid election in effect to be treated as a United States person for United States federal income tax purposes.
If a partnership holds our ordinary shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding our ordinary shares, you are encouraged to consult your tax advisor.
Distributions
Subject to the discussion of passive foreign investment companies below, any distributions made by us with respect to our ordinary shares to a U.S. Holder will generally constitute dividends, which may be taxable as ordinary income (qualified dividend income) as described in more detail below, to the extent of our current and accumulated earnings and profits, as determined under United States federal income tax principles. Distributions in excess of our earnings and profits will be treated first as a nontaxable return of capital to the extent of the U.S. Holder’s tax basis in the holder’s ordinary shares on a dollar-for-dollar basis and thereafter as capital gain. Because we are not a United States corporation, U.S. Holders that are corporations will generally not be entitled to claim a dividends received deduction with respect to any distributions they receive from us. Dividends paid with respect to our ordinary shares will generally be treated as “passive category income” or, in the case of certain types of U.S. Holders, “general category income” for purposes of computing allowable foreign tax credits for United States foreign tax credit purposes.
Dividends paid on our ordinary shares to a U.S. Holder who is an individual, trust or estate (a “U.S. Non-Corporate Holder”) will generally be treated as “qualified dividend income” that is taxable to such U.S. Non-Corporate Holders at preferential tax rates provided that (1) either we qualify for the benefits of the Belgian Treaty (which we expect to be the case) or the ordinary shares are readily tradable on an established securities market in the United States (such as the NYSE, on which our ordinary shares are listed); (2) we are not a passive foreign investment company for the taxable year during which the dividend is paid or the immediately preceding taxable year (as discussed below); (3) the U.S. Non-Corporate Holder has owned the ordinary shares for more than 60 days in the 121-day period beginning 60 days before the date on which the ordinary shares become ex-dividend (and has not entered into certain risk limiting transactions with respect to such ordinary share); and (4) the U.S. Non-Corporate Holder is not under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar related property. There is no assurance that any dividends paid on our ordinary shares will be eligible for these preferential tax rates in the hands of a U.S. Non-Corporate Holder.
As discussed below, our dividends may be subject to Belgian withholding taxes. A U.S. Holder may elect to either deduct his share of any foreign taxes paid with respect to our dividends in computing his Federal taxable income or treat such foreign taxes as a credit against U.S. federal income taxes, subject to certain limitations. No deduction for foreign taxes may be claimed by an individual who does not itemize deductions. Dividends paid with respect to our ordinary shares will generally be treated as “passive category income” or, in the case of certain types of U.S. Holders, “general category income” for purposes of computing allowable foreign tax credits for United States foreign tax credit purposes. The rules governing
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foreign tax credits are complex and U.S. Holders are encouraged to consult their tax advisors regarding the applicability of these rules in a U.S. Holder’s specific situation.
Amounts taxable as dividends generally will be treated as passive income from sources outside the U.S. However, if (a) Euronav is 50% or more owned, by vote or value, by U.S. persons and (b) at least 10% of Euronav’s earnings and profits are attributable to sources within the U.S., then for foreign tax credit purposes, a portion of its dividends would be treated as derived from sources within the U.S. With respect to any dividend paid for any taxable year, the U.S. source ratio of our dividends for foreign tax credit purposes would be equal to the portion of Euronav’s earnings and profits from sources within the U.S. for such taxable year divided by the total amount of Euronav’s earnings and profits for such taxable year.
The rules related to U.S. foreign tax credits are complex and U.S. holders should consult their tax advisors to determine whether and to what extent a credit would be available.
Special rules may apply to any “extraordinary dividend” generally, a dividend paid by us in an amount which is equal to or in excess of ten percent of a U.S. Non-Corporate Holder’s adjusted tax basis (or fair market value in certain circumstances) or dividends received within a one-year period that, in the aggregate, equal or exceed 20% of a shareholder's adjusted tax basis (or fair market value upon the shareholder's election) in a share of ordinary shares paid by us. If we pay an “extraordinary dividend” on our ordinary shares that is treated as “qualified dividend income,” then any loss derived by a U.S. Non-Corporate Holder from the sale or exchange of such ordinary shares will be treated as long-term capital loss to the extent of such dividend.
Dividends will be generally included in the income of U.S. Holders at the U.S. dollar amount of the dividend (including any non-U.S. taxes withheld therefrom), based upon the exchange rate in effect on the date of the distribution. In the case of foreign currency received as a dividend that is not converted by the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency, including the exchange for U.S. dollars, will be ordinary income or loss. However an individual whose realized foreign exchange gain does not exceed U.S. $200 will not recognize that gain, to the extent that there are not expenses associated with the transaction that meet the requirement for deductibility as a trade or business expense (other than travel expenses in connection with a business trip or as an expense for the production of income).
Sale, Exchange or other Disposition of Ordinary shares
Subject to the discussion of passive foreign investment companies below, a U.S. Holder generally will recognize taxable gain or loss upon a sale, exchange or other disposition of our ordinary shares in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S. Holder’s tax basis in such shares. The U.S. Holder’s initial tax basis in its shares generally will be the U.S. Holder’s purchase price for the shares and that tax basis will be reduced (but not below zero) by the amount of any distributions on the shares that are treated as non-taxable returns of capital (as discussed above under “-United States Federal Income Taxation of U.S. Holders-Distributions”). Such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder’s holding period is greater than one year at the time of the sale, exchange or other disposition. Such capital gain or loss will generally be treated as United States source income or loss, as applicable, for United States foreign tax credit purposes. A U.S. Holder’s ability to deduct capital losses is subject to certain limitations.
Passive Foreign Investment Company
Special United States federal income tax rules apply to a U.S. Holder that holds stock in a foreign corporation classified as a passive foreign investment company, or PFIC for United States federal income tax purposes. In general, a foreign corporation will be treated as a PFIC with respect to a United States shareholder in such foreign corporation, if, for any taxable year in which such shareholder holds stock in such foreign corporation, either:
•At least 75 percent of the corporation’s gross income for such taxable year consists of passive income (e.g., dividends, interest, capital gains and rents derived other than in the active conduct of a rental business); or
•At least 50 percent of the average value of the assets held by the corporation during such taxable year produce, or are held for the production of, passive income.
For purposes of determining whether a foreign corporation is a PFIC, it will be treated as earning and owning its proportionate share of the income and assets, respectively, of any of its subsidiary corporations in which it owns at least 25 percent of the value of the subsidiary’s stock.
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Income earned by a foreign corporation in connection with the performance of services would not constitute passive income. By contrast, rental income would generally constitute “passive income” unless the foreign corporation is treated under specific rules as deriving its rental income in the active conduct of a trade or business or receiving the rental income from a related party.
Based on our current operations and future projections, we do not believe that we are, nor do we expect to become a PFIC with respect to any taxable year. Although there is no legal authority directly on point, our belief is based principally on the position that, for purposes of determining whether we are a PFIC, the gross income we derive or are deemed to derive from the time chartering and voyage chartering activities of our wholly-owned subsidiaries should constitute services income, rather than rental income. Correspondingly, such income should not constitute passive income, and the assets that we or our wholly-owned subsidiaries own and operate in connection with the production of such income, in particular, the vessels, should not constitute passive assets for purposes of determining whether we are a PFIC. We believe there is substantial legal authority supporting our position consisting of case law and IRS pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. We have not sought, and we do not expect to seek, a ruling from the Internal Revenue Service, or the IRS, on this matter. As a result, the IRS or a court could disagree with our position. No assurance can be given that this result will not occur. In addition, although we intend to conduct our affairs in a manner to avoid, to the extent possible, being classified as a PFIC with respect to any taxable year, we cannot assure you that the nature of our operations will not change in the future, or that we can avoid PFIC status in the future.
As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a U.S. Holder would be subject to different taxation rules depending on whether the U.S. Holder makes an election to treat us as a “Qualified Electing Fund,” which election we refer to as a “QEF election.” As an alternative to making a QEF election, a U.S. Holder should be able to make a “mark-to-market” election with respect to our ordinary shares, as discussed below.
If we were to be treated as a PFIC for any taxable year, a U.S. Holder would be required to file an annual report with the IRS for that year with respect to such U.S. Holder’s ordinary shares.
Taxation of U.S. Holders Making a Timely QEF Election
If a U.S. Holder makes a timely QEF election, which U.S. Holder we refer to as an “Electing Holder,” the Electing Holder must report each year for United States federal income tax purposes his pro rata share of our ordinary earnings and our net capital gain, if any, for our taxable year that ends with or within the taxable year of the Electing Holder, regardless of whether or not distributions were received from us by the Electing Holder. The Electing Holder’s adjusted tax basis in the ordinary shares will be increased to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits that had been previously taxed will result in a corresponding reduction in the adjusted tax basis in the ordinary shares and will not be taxed again once distributed. An Electing Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of our ordinary shares. A U.S. Holder would make a QEF election with respect to any year that our company is a PFIC by filing IRS Form 8621 with his United States federal income tax return. If we were aware that we or any of our subsidiaries were to be treated as a PFIC for any taxable year, we would, if possible, provide each U.S. Holder with all necessary information in order to make the QEF election described above. If we were to be treated as a PFIC, a U.S. Holder would be treated as owning his proportionate share of stock in each of our subsidiaries which is treated as a PFIC and such U.S. Holder would need to make a separate QEF election for any such subsidiaries. It should be noted that we may not be able to provide such information if we did not become aware of our status as a PFIC in a timely manner.
Taxation of U.S. Holders Making a “Mark-to-Market” Election
Alternatively, if we were to be treated as a PFIC for any taxable year and, as we anticipate, our shares are treated as “marketable stock,” a U.S. Holder would be allowed to make a “mark-to-market” election with respect to our ordinary shares, provided the U.S. Holder completes and files IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. The “mark-to-market” election will not be available for any of our subsidiaries. If that election is made, the U.S. Holder generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of the ordinary shares at the end of the taxable year over such holder’s adjusted tax basis in the ordinary shares. The U.S. Holder would also be permitted an ordinary loss in respect of the excess, if any, of the U.S. Holder’s adjusted tax basis in the ordinary shares over its fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holder’s tax basis in his ordinary shares would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our ordinary shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the ordinary shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains
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previously included in income by the U.S. Holder. It should be noted that the mark-to-market election would likely not be available for any of our subsidiaries which are treated as PFICs.
Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election
Finally, if we were to be treated as a PFIC for any taxable year, a U.S. Holder who does not make either a QEF election or a “mark-to-market” election for that year, whom we refer to as a “Non-Electing Holder,” would be subject to special rules with respect to (1) any excess distribution (the portion of any distributions received by the Non-Electing Holder on our ordinary shares in a taxable year in excess of 125 percent of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder’s holding period before the taxable year for the ordinary shares), and (2) any gain realized on the sale, exchange or other disposition of our ordinary shares. Under these special rules:
•The excess distribution or gain would be allocated ratably over the Non-Electing Holders’ aggregate holding period for the ordinary shares;
•The amount allocated to the current taxable year and any taxable year before we became a PFIC would be taxed as ordinary income; and
•The amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed tax deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.
These rules would not apply to a pension or profit sharing trust or other tax-exempt organization that did not borrow funds or otherwise utilize leverage in connection with its acquisition of our ordinary shares. If a Non-Electing Holder who is an individual dies while owning our ordinary shares, such holder’s successor generally would not receive a step-up in tax basis with respect to such shares.
United States Federal Income Taxation of “Non-U.S. Holders”
A beneficial owner of our ordinary shares that is not a U.S. Holder or an entity treated as a partnership is referred to herein as a “Non-U.S. Holder.”
If a partnership holds our ordinary shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding our ordinary shares, you are encouraged to consult your tax advisor.
Dividends on Ordinary shares
Non-U.S. Holders generally will not be subject to United States federal income tax or withholding tax on dividends received from us with respect to our ordinary shares, unless that income is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States. If the Non-U.S. Holder is entitled to the benefits of a United States income tax treaty with respect to those dividends, that income may be taxable only if it is also attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States.
Sale, Exchange or Other Disposition of Ordinary shares
Non-U.S. Holders generally will not be subject to United States federal income tax or withholding tax on any gain realized upon the sale, exchange or other disposition of our ordinary shares, unless:
•The gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States. If the Non-U.S. Holder is entitled to the benefits of an income tax treaty with respect to that gain, that gain may be taxable only if it is also attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States or
•The Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the taxable year of disposition and other conditions are met.
If the Non-U.S. Holder is engaged in a United States trade or business for United States federal income tax purposes, the income from the ordinary shares, including dividends and the gain from the sale, exchange or other disposition of the ordinary shares that are effectively connected with the conduct of that trade or business will generally be subject to regular
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United States federal income tax in the same manner as discussed in the previous section relating to the taxation of U.S. Holders. In addition, in the case of a corporate Non-U.S. Holder, its earnings and profits that are attributable to the effectively connected income, subject to certain adjustments, may be subject to an additional branch profits tax at a rate of 30 percent, or at a lower rate as may be specified by an applicable United States income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, made within the United States to you will be subject to information reporting requirements. Such payments will also be subject to backup withholding tax if paid to a non-corporate U.S. Holder who:
•Fails to provide an accurate taxpayer identification number;
•Is notified by the IRS that he has failed to report all interest or dividends required to be shown on his federal income tax returns; or
•In certain circumstances, fails to comply with applicable certification requirements.
•Non-U.S. Holders may be required to establish their exemption from information reporting and backup withholding by certifying their status on an appropriate IRS Form W-8.
If a Non-U.S. Holder sells his ordinary shares to or through a United States office of a broker, the payment of the proceeds is subject to both United States backup withholding and information reporting unless the Non-U.S. Holder certifies that he is a non-U.S. person, under penalties of perjury, or otherwise establishes an exemption. If a Non-U.S. Holder sells his ordinary shares through a non-United States office of a non-United States broker and the sales proceeds are paid to the Non-U.S. Holder outside the United States then information reporting and backup withholding generally will not apply to that payment. However, United States information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, even if that payment is made to a Non-U.S. Holder outside the United States, if the Non-U.S. Holder sells ordinary shares through a non-United States office of a broker that is a United States person or has some other contacts with the United States.
Backup withholding is not an additional tax. Rather, a taxpayer generally may obtain a refund of any amounts withheld under backup withholding rules that exceed the taxpayer’s income tax liability by filing a refund claim with the IRS.
Individuals who are U.S. Holders (and to the extent specified in applicable Treasury Regulations, certain individuals who are Non-U.S. Holders and certain United States entities) who hold “specified foreign financial assets” (as defined in Section 6038D of the Code) are required to file IRS Form 8938 with information relating to the asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during the taxable year or $50,000 on the last day of the taxable year (or such higher dollar amount as prescribed by applicable Treasury Regulations). Specified foreign financial assets would include, among other assets, our ordinary shares, unless the shares are held through an account maintained with a United States financial institution. Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect. Additionally, in the event an individual U.S. Holder (and to the extent specified in applicable Treasury Regulations, an individual Non-U.S. Holder or a United States entity) that is required to file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection of United States federal income taxes of such holder for the related tax year may not close until three years after the date that the required information is filed. U.S. Holders (including United States entities) and Non-U.S. Holders are encouraged to consult their own tax advisors regarding their reporting obligations under this legislation.
Belgian Tax Considerations
In the opinion of Monard Law, our Belgian counsel, the following are the material Belgian federal income tax consequences of the acquisition, ownership and disposal of ordinary shares by an investor, but this summary does not purport to address all tax consequences of the ownership and disposal of ordinary shares, and does not take into account the specific circumstances of particular investors, some of which may be subject to special rules, or the tax laws of any country other than Belgium. This summary does not describe the tax treatment of investors that are subject to special rules, such as banks, insurance companies, collective investment undertakings, dealers in securities or currencies, persons that hold, or will hold, ordinary shares as a position in a straddle, share-repurchase transactions, conversion transactions, synthetic security or other integrated financial transactions. This summary does not address the tax regime applicable to ordinary shares held by Belgian tax residents through a fixed basis or a permanent establishment situated outside Belgium. In particular, this summary does not address any local taxes that may be due in connection with the ownership and disposal of ordinary shares, other than Belgian local surcharges which generally vary from 0% to 9% of the investor’s income tax liability.
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For purposes of this summary, a Belgian resident is:
•an individual subject to Belgian personal income tax, i.e., an individual who is domiciled in Belgium or has his seat of wealth in Belgium or a person assimilated to a resident for purposes of Belgian tax law;
•a company (as defined by Belgian tax law) subject to Belgian corporate income tax, i.e., a corporate entity that has its statutory seat (unless it can be proved that the tax residence of the company is situated in a State other than Belgium), its main establishment, its administrative seat or seat of management in Belgium;
•an Organization for Financing Pensions subject to Belgian corporate income tax, i.e., a Belgian pension fund incorporated in the form of an Organization for Financing Pensions; or
•a legal entity subject to Belgian income tax on legal entities, i.e., a legal entity other than a company subject to Belgian corporate income tax, that has its main establishment, its administrative seat or its seat of management in Belgium.
A non-resident is any person that is not a Belgian resident.
This summary is based on laws, treaties and regulatory interpretations in effect in Belgium on the date of this Form 20-F, all of which are subject to change, including changes that could have retroactive effect. Investors should appreciate that, as a result of evolutions in law or practice, the eventual tax consequences may be different from what is stated below.
Investors should consult their own advisors regarding the tax consequences of the acquisition, ownership and disposal of the ordinary shares in the light of their particular circumstances, including the effect of any state, local or other national laws.
Belgian taxation of dividends on ordinary shares
For Belgian income tax purposes, the gross amount of all benefits paid on or attributed to the ordinary shares is generally treated as a dividend distribution. By way of exception, the repayment of capital carried out in accordance with the Belgian Code of Companies and Associations is not treated as a dividend distribution to the extent that such repayment is imputed to the fiscal capital. This fiscal capital includes, in principle, the actual paid-up statutory share capital and, subject to certain conditions, the paid-up issuance premiums and the contributions made in exchange for the issuance of profit sharing certificates. However, a repayment of capital decided upon by the shareholders’ meeting as of January 1, 2018 and which is carried out in accordance with the Belgian Code of Companies and Associations is partly considered to be a dividend distribution, more specifically with respect to the portion that is deemed to be the distribution of the existing taxed reserves (irrespective of whether they are incorporated into the capital) and/or of the tax-free reserves incorporated into the capital. Such portion is determined on the basis of the ratio of the taxed reserves (except for the legal reserve up to the legal minimum and certain unavailable reserves) and the tax-free reserves incorporated into the capital (with a few exceptions) over the aggregate of such reserves and the fiscal capital.
Belgian withholding tax of 30% is normally levied on dividends, subject to such relief as may be available under applicable domestic or tax treaty provisions.
If the Company redeems its own ordinary shares, the redemption gain (i.e., the redemption proceeds after deduction of the portion of fiscal capital represented by the redeemed ordinary shares) will, in principle, be treated as a dividend subject to a Belgian withholding tax of 30%, subject to such relief as may be available under applicable domestic or tax treaty provisions. No Belgian withholding tax will be triggered if such redemption is carried out on a stock exchange and meets certain conditions.
In case of liquidation of the Company, the liquidation gain (i.e., the amount distributed in excess of the fiscal capital) will in principle be subject to Belgian withholding tax at a rate of 30%, subject to such relief as may be available under applicable domestic or tax treaty provisions.
As mentioned above, any dividends or other distributions made by the Company to shareholders owning its ordinary shares will, in principle, be subject to withholding tax in Belgium at a rate of 30%, except for shareholders which qualify for an exemption of withholding tax such as, among others, qualifying pension funds or a company qualifying as a parent company in the sense of Council Directive 2011/96/EU dated November 30, 2011 (the “Parent-Subsidiary Directive”), or that qualify for a lower withholding tax rate or an exemption by virtue of a tax treaty. Various conditions may apply, and shareholders residing in countries other than Belgium are advised to consult their local advisors regarding the tax consequences of dividends or other distributions made by the Company. Shareholders of the Company residing in countries other than Belgium may not be able to credit the amount of such withholding tax to any tax due on such dividends or other
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distributions in any country other than Belgium. As a result, such shareholders may be subject to double taxation in respect of such dividends or other distributions.
Belgium and the United States have concluded a double tax treaty concerning the avoidance of double taxation, or the U.S.-Belgium Tax Treaty. The U.S.-Belgium Tax Treaty reduces the applicability of Belgian withholding tax to 15%, 5% or 0% for U.S. taxpayers, provided that the U.S. taxpayer meets the limitation of benefits conditions imposed by the U.S.-Belgium Tax Treaty. The Belgian withholding tax is generally reduced to 15% under the U.S.-Belgium Tax Treaty. The 5% withholding tax applies in the case where the U.S. shareholder is a company which holds at least 10% of the ordinary shares in the Company. A 0% Belgian withholding tax applies when the shareholder is a U.S. company which has held at least 10% of the ordinary shares in the Company for a period of at least 12 months ending on the date the dividend is declared, or is, subject to certain conditions, a U.S. pension fund. The U.S. shareholders are encouraged to consult their own tax advisors to determine whether they can invoke the benefits and meet the limitation of benefits conditions as imposed by the U.S.-Belgium Tax Treaty.
Belgian resident individuals
For Belgian resident individuals who acquire and hold the ordinary shares as a private investment, the Belgian dividend withholding tax fully discharges their personal income tax liability. They may nevertheless elect to report (the gross amount of) the dividends in their personal income tax return. Where such an individual opts to report them, dividends will normally be taxable at the lower of the generally applicable 30% withholding tax rate on dividends or at the progressive personal income tax rates applicable to the taxpayer’s overall declared income (local surcharges will not apply). The first EUR 800 (amount applicable for income years 2022 and 2023) of reported ordinary dividend income will be exempt from Belgian tax. This exemption from Belgian tax has to be claimed by each taxpayer via their tax declaration. For the avoidance of doubt, all reported dividends are taken into account to assess whether the said maximum amount is reached. In addition, if the dividends are reported, the Belgian dividend withholding tax levied at source may be credited against the personal income tax due and is reimbursable to the extent that it exceeds the final personal income tax liability by at least EUR 2.50, provided that the dividend distribution does not result in a reduction in value of or a capital loss on the ordinary shares. This condition is not applicable if the individual can demonstrate that he has held the ordinary shares in full legal ownership for an uninterrupted period of twelve months prior to the attribution of the dividends.
For Belgian resident individuals who acquire and hold the ordinary shares for professional purposes, the Belgian withholding tax does not fully discharge their income tax liability. Dividends received must be reported by the investor and will, in such case, be taxable at the investor’s personal income tax rate with the addition of local surcharges. The Belgian dividend withholding tax levied at source may be credited against the personal income tax due and is reimbursable to the extent that it exceeds the final personal income tax liability by at least EUR 2.50, subject to two conditions: (1) the taxpayer must own the ordinary shares in full legal ownership on the date on which the beneficiary of the dividend is identified and (2) the dividend distribution may not result in a reduction in value of or a capital loss on the ordinary shares. The latter condition is not applicable if the investor can demonstrate that he has held the full legal ownership of the ordinary shares for an uninterrupted period of twelve months prior to the attribution of the dividends.
Belgian resident companies
Corporate income tax
For Belgian resident companies, the dividend withholding tax does not fully discharge the corporate income tax liability. For such companies, the gross dividend income (including the Belgian withholding tax) must be declared in the corporate income tax return and will be subject to a corporate income tax rate of 25% for assessment year 2024 in relation to financial years starting on or after January 1, 2023, unless the reduced corporate income tax rates apply. Subject to certain conditions, a reduced corporate income tax rate of 20% as of year 2020 (i.e., for financial years starting on or after January 1, 2020) applies for Small and Medium Sized Enterprises (as defined by Article 1:24, §1 to §6 of the Belgian Code of Companies and Associations) on the first EUR 100,000 of taxable profits.
Any Belgian dividend withholding tax levied at source may be credited against the corporate income tax due and is reimbursable to the extent that it exceeds the corporate income tax due, subject to two conditions: (1) the taxpayer must own the ordinary shares in full legal ownership on the date on which the beneficiary of the dividend is identified; and (2) the dividend distribution may not result in a reduction in value of or a capital loss on the ordinary shares. The latter condition is not applicable (a) if the taxpayer can demonstrate that it has held the ordinary shares in full legal ownership for an uninterrupted period of twelve months prior to the attribution of the dividends; or (b) if, during the said period, the ordinary shares never belonged to a taxpayer other than a resident company or a non-resident company which has, in an uninterrupted manner, invested the ordinary shares in a permanent establishment (PE) in Belgium.
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If the corporate purpose of the beneficiary solely or mainly consists in managing and investing funds collected in order to pay legal or complementary pensions, the Belgian dividend withholding tax levied at source may be credited against the corporate income tax due and is reimbursable to the extent that it exceeds the corporate income tax due, provided that the taxpayer has held the ordinary shares in full legal ownership for an uninterrupted period of sixty days. This condition is not applicable if the taxpayer can demonstrate that the dividends are not connected to an arrangement or a series of arrangements (“rechtshandeling of geheel van rechtshandelingen”/“acte juridique ou un ensemble d’actes juridiques”) which is not genuine (“kunstmatig”/“non authentique”) and has been put in place for the main purpose or one of the main purposes of obtaining a tax credit of the Belgian dividend withholding tax.
As a general rule, Belgian resident companies can (subject to certain limitations) deduct 100% of gross dividends received from their taxable income (Dividend Received Deduction Regime), provided that at the time of a dividend payment or attribution: (1) the Belgian resident company holds the ordinary shares representing at least 10% of the share capital of the Company or a participation in the Company with an acquisition value of at least EUR 2,500,000; (2) the ordinary shares have been held or will be held in full ownership for an uninterrupted period of at least one year; and (3) the conditions relating to the taxation of the underlying distributed income, as described in Article 203 of the Belgian Income Tax Code or the “Article 203 ITC Taxation Condition” are met; and (4) the anti-abuse provision contained in Article 203, §1, 7° of the Belgian Income Tax Code is not applicable (together, the “Conditions for the application of the Dividend Received Deduction Regime”). Under certain circumstances the conditions referred to under (1) and (2) do not need to be fulfilled in order for the Dividend Received Deduction Regime to apply.
The Conditions for the application of the Dividend Received Deduction Regime depend on a factual analysis, upon each dividend distribution, and for this reason the availability of this regime should be verified upon each dividend distribution.
Belgian withholding tax
Dividends distributed to a Belgian resident company will be exempt from Belgian withholding tax provided that the Belgian resident company holds, upon payment or attribution of the dividends, at least 10% of the share capital of the Company and such minimum participation is held or will be held during an uninterrupted period of at least one year.
In order to benefit from this exemption, the Belgian resident company must provide the Company or its paying agent at the latest upon the attribution or the payment of the dividend with a certificate confirming its qualifying status and the fact that it meets the required conditions. If the Belgian resident company holds the required minimum participation for less than one year, at the time the dividends are paid on or attributed to the ordinary shares, the Company will levy the Belgian withholding tax but will not transfer it to the Belgian Treasury provided that the Belgian resident company certifies its qualifying status, the date from which it has held such minimum participation, and its commitment to hold the minimum participation for an uninterrupted period of at least one year.
The Belgian resident company must also inform the Company or its paying agent if the one-year period has expired or if its shareholding will drop below 10% of the share capital of the Company before the end of the one-year holding period. Upon satisfying the one-year shareholding requirement, the dividend withholding tax which was temporarily withheld will be paid to the Belgian resident company.
Please note that the above described Dividend Received Deduction Regime and the withholding tax exemption will not be applicable to dividends which are connected to an arrangement or a series of arrangements (“rechtshandeling of geheel van rechtshandelingen”/“acte juridique ou un ensemble d’actes juridiques”) for which the Belgian tax administration, taking into account all relevant facts and circumstances, has proven, unless there is evidence to the contrary, that this arrangement or this series of arrangements is not genuine (“kunstmatig”/“non authentique”) and has been put in place for the main purpose or one of the main purposes of obtaining the dividend received deduction, the above dividend withholding tax exemption or one of the advantages of the Parent-Subsidiary Directive in another EU Member State. An arrangement or a series of arrangements is regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality.
Belgian resident organizations for financing pensions
For organizations for financing pensions or OFPs, i.e., Belgian pension funds incorporated in the form of an OFP (“organismen voor de financiering van pensioenen”/“organismes de financement de pensions”) within the meaning of Article 8 of the Belgian Act of October 27, 2006, the dividend income is generally tax exempt.
Subject to certain limitations, any Belgian dividend withholding tax levied at source may be credited against the corporate income tax due and is reimbursable to the extent that it exceeds the corporate income tax due.
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If the corporate purpose of the beneficiary solely or mainly consists in managing and investing funds collected in order to pay legal or complementary pensions, the Belgian dividend withholding tax levied at source may be credited against the corporate income tax due and is reimbursable to the extent that it exceeds the corporate income tax due, provided that the taxpayer has held the ordinary shares in full legal ownership for an uninterrupted period of sixty days. This condition is not applicable if the taxpayer can demonstrate that the dividends are not connected to an arrangement or a series of arrangements (“rechtshandeling of geheel van rechtshandelingen”/“acte juridique ou un ensemble d’actes juridiques”) which is not genuine (“kunstmatig”/“non authentique”) and has been put in place for the main purpose or one of the main purposes of obtaining a tax credit of the Belgian dividend withholding tax.
Other Belgian resident legal entities subject to Belgian legal entities tax
For taxpayers subject to the Belgian income tax on legal entities, the Belgian dividend withholding tax in principle fully discharges their income tax liability.
Non-resident individuals or non-resident companies
Non-resident income tax
For non-resident individuals and companies, the Belgian dividend withholding tax will be the only tax on dividends in Belgium, unless the non-resident holds the ordinary shares in connection with a business conducted in Belgium through a fixed base in Belgium or a Belgian PE.
If the ordinary shares are acquired by a non-resident in connection with a fixed base or a PE in Belgium, the investor must report any dividends received, which will be taxable at the applicable non-resident personal or corporate income tax rate, as appropriate. Belgian dividend withholding tax levied at source may be credited against non-resident personal or corporate income tax and is reimbursable to the extent that it exceeds the income tax due by at least EUR 2.50, and subject to two conditions: (1) the taxpayer must own the ordinary shares in full legal ownership on the date on which the beneficiary of the dividend is identified and (2) the dividend distribution may not result in a reduction in value of or a capital loss on the ordinary shares. The latter condition is not applicable if (a) the non-resident individual or the non-resident company can demonstrate that the ordinary shares were held in full legal ownership for an uninterrupted period of twelve months prior to the payment or attribution of the dividends or (b) with regard to non-resident companies only, if, during the said period, the ordinary shares have not belonged to a taxpayer other than a Belgian resident company or a non-resident company which has, in an uninterrupted manner, invested the ordinary shares in a Belgian PE.
Non-resident companies whose ordinary shares are invested in a Belgian PE may deduct 100% of the gross dividends received from their taxable income if, at the date the dividends are paid or attributed, the Conditions for the application of the Dividend Received Deduction Regime are met. The application of the Dividend Received Deduction Regime depends, however, on a factual analysis to be made upon each distribution and its availability should be verified upon each dividend distribution.
Dividends distributed to non-resident individuals who do not use the ordinary shares in the exercise of a professional activity may be eligible for the tax exemption with respect to ordinary dividends in an amount of up to EUR 800 (amount applicable for income years 2022 and 2023) per year. For the avoidance of doubt, all dividends paid or attributed to such non-resident individual (and hence not only dividends paid or attributed on the ordinary shares) are taken into account to assess whether the said maximum amount is reached. Consequently, if Belgian withholding tax has been levied on dividends paid or attributed to the ordinary shares, such non-resident individual may request in its Belgian non-resident income tax return that any Belgian withholding tax levied is credited and, as the case may be, reimbursed. However, if no Belgian non-resident income tax return must be filed by the non-resident individual, any Belgian withholding tax levied could in principle be reclaimed by filing a certified, dated and signed written request addressed to the tax official of the Centre for Foreign Taxpayers (“Centrum Buitenland”/“Centre Etrangers”). Such a request must be filed no later than on December 31 of the calendar year following the calendar year in which the relevant dividend(s) have been received, together with an affidavit confirming the non-resident individual status and certain supporting documents.
Belgian dividend withholding tax relief for non-residents
Under Belgian tax law, withholding tax is not due on dividends paid to a foreign pension fund which satisfies the following conditions: (i) it is a non-resident saver in the meaning of Article 227, 3° of the Belgian ITC, which implies that it has separate legal personality and fiscal residence outside of Belgium; (ii) whose corporate purpose consists solely in managing and investing funds collected in order to pay legal or complementary pensions; (iii) whose activity is limited to the investment of funds collected in the exercise of its statutory mission, without any profit making aim; (iv) which is exempt from income tax in its country of residence; and (v) except in specific circumstances, provided that it is not contractually obligated to redistribute the dividends to any ultimate beneficiary of such dividends for whom it would manage the ordinary
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shares, nor obligated to pay a manufactured dividend with respect to the ordinary shares under a securities borrowing transaction. The exemption will only apply if the foreign pension fund provides a certificate confirming that it is the full legal owner or usufruct holder of the ordinary shares and that the above conditions are satisfied. The foreign pension fund must then forward that certificate to the Company or its paying agent.
As mentioned above, if the corporate purpose of the beneficiary solely or mainly consists in managing and investing funds collected in order to pay legal or complementary pensions, the Belgian dividend withholding tax levied at source may be credited against the corporate income tax due and is reimbursable to the extent that it exceeds the corporate income tax due, provided that the taxpayer has held the ordinary shares in full legal ownership for an uninterrupted period of sixty days. This condition is not applicable if the taxpayer can demonstrate that the dividends are not connected to an arrangement or a series of arrangements (“rechtshandeling of geheel van rechtshandelingen”/“acte juridique ou un ensemble d’actes juridiques”) which is not genuine (“kunstmatig”/“non authentique”) and has been put in place for the main purpose or one of the main purposes of obtaining a tax credit of the Belgian dividend withholding tax.
Dividends distributed to non-resident qualifying parent companies established in a Member State of the EU or in a country with which Belgium has concluded a double tax treaty that includes a qualifying exchange of information clause will, under certain conditions, be exempt from Belgian withholding tax provided that the ordinary shares held by the non-resident company, upon payment or attribution of the dividends, amount to at least 10% of the share capital of the Company and such minimum participation is held or will be held during an uninterrupted period of at least one year. A non-resident company qualifies as a parent company provided that (i) for companies established in a Member State of the EU, it has a legal form as listed in the annex to the EU Parent-Subsidiary Directive, as amended by Directive 2003/123/EC of December 22, 2003, or, for companies established in a country with which Belgium has concluded a qualifying double tax treaty, it has a legal form similar to the ones listed in such annex (provided that, as regards the companies governed by Belgian law, the reference to a “besloten vennootschap met beperkte aansprakelijkheid”/“société privée à responsabilité limitée”, a “coöperatieve vennootschap met onbeperkte aansprakelijkheid”/“société cooperative à responsabilité illimitée” and a “gewone commanditaire vennootschap”/“société en commandite simple” should also be understood as a reference to the “besloten vennootschap”/“société à responsabilité limitée”, the “coöperatieve vennootschap”/“société cooperative”, and the “commanditaire vennootschap”/“société en commandite” respectively); (ii) it is considered to be a tax resident according to the tax laws of the country where it is established and the double tax treaties concluded between such country and third countries; and (iii) it is subject to corporate income tax or a similar tax without benefiting from a tax regime that derogates from the ordinary tax regime. The Company should also meet the aforementioned conditions in order for the exemption to be applicable.
To benefit from this exemption, the non-resident company must provide the Company or its paying agent at the latest upon the attribution of the dividends with a certificate confirming its qualifying status and the fact that it meets the three aforementioned conditions.
If the non-resident company holds a minimum participation for less than one year at the time the dividends are paid on or attributed to the ordinary shares, the Company must deduct the withholding tax but does not need to transfer it to the Belgian Treasury provided that the non-resident company provides the Company or its paying agent with a certificate confirming, in addition to its qualifying status, the date as of which it has held the ordinary shares, and its commitment to hold the ordinary shares for an uninterrupted period of at least one year. The non-resident company must also inform the Company or its paying agent when the one-year period has expired or if its shareholding drops below 10% of the Company’s share capital before the end of the one-year holding period. Upon satisfying the one-year shareholding requirement, the deducted dividend withholding tax which was temporarily withheld will be paid to the non-resident company.
Please note that the above withholding tax exemption will not be applicable to dividends which are connected to an arrangement or a series of arrangements (‘‘rechtshandeling of geheel van rechtshandelingen’’/“acte juridique ou un ensemble d’actes juridiques’’) for which the Belgian tax administration, taking into account all relevant facts and circumstances, has proven, unless there is evidence to the contrary, that this arrangement or this series of arrangements is not genuine (‘‘kunstmatig’’/“non authentique’’) and has been put in place for the main purpose or one of the main purposes of obtaining the dividend received deduction, the above dividend withholding tax exemption or one of the advantages of the Parent-Subsidiary Directive in another EU Member State. An arrangement or a series of arrangements is regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality. Pursuant to recent jurisprudence of the European Court of Justice, the withholding tax exemption may even be refused if the receiving Parent Company cannot be considered as the beneficial owner of the dividends.
Dividends distributed by a Belgian company to a non-resident company will be exempt from withholding tax, provided that (i) the non-resident company is established in the European Economic Area or in a country with which Belgium has concluded a tax treaty that includes a qualifying exchange of information clause, (ii) the non-resident company is subject to corporate income tax or a similar tax without benefiting from a tax regime that derogates from the ordinary tax regime, (iii)
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the non-resident company does not satisfy the 10% participation threshold but has a participation in the Belgian company with an acquisition value of at least EUR 2,500,000 upon the date of payment or attribution of the dividend, (iv) the dividends relate to ordinary shares which are or will be held in full ownership for at least one year without interruption; and (v) the non-resident company has a legal form as listed in the annex to the Parent-Subsidiary Directive, as amended from time to time, or has a legal form similar to the ones listed in such annex (provided that, as regards the companies governed by Belgian law, the reference to a “besloten vennootschap met beperkte aansprakelijkheid”/“société privée à responsabilité limitée”, a “coöperatieve vennootschap met onbeperkte aansprakelijkheid”/“société cooperative à responsabilité illimitée” and a “gewone commanditaire vennootschap”/“société en commandite simple” should also be understood as a reference to the “besloten vennootschap”/“société à responsabilité limitée”, the “coöperatieve vennootschap”/“société cooperative” and the “commanditaire vennootschap”/“société en commandite” respectively) and that is governed by the laws of another Member State of the EEA, or by the law of a country with which Belgium has concluded a qualifying double tax treaty. This exemption applies to the extent that the withholding tax which would have been due if this exemption did not exist would not be creditable nor reimbursable in the hands of the non-resident company. The Company should also meet the aforementioned requirement regarding the legal form and regarding the liability to corporate income tax or a similar tax without benefiting from a tax regime that derogates from the ordinary tax regime.
In order to benefit from the exemption of withholding tax, the non-resident company must provide the Company or its paying agent with a certificate confirming (i) it has the above-described legal form, (ii) it is subject to corporate income tax or a similar tax without benefiting from a tax regime that deviates from the ordinary domestic tax regime, (iii) it holds a participation of less than 10% in the capital of the Company but with an acquisition value of at least EUR 2,500,000 upon the date of payment or attribution of the dividend, (iv) the dividends relate to ordinary shares in the Company which it has held or will hold in full legal ownership for an uninterrupted period of at least one year, (v) the extent to which it could, in principle, if this exemption did not exist, credit the levied Belgian withholding tax or obtain a reimbursement according to the legal provisions applicable on December 31 of the year preceding the year of the payment or attribution of the dividends, and (vi) its full name, legal form, address and fiscal identification number, if applicable.
Belgian dividend withholding tax is subject to such relief as may be available under applicable double tax treaty provisions. Belgium has concluded double tax treaties with more than 95 countries, reducing the dividend withholding tax rate to 20%, 15%, 10%, 5% or 0% for residents of those countries, depending on conditions related, among other things, to the size of the shareholding and certain identification formalities. Such reduction may be obtained either directly at source or through a refund of taxes withheld in excess of the applicable tax treaty rate. A claim for reimbursement of amounts withheld in excess of the rate defined by the double tax treaty (Form 276 Div-Aut) can be filed with the Centre for Foreign Taxpayers.
Prospective holders should consult their own tax advisors to determine whether they qualify for a reduction in withholding tax upon payment or attribution of dividends, and, if so, to understand the procedural requirements for obtaining a reduced withholding tax upon the payment of dividends or for making claims for reimbursement.
Belgian taxation of capital gains and losses on ordinary shares
Belgian resident individuals
In principle, Belgian resident individuals acquiring the ordinary shares as a private investment should not be subject to Belgian capital gains tax on a later disposal of the ordinary shares, and capital losses will not be tax deductible.
Capital gains realized by a Belgian resident individual are however taxable at 33% (plus local surcharges), unless the capital gain on the ordinary shares is deemed to be realized within the scope of the normal management of private estate. Capital losses are, however, not tax deductible. Moreover, capital gains realized by Belgian resident individuals on the disposal of the ordinary shares to a non-resident company (or body constituted in a similar legal form), to a foreign State (or one of its political subdivisions or local authorities) or to a non-resident legal entity, in each case established outside the European Economic Area, are in principle taxable at a rate of 16.5% (plus local surcharges) if, at any time during the five years preceding the sale, the Belgian resident individual has owned, directly or indirectly, alone or with his/her spouse or with certain relatives, a substantial shareholding in the Company (i.e., a shareholding of more than 25% in the Company). Capital losses arising from such transactions are, however, not tax deductible.
Capital gains realized by Belgian resident individuals in case of redemption of the ordinary shares or in case of liquidation of the Company will generally be taxable as a dividend.
Belgian resident individuals who hold the ordinary shares for professional purposes are taxable at the ordinary progressive personal income tax rates (plus local surcharges) on any capital gains realized upon the disposal of the ordinary shares, except for the ordinary shares held for more than five years, which are taxable at a separate rate of, in principle, 10% (capital gains realized in the framework of the cessation of activities under certain circumstances) or 16.5% (other
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occasions), both plus local surcharges. Capital losses on the ordinary shares incurred by Belgian resident individuals who hold the ordinary shares for professional purposes are in principle tax deductible.
Belgian resident companies
Belgian resident companies are normally not subject to Belgian capital gains taxation on gains realized upon the disposal of the ordinary shares provided that the Conditions for the application of the Dividend Received Deduction Regime are met.
If one or more of the Conditions for the application of the Dividend Received Deduction Regime would not be met, any capital gain realized would be taxable at the standard corporate income tax rate of 25%, unless the reduced corporate income tax rate of 20% applies.
Capital losses on the ordinary shares incurred by Belgian resident companies are as a general rule not tax deductible.
Ordinary shares held in the trading portfolios of Belgian qualifying credit institutions, investment enterprises and management companies of collective investment undertakings are subject to a different regime. The capital gains on such ordinary shares are taxable at the standard corporate income tax rate of 25% unless the reduced corporate income tax rate of 20% applies, and the capital losses on such ordinary shares are tax deductible. Internal transfers to and from the trading portfolio are assimilated to a realization. Capital gains realized by Belgian resident companies in case of redemption of the ordinary shares or in case of liquidation of the Company will, in principle, be subject to the same taxation regime as dividends.
Belgian resident organizations for financing pensions
Capital gains and capital losses realized by OFPs within the meaning of Article 8 of the Belgian Act of October 27, 2006 upon the disposal of the ordinary shares are not to be taken into account for the determination of the taxable result of the OFPs.
Other Belgian resident legal entities subject to Belgian legal entities tax
Capital gains realized upon disposal of the ordinary shares by Belgian resident legal entities are in principle not subject to Belgian income tax, and capital losses are not tax deductible.
Capital gains realized upon disposal of (part of) a substantial participation in a Belgian company (i.e., a participation representing more than 25% of the share capital of the Company at any time during the last five years prior to the disposal) may, however, under certain circumstances be subject to income tax in Belgium at a rate of 16.5%.
Capital gains realized by Belgian resident legal entities in case of redemption of the ordinary shares or in case of liquidation of the Company will, in principle, be subject to the same taxation regime as dividends.
Non-resident individuals or non-resident companies
Non-resident individuals or companies are, in principle, not subject to Belgian income tax on capital gains realized upon disposal of the ordinary shares, unless the ordinary shares are held as part of a business conducted in Belgium through a fixed base in Belgium or a Belgian PE. In such a case, the same principles apply as described with regard to Belgian individuals (holding the ordinary shares for professional purposes) or Belgian companies.
Non-resident individuals who do not use the ordinary shares for professional purposes and who have their fiscal residence in a country with which Belgium has not concluded a tax treaty, or with which Belgium has concluded a tax treaty that confers the authority to tax capital gains on the ordinary shares to Belgium, might be subject to tax in Belgium if the capital gains arise from transactions which are to be considered speculative or beyond the normal management of one’s private estate or in case of disposal of a substantial participation in a Belgian company as mentioned in the tax treatment of the disposal of the ordinary shares by Belgian individuals. Such non-resident individuals might therefore be obliged to file a tax return and should consult their own tax advisor.
Annual tax on securities accounts
The law of February 17, 2021 on the introduction of an annual tax on securities accounts (the “Law of February 17, 2021”) has introduced an annual tax on securities accounts into Belgian law effective as from February 26, 2021. Pursuant to the Law of February 17, 2021, a 0.15% tax is applicable to Belgian residents and non-residents who hold securities accounts with an average value, over a period of twelve consecutive months starting on October 1 and ending on September 30 of the subsequent year, higher than EUR 1,000,000. The ordinary shares are principally qualifying securities for the purposes of this tax.
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The tax due is limited to 10% on the difference between the taxable amount and the aforementioned cap of EUR 1,000,000. This cap is assessed per securities account (irrespective of whether the account is held in Belgium or abroad) and involves Belgian as well as foreign securities accounts held by Belgian residents. Securities held by non-residents only fall within the scope of the annual tax on securities accounts provided they are held on securities accounts with a financial intermediary established or located in Belgium. Note that, pursuant to certain double tax treaties, Belgium has no right to tax capital. Hence, to the extent that the annual tax on securities accounts is viewed as a tax on capital within the meaning of these double tax treaties, treaty override may, subject to certain conditions, be claimed. Belgian establishments of non-residents are, however, treated as Belgian residents for the purposes of the annual tax on securities accounts, so that both Belgian and foreign securities accounts fall within the scope of this tax.
The annual tax on securities accounts is in principle due by the financial intermediary established or located in Belgium. Otherwise, the annual tax on securities accounts needs to be declared and is due by the holder of the securities accounts itself, unless the holder provides evidence that the annual tax on securities accounts has already been withheld, declared and paid by an intermediary which is not established or located in Belgium. In that respect, intermediaries located or established outside of Belgium could appoint an Annual Tax on Securities Accounts Representative in Belgium. Such a representative is then liable towards the Belgian Treasury (“Thesaurie”/“Trésorerie”) for the annual tax on securities accounts due and for complying with certain reporting obligations in that respect. If the holder of the securities accounts itself is liable for reporting obligations (e.g., when a Belgian resident holds a securities account abroad with an average value higher than EUR 1,000,000), the deadline for filing the tax return for the annual tax on securities accounts corresponds to the deadline for filing the annual tax return for personal income tax purposes electronically, irrespective of whether the Belgian resident is an individual or a legal entity. In the latter case, the annual tax on securities accounts must be paid by the taxpayer on August 31 of the year following the year on which the tax was calculated, at the latest.
As a general rule, no annual tax on securities accounts is due provided that the average value of the securities account is less than EUR 1,000,000.
Please note that the annual tax on securities accounts contains several (specific) anti-abuse provisions aimed at remediating tax avoidance (e.g., conversion of qualifying financial instruments to non-qualifying financial instruments (such as nominative shares) or splitting an existing securities account into several securities accounts in order to avoid reaching the cap of EUR 1,000,000 on the relevant securities account). By ruling dated October 27, 2022, the Constitutional Court annulled both specific anti-abuse provisions. However, these situations could still be targeted by applying the general anti-abuse provision.
Investors should consult their own professional advisors in relation to the annual tax on securities accounts.
Belgian tax on stock exchange transactions
The purchase and the sale and any other acquisition or transfer for consideration of existing ordinary shares (secondary market transactions) is subject to the Belgian tax on stock exchange transactions (“taks op de beursverrichtingen”/“taxe sur les opérations de bourse”) if it is (i) executed in Belgium through a professional intermediary, or (ii) deemed to be executed in Belgium, which is the case if the order is directly or indirectly made to a professional intermediary established outside of Belgium, either by private individuals with habitual residence in Belgium or by legal entities for the account of their seat or establishment in Belgium (both referred to as a “Belgian Investor”). The tax on stock exchange transactions is not due upon the issuance of new ordinary shares (primary market transactions).
The tax on stock exchange transactions is levied at a rate of 0.35% of the purchase price, capped at EUR 1,600 per transaction and per party.
A separate tax is due by each party to the transaction, and both taxes are collected by the professional intermediary. However, if the intermediary is established outside of Belgium, the tax will in principle be due by the Belgian Investor, unless that Belgian Investor can demonstrate that the tax has already been paid. Professional intermediaries established outside of Belgium can, subject to certain conditions and formalities, appoint a Belgian Stock Exchange Tax Representative, which will be liable for the tax on stock exchange transactions in respect of the transactions executed through the professional intermediary. If the Stock Exchange Tax Representative has paid the tax on stock exchange transactions due, the Belgian Investor will, as per the above, no longer be the debtor of the tax on stock exchange transactions.
No tax on stock exchange transactions is due on transactions entered into by the following parties, provided they are acting for their own account: (i) professional intermediaries described in Article 2.9° and 10° of the Belgian Law of August 2, 2002 on the supervision of the financial sector and financial services; (ii) insurance companies defined in Article 5 of the Belgian Law of March 13, 2016 on the status and supervision of insurance companies and reinsurance companies; (iii) pension institutions referred to in Article 2,1° of the Belgian Law of October 27, 2006 concerning the supervision of
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pension institutions; (iv) undertakings for collective investment; (v) regulated real estate companies; and (vi) Belgian non-residents provided they deliver a certificate to their financial intermediary in Belgium confirming their non-resident status.
Application of the Tonnage Tax Regime to the Company
The Belgian Ministry of Finance approved our application on October 23, 2013 for beneficial tax treatment of certain of our vessel operations income.
Under this Belgian tax regime, our taxable basis is determined on a lump-sum basis (Tonnage Tax Regime – An alternative way of calculating taxable income of operating qualifying ships. Taxable profits are calculated by reference to the net tonnage of the qualifying vessels a company operates, independent of the actual earnings (profit or loss) for Belgian corporate income tax purposes). This Tonnage Tax Regime was initially granted for 10 years and was renewed for an additional 10-year period in 2013. The Belgian Ruling Commission formally confirmed that the Tonnage Tax Regime applies until the end of 2023. The application for prolongation of this Tonnage Tax Regime as from 2024 will be filed during 2023.
We cannot assure the Company will be able to continue to take advantage of these tax benefits in the future or that the Belgian Ministry of Finance will approve the Company’s future applications. Changes to the tax regimes applicable to the Company, or the interpretation thereof, may impact the future net results of the Company.
Other income tax considerations
In addition to the income tax consequences discussed above, the Company may be subject to tax in one or more other jurisdictions where the Company conducts activities. The amount of any such tax imposed upon our operations may be material.
Estate and Gift Tax
There is no Belgian estate tax on the transfer of shares of the Company on the death of a Belgian non-resident.
Donations of shares of the Company made in Belgium may or may not be subject to gift tax depending on how the donation is carried out.
The proposed Financial Transaction Tax (FTT)
On February 14, 2013 the EU Commission adopted a Draft Directive on a common Financial Transaction Tax (FTT). Earlier negotiations for a common transaction tax among all 28 EU Member States had failed. The current negotiations between Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain (the “Participating Member States”) are seeking a compromise under “enhanced cooperation” rules, which require consensus from at least nine nations. Earlier, Estonia dropped out of the negotiations by declaring that it would not introduce the FTT.
The Draft Directive currently stipulates that once the FTT enters into force, the Participating Member States will not maintain or introduce taxes on financial transactions other than the FTT (or VAT as provided in Council Directive 2006/112/EC of November 28, 2006 on the common system of value added tax). For Belgium, the tax on stock exchange transactions should thus be abolished once the FTT enters into force.
However, the Draft Directive on the FTT remains subject to negotiations between the Participating Member States.
As there was no agreement by the end of 2022, the EU Commission will itself propose a new resource, based on a new FTT. A proposal is scheduled for June 2024, with an envisaged entry into force as of January 1, 2026.
Prospective investors should consult their own professional advisors in relation to the FTT.
Pillar Two Model Rules
On December 20, 2021, the OECD released the Pillar Two Model Rules (also referred to as the “Anti Global Base Erosion” or “GloBE” Rules). These rules are part of the Two-Pillar Solution to address the tax challenges of the digitalization of the economy that was agreed by 137 member jurisdictions of the OECD/G20 Inclusive Framework on BEPS and endorsed by the G20 Finance Ministers and Leaders in October 2021.
Council Directive (EU) 2022/2523 of December 14, 2022 (the “Minimum Tax Directive”) provides a common set of rules for EU Member States to implement the Pillar Two Model Rules in their national laws. The rules are intended to ensure a
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global minimum level of taxation of 15% for multinational enterprise groups and large-scale domestic groups in the EU. The rules will apply to multinational enterprise groups and large-scale domestic groups in the EU with combined financial revenues of more than EUR 750 million a year. They will apply to any large group, both domestic and international, with a parent company or a subsidiary situated in an EU Member State. The Minimum Tax Directive includes a common set of rules on how to calculate the 15% effective minimum tax rate. If the minimum effective rate is not imposed by the country where the subsidiary company is based, there are provisions for the EU Member State of the parent company to apply a “top-up” tax.
EU Member States have until December 31, 2023 to transpose the Minimum Tax Directive into national legislation with the rules to be applicable for fiscal years starting on or after December 31, 2023, with the exception of the Undertaxed Profit Rule (UTPR) which will be applicable for fiscal years starting on or after December 31, 2024. Countries outside the EU are also starting to implement the Pillar Two Model Rules as agreed by the G20/OECD Inclusive Framework on BEPS in their national laws.
Under the Pillar Two Model Rules, the income (or loss) is calculated based on financial accounts, which provides a base that is harmonized across all jurisdictions. Certain adjustments are provided to align the financial accounts with tax purposes, including an exclusion for international shipping income. Countries may introduce domestic minimum taxes.
The implementation of the Pillar Two Model Rules or domestic minimum taxes by EU Member States and other countries may impact the future net results of the Company. Further detailed analysis to be done in 2023 to get Euronav ready for 2024 and beyond.
ATAD3
On December 22, 2021, the EU Commission published a draft directive to “tackle the misuse of shell entities for tax purposes” (“ATAD3” or the “Unshell Directive”). The draft directive is intended to be implemented in national legislation by January 1, 2025.
ATAD3 provides for specific conditions (or gateways) to identify potential shell entities (entities with limited or no substance). If an undertaking would qualify as a shell entity, a specific reporting obligation applies, and the benefits granted by double tax treaties and EU Directives (such as the withholding tax exemption) could be denied.
Investors should consult their own professional advisors in relation to ATAD3.
F. Dividends and paying agents.
Not applicable.
G. Statement by experts.
Not applicable.
H. Documents on display.
We are subject to the informational requirements of the Exchange Act. In accordance with these requirements we file reports and other information with the SEC. The SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information that we and other registrants have filed electronically with the SEC. Our filings are also available on our website at www.euronav.com. This web address is provided as an inactive textual reference only. Information contained on our website does not constitute part of this annual report.
Shareholders may also request a copy of our filings at no cost, by writing or telephoning us at the following address: Euronav NV, De Gerlachekaai 20, 2000 Antwerpen, Belgium, Telephone: +32 3 247 44 11.
I. Subsidiary Information.
Not applicable.
J. Annual Report to Security Holders.
Not applicable.
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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk
We are exposed to market risk from changes in interest rates related to the variable rate of the borrowings under our secured and unsecured credit facilities. Amounts borrowed under the credit facilities bear interest at a rate equal to LIBOR plus a margin. Increasing interest rates could affect our future profitability. In certain situations, we may enter into financial instruments to reduce the risk associated with fluctuations in interest rates. A one percent increase in LIBOR would have increased our interest expense for the year ended December 31, 2022 by approximately $15.6 million ($13.2 million in 2021).
Currency risk
We are exposed to currency risk related to our operating expenses and treasury notes expressed in euros. In 2022, about 15.4% of the total operating expenses were incurred in euros (2021: 13.9%). Revenue and the financial instruments are expressed in U.S. dollars only. A 10 percent strengthening of the Euro against the dollar at December 31, 2022 would have decreased our profit or loss by $11.0 million (2021: $9.6 million). A 10 percent weakening of the euro against the dollar at December 31, 2022 would have had the equal but opposite effect.
Credit risk
We are exposed to credit risk from our operating activities (primarily for loans and guarantees extended to our joint ventures as part of the investing activities, trade receivables, and available liquidity under our credit revolving facilities) and from our financing activities, including credit risk related to undrawn portions of our facilities and deposits with banks and financial institutions. We seek to diversify the credit risk on our cash deposits by spreading the risk among various financial institutions. The cash and cash equivalents are held with bank and financial institution counterparties, which are rated A- to AA+, based on the rating agency, Standard & Poor's Financial Services LLC.
Market risk
Historically, the tanker markets have been volatile as a result of the many conditions and factors that can affect the price, supply and demand for tanker capacity. Changes in demand for transportation of oil over longer distances and supply of tankers to carry that oil may materially affect our revenues, profitability and cash flows. A significant portion of our vessels are currently exposed to the spot market. Every increase (decrease) of $1,000 on a spot tanker freight market (VLCC and Suezmax) per day would have increased (decreased) profit or loss by $21.3 million in 2022 (2021: $21.3 million).
For further information, please see Note 20 to our consolidated financial statements included herein.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
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PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURES
A. Disclosure of controls and procedures.
We evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2022. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
B. Management's annual report on internal control over financial reporting.
In accordance with Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act, the management of the Company is responsible for the establishment and maintenance of adequate internal controls over financial reporting for the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by the IASB. The Company's system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements. Management has performed an assessment of the effectiveness of the Company's internal controls over financial reporting as of December 31, 2022 based on the provisions of Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in 2013. Based on our assessment, management determined that the Company's internal controls over financial reporting were effective as of December 31, 2022 based on the criteria in Internal Control—Integrated Framework issued by COSO (2013).
C. Attestation report of the registered public accounting firm.
The attestation report of the registered public accounting firm is presented on page F-2 of the financial statements as filed as part of this annual report.
D. Changes in internal control over financial reporting.
There were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
In accordance with the rules of the NYSE, the U.S. exchange on which our ordinary shares are listed, we have appointed an audit committee, referred to as the Audit and Risk Committee, whose members as of March 31, 2023, are Mr. De Brabandere, as Chair, Ms. Skaugen, and Ms. Odedra.
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Our Supervisory Board has determined that Mr. De Brabandere is an audit committee financial expert, as such term is defined under U.S. securities laws, and independent, as such term is defined under the U.S. securities laws and the NYSE rules and regulations.
ITEM 16B. CODE OF ETHICS
We have adopted a code of conduct that applies to our directors, officers, employees and certain persons performing similar functions. A copy of our code of conduct is available on our website at www.euronav.com. We will also provide a hard copy of our code of conduct free of charge upon written request of a shareholder.
Shareholders may also request a copy of our code of conduct at no cost, by writing or telephoning us at the following address:
Euronav NV, De Gerlachekaai 20, 2000 Antwerpen, Belgium.
Telephone: +32 3 247 44 11
ITEM 16C. PRINCIPAL ACCOUNTING FEES AND SERVICES
Our principal accountants for the years ended December 31, 2022 and 2021 were KPMG Bedrijfsrevisoren—Réviseurs d' Entreprises BV/SRL (KPMG) (PCAOB ID:1050), located at Luchthaven Brussel Nationaal 1K, Zaventem, B1930, Belgium. The following table sets forth the fees related to audit, tax and other services provided by KPMG.
The following table sets forth the fees related to audit, tax and other services provided by KPMG.
(in U.S. dollars) | December 31, 2022 | December 31, 2021 | ||||||||||||
Audit fees | 1,002,174 | 965,078 | ||||||||||||
Audit-related fees | 147,070 | 60,209 | ||||||||||||
Taxation fees | 749 | 736 | ||||||||||||
All other fees | 21,865 | 20,104 | ||||||||||||
Total | 1,171,858 | 1,046,127 |
Audit Fees
Audit fees are fees billed for the audit of our annual financial statements or for services that are normally provided by our independent audit firms in connection with our statutory and regulatory filings and engagements (as applicable) services that provide assurance on the fair presentation of financial statements and generally encompass the following specific elements:
•An audit opinion on our consolidated financial statements;
•An audit opinion on the statutory financial statements of individual companies within our consolidated group of companies, where legally required;
•A review opinion on interim financial statements; and
•In general, any opinion assigned to the statutory auditor by local legislation or regulations.
Audit-Related Fees
Audit-related fees are fees not included in Audit Fees for assurance or other related work traditionally provided to us by our independent external audit firms in their role as statutory auditors and which are reasonably related to the performance of the audit or review of our financial statements.
These services generally include, among others, audits of employee benefit plan audits, due diligence related to mergers and acquisitions, accounting consultations and audits in connection with acquisitions, internal control reviews, attest services related to financial reporting that are not required by statute or regulation, work performed in connection with registration statements such as due diligence procedures or issuances of comfort letters and consultation concerning financial accounting and reporting standards, usually result in a certification or specific opinion on an investigation or specific procedures applied, and include opinion/audit reports on information provided by us at the request of a third party (for example, prospectuses, comfort letters).
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More specifically the audit-related services for Euronav are related to the issuance of a report in accordance with article 7:116 (7:97) of the Belgian Companies’ and Associations’ Code in relation to historical financial and accounting information included in the minutes of the Supervisory Board and in the minutes of the Committee of independent directors on any decision or for any transaction to implement a decision related to a related party within the meaning of the International Financial Reporting Standards adopted in accordance with Regulation (EC) 1606/2002, and to the issuance of a consent letter with respect to the inclusion or incorporation by reference of previously issued 2021 auditor’s report in view of a Form F-4 filing. In 2021, the audit-related services for Euronav are related to the issuance of limited assurance reports by the statutory auditor on statements of assets and liabilities of Euronav NV in the context of the payment of interim dividends — pursuant to Article 7:213 and under the conditions of the Belgian Code of Companies and Associations (CCA), and under the conditions set forth in the CCA, and to the issuance of a contribution in kind report in accordance with Article 7:197 of the CCA in the context of the reorganization of the shipping activities.
Taxation Fees
Tax fees in 2022 and 2021 were related to tax compliance services.
All other Fees
The other fees in 2022 are related to an Agreed upon Procedures engagement on the written statement of Euronav NV (the “Company” or “Euronav”) on the job creation and preservation commitments pursuant to article 22/2, 7° of the Flemish Region Act of February 6, 2004, as amended, supplemented or extended from time to time, for Euronav in the context of the Company’s compliance with the Flemish Government Decree of April 15, 2009, as amended, supplemented or extended from time to time, in respect of the guarantee agreement of April 7, 2021, and to services in connection with EMIR Agreed upon Procedures support. The other fees in 2021 are partially related to services in connection with an Agreed upon Procedures engagement on the overview of Euronav NV group entities for Euronav NV in the context of obtaining a 50% guarantee from PMV on the, at the time, to be renewed Revolving Credit Facility with KBC Bank NV, and to services in connection with EMIR Agreed upon Procedures support.
ITEM 16D. EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES
None.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES
None.
ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
Euronav NV performed during 2022 a tender process to appoint a new auditor in line with the Belgian Companies and Associations Code in respect of audit tendering and the European rules on mandatory audit rotation. The external audit tender resulted in the Supervisory Board resolving on September 28, 2022, that it intends to recommend BDO Bedrijfsrevisoren BV as the Euronav NV external auditor for the financial year 2023, subject to shareholders’ approval at the Annual General Meeting on May 17, 2023. At that point, KPMG Bedrijfsrevisoren BV / Réviseurs d’Entreprises SRL (“KPMG”) cannot seek to stand for re-election.
During the two fiscal years ended December 31, 2021, and the subsequent interim period prior to the decision of the Supervisory Board there were no: (1) disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreement, or (2) reportable events.
The audit reports of KPMG on the consolidated financial statements of Euronav NV (and subsidiaries) as of and for the years ended December 31, 2021 and 2020 and the effectiveness of internal control over financial reporting as of December 31, 2021 and 2020, did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. A letter from KPMG to the SEC is attached as exhibit 15.4 to this Form 20-F.
ITEM 16G. CORPORATE GOVERNANCE
Pursuant to an exception for foreign private issuers, we, as a Belgian company, are not required to comply with the corporate governance practices followed by U.S. companies under the NYSE rules and regulations. Set forth below is a list of what we believe to be the significant differences between our corporate governance practices and those applicable to U.S. companies under the NYSE rules and regulations.
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Independence of Directors.
The NYSE requires that a U.S. listed company maintain a majority of independent directors. Our Supervisory Board currently consists of seven members, three of which are considered "independent" according to NYSE's standards for independence. However, as permitted under Belgian law, our Supervisory Board may in the future not consist of a majority of independent members.
Executive Sessions.
The NYSE requires that Supervisory Board Members meet regularly in executive sessions without presence of the Management Board. The NYSE also requires that all independent directors meet in an executive session at least once a year. As permitted under Belgian law, closed sessions of our Supervisory Board may comprise both independent and non-independent Supervisory Board members.
Compensation Committee and Nominating/Corporate Governance Committee.
The NYSE requires that a listed U.S. company have a compensation committee and a nominating/corporate governance committee of independent directors. The Company's Corporate Governance and Nomination Committee, as well as the Remuneration Committee, currently consist entirely of independent members. In accordance with Belgian corporate law and corporate governance standards, both Committees must at all times maintain a majority of independent members (in accordance with Belgian independence standards).
Audit Committee.
The NYSE requires, among other things, that a listed U.S. company have an audit committee comprised of a minimum of three directors, who are all independent. Under Belgian law, our Audit and Risk Committee need not be comprised of three entirely independent members, but it must at all times count among its members at least one independent member (in accordance with Belgian independence standards). Although we are not required to do so under the NYSE rules and Rule 10A-3 under the Exchange Act, our Audit and Risk Committee is currently comprised of three independent members in accordance with the Exchange Act and NYSE rules as well as according to Belgian independence standards.
Corporate Governance Guidelines.
The NYSE requires U.S. companies to adopt and disclose corporate governance guidelines. The guidelines must address, among other things: director qualification standards, director responsibilities, director access to management and independent advisers, director compensation, director orientation and continuing education, management succession and an annual performance evaluation. We are not required to adopt such guidelines, but we have adopted a corporate governance charter in compliance with Belgian law requirements.
Shareholder Approval of Securities Issuances.
The NYSE requires that a listed U.S. company obtain the approval of its shareholders prior to issuances of securities under certain circumstances. In lieu of this requirement, we have elected to follow applicable practices under the laws of Belgium for authorizing issuances of securities.
Proxies.
As a foreign private issuer, we are not required to solicit proxies or provide proxy statements in connection with meetings of the Company’s shareholders as required by U.S. companies under the NYSE listing rules and regulations. As provided in our Coordinated Articles of Association, the designation of a proxy holder by a shareholder will occur as stated in the convening notice for the respective meeting of shareholders. The Supervisory Board of the Company may decide on the form of the proxies and may stipulate that the same be deposited at the place it indicates, within the period it fixes and that no other forms will be accepted.
Information about our corporate governance practices may also be found on our website, http://www.euronav.com, in the section "Investors" under "Corporate Governance." The information contained on our website does not form a part of this annual report.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
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ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
ITEM 17. FINANCIAL STATEMENTS
See "Item 18. Financial Statements."
ITEM 18. FINANCIAL STATEMENTS
The financial statements, together with the report of KPMG Bedrijfsrevisoren—Réviseurs d'Entreprises BV/SRL (KPMG) thereon, are set forth on page F-2 and are filed as a part of this report.
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ITEM 19. EXHIBITS
Exhibit Number | Description | |||||||
1.1 | ||||||||
2.1 | ||||||||
2.2 | ||||||||
4.1 | ||||||||
4.2 | ||||||||
4.3 | ||||||||
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4.5 | ||||||||
4.6 | ||||||||
4.7 | ||||||||
4.8 | ||||||||
4.9 | ||||||||
4.10 | ||||||||
4.11 | ||||||||
4.12 | ||||||||
4.13 | ||||||||
4.14 | ||||||||
4.15 | ||||||||
4.16 | ||||||||
4.17 | ||||||||
4.18 | ||||||||
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4.19 | ||||||||
4.20 | ||||||||
4.21 | ||||||||
4.22 | ||||||||
4.23 | ||||||||
4.24 | ||||||||
4.25 | ||||||||
4.26 | ||||||||
4.27 | ||||||||
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4.31 | ||||||||
4.32 | ||||||||
4.33 | ||||||||
4.34 | ||||||||
4.35 | ||||||||
4.36 | ||||||||
4.37 | ||||||||
4.38 | ||||||||
4.39 | ||||||||
8.1 | ||||||||
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11.1 | ||||||||
12.1 | ||||||||
12.2 | ||||||||
13.1 | ||||||||
13.2 | ||||||||
15.1 | ||||||||
15.2 | ||||||||
15.3 | ||||||||
15.4 | ||||||||
15.5 | ||||||||
101 | The following financial information from the registrant's annual report on Form 20-F for the fiscal year ended December 31, 2022, formatted in Extensible Business Reporting Language (XBRL): | |||||||
(1) Consolidated Statement of Financial Position as of December 31, 2022, 2021 and 2020 | ||||||||
(2) Consolidated Statement of Profit or Loss for the years ended December 31, 2022, 2021 and 2020 | ||||||||
(3) Consolidated Statement of Comprehensive Income as of December 31, 2022, 2021 and 2020 | ||||||||
(4) Consolidated Statements of Changes in Equity as of December 31, 2022, 2021 and 2020 | ||||||||
(5) Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020 | ||||||||
(6) Notes to the Consolidated Financial Statements. |
(1)Filed as an exhibit to the Company's Registration Statement on Form F-1, Registration No. 333-198625 and incorporated by reference herein.
(2)Filed as an exhibit to the Company's Annual Report on Form 20-F for the year ended December 31, 2014 and incorporated by reference herein.
(3)Filed as an exhibit to the Company's Annual Report on Form 20-F for the year ended December 31, 2015 and incorporated by reference herein.
(4)Filed as an exhibit to the Company’s Annual Report on Form 20-F for the year ended December 31, 2016 and incorporated by reference herein.
(5)Filed as an exhibit to the Company’s Report of Foreign Private Issuer on Form 6-K filed with the SEC on December 22, 2017 and incorporated by reference herein.
(6)Filed as an exhibit to the Company's Registration Statement on Form F-4, Registration No. 333-223039 and incorporated by reference herein.
(7)Filed as an exhibit to the Company’s Annual Report on Form 20-F for the year ended December 31, 2017 and incorporated by reference herein.
(8)Filed as an exhibit to the Company’s Annual Report on Form 20-F for the year ended December 31, 2018 and incorporated by reference herein.
(9)Filed as an exhibit to the Company’s Annual Report on Form 20-F for the year ended December 31, 2019 and incorporated by reference herein.
(10)Filed as an exhibit to the Company’s Annual Report on Form 20-F for the year ended December 31, 2020 and incorporated by reference herein.
(11)Filed as an exhibit to the Company’s Annual Report on Form 20-F for the year ended December 31, 2021 and incorporated by reference herein.
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
EURONAV NV | ||||||||
By: | /s/ Lieve Logghe | |||||||
Name: Lieve Logghe Title: Chief Financial Officer | ||||||||
Date: April 13, 2023 |
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholders and Supervisory Board
Euronav NV:
Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statement of financial position of Euronav NV and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of profit or loss, comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with IFRS Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s annual report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
F-2
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of impairment indicators for vessels in the Tankers segment
As discussed in Note 2 to the consolidated financial statements, the net carrying value of vessels in the Tankers segment (vessels and vessels in assets under construction and in right of use assets) as of December 31, 2022, was USD’000 3,096,702, representing 78% of the Group’s total assets. As discussed in Note 1 and Note 8, at each reporting date, the Group evaluates the carrying value of vessels for impairment at the level of the cash generating unit (CGU), by identifying events or changes in circumstances that indicate the carrying value of these CGUs may not be recoverable. The Group did not identify impairment indicators for its CGU’s included in the Tankers segment as of December 31, 2022.
We identified the assessment of the potential impairment indicators over the carrying value of vessels included in the Tankers segment as a critical audit matter. The Group's evaluation of the existence of impairment indicators considers both internal and external data, such as vessel and crude oil supply and demand trends, and changes in the extent and manner in which vessels are expected to be used. The assessment of these potential indicators on each CGU requires a high degree of auditor judgment. This is due to the existence of unobservable information and the unpredictability of global macroeconomic and geopolitical conditions affecting freight rates over the CGU’s useful life.
The following are the primary procedures we performed to address this critical audit matter:
–We evaluated the design and tested the operating effectiveness of the internal control related to the assessment of the existence of internal and external impairment indicators; and
–We evaluated the information and assumptions used by the Group in its assessment of the existence of impairment indicators by comparing information such as vessel and crude oil supply and demand trends, and changes in the extent and manner in which vessels are expected to be used, to historical information, external third-party information such as brokers’ reports and other industry data as well as to internal data.
/s/ Herwig Florent Henri Carmans KPMG Bedrijfsrevisoren BV/Réviseurs d’Entreprises SRL We have served as the Company’s auditor since 2004. Zaventem, Belgium April 12, 2023 |
F-3
December 31, 2022 | December 31, 2021 | |||||||||||||
ASSETS | ||||||||||||||
Non-current assets | ||||||||||||||
Vessels (Note 8) | 3,057,933 | 2,967,787 | ||||||||||||
Assets under construction (Note 8) | 228,429 | 181,293 | ||||||||||||
Right-of-use assets (Note 8) | 21,493 | 29,001 | ||||||||||||
Other tangible assets (Note 8) | 762 | 1,218 | ||||||||||||
Intangible assets (Note 9) | 15,746 | 186 | ||||||||||||
Receivables (Note 11) | 34,825 | 55,639 | ||||||||||||
Investments in equity accounted investees (Note 26) | 1,423 | 72,446 | ||||||||||||
Deferred tax assets (Note 10) | 1,403 | 1,546 | ||||||||||||
Total non-current assets | 3,362,014 | 3,309,116 | ||||||||||||
Current assets | ||||||||||||||
Bunker inventory (Note 12) | 41,643 | 69,035 | ||||||||||||
Non-current assets held for sale (Note 3) | 18,459 | — | ||||||||||||
Trade and other receivables (Note 13) | 366,789 | 237,745 | ||||||||||||
Current tax assets | 239 | 99 | ||||||||||||
Cash and cash equivalents (Note 14) | 179,929 | 152,528 | ||||||||||||
Total current assets | 607,059 | 459,407 | ||||||||||||
TOTAL ASSETS | 3,969,073 | 3,768,523 | ||||||||||||
EQUITY and LIABILITIES | ||||||||||||||
Equity | ||||||||||||||
Share capital (Note 15) | 239,148 | 239,148 | ||||||||||||
Share premium (Note 15) | 1,678,336 | 1,702,549 | ||||||||||||
Translation reserve | (24) | 453 | ||||||||||||
Hedging reserve (Note 15) | 33,053 | 2,396 | ||||||||||||
Treasury shares (Note 15) | (163,024) | (164,104) | ||||||||||||
Retained earnings | 385,976 | 180,140 | ||||||||||||
Equity attributable to owners of the Company | 2,173,465 | 1,960,582 | ||||||||||||
Non-current liabilities | ||||||||||||||
Bank loans (Note 17) | 1,264,243 | 1,175,835 | ||||||||||||
Other notes (Note 17) | 197,556 | 196,895 | ||||||||||||
Other borrowings (Note 17) | 71,011 | 86,198 | ||||||||||||
Lease liabilities (Note 17) | 5,824 | 16,759 | ||||||||||||
Other payables (Note 19) | 404 | 3,490 | ||||||||||||
Employee benefits (Note 18) | 1,635 | 6,839 | ||||||||||||
Provisions (Note 22) | 597 | 892 | ||||||||||||
Total non-current liabilities | 1,541,270 | 1,486,908 | ||||||||||||
Current liabilities | ||||||||||||||
Trade and other payables (Note 19) | 90,469 | 83,912 | ||||||||||||
Current tax liabilities | 5,927 | 366 | ||||||||||||
Bank loans (Note 17) | 68,941 | 29,313 | ||||||||||||
Other notes (Note 17) | — | 67,025 | ||||||||||||
Other borrowings (Note 17) | 65,851 | 117,863 | ||||||||||||
Lease liabilities (Note 17) | 22,855 | 22,292 | ||||||||||||
Provisions (Note 22) | 295 | 262 |
F-4
Total current liabilities | 254,338 | 321,033 | ||||||||||||
TOTAL EQUITY and LIABILITIES | 3,969,073 | 3,768,523 | ||||||||||||
The accompanying notes on page F-12 to F-113 are an integral part of these consolidated financial statements.
F-5
Consolidated Statement of Profit or Loss
(in thousands of USD except per share amounts)
2022 | 2021 | 2020 | ||||||||||||||||||
Jan. 1 - Dec 31, 2022 | Jan. 1 - Dec 31, 2021 | Jan. 1 - Dec 31, 2020 | ||||||||||||||||||
Shipping income | ||||||||||||||||||||
Revenue (Note 4) | 854,669 | 419,770 | 1,210,341 | |||||||||||||||||
Gains on disposal of vessels/other tangible assets (Note 8) | 96,160 | 15,068 | 22,728 | |||||||||||||||||
Other operating income (Note 4) | 15,141 | 10,255 | 10,112 | |||||||||||||||||
Total shipping income | 965,970 | 445,093 | 1,243,181 | |||||||||||||||||
Operating expenses | ||||||||||||||||||||
Voyage expenses and commissions (Note 5) | (175,187) | (118,808) | (125,430) | |||||||||||||||||
Vessel operating expenses (Note 5) | (216,094) | (220,706) | (218,390) | |||||||||||||||||
Charter hire expenses (Note 5) | (5,769) | (9,750) | (7,954) | |||||||||||||||||
Loss on disposal of vessels/other tangible assets (Note 8) | (347) | — | (1) | |||||||||||||||||
Depreciation tangible assets (Note 8) | (221,576) | (344,904) | (319,652) | |||||||||||||||||
Depreciation intangible assets (Note 9) | (1,021) | (90) | (99) | |||||||||||||||||
General and administrative expenses (Note 5) | (51,702) | (32,408) | (37,333) | |||||||||||||||||
Total operating expenses | (671,696) | (726,666) | (708,859) | |||||||||||||||||
RESULT FROM OPERATING ACTIVITIES | 294,274 | (281,573) | 534,322 | |||||||||||||||||
Finance income (Note 6) | 27,140 | 14,934 | 21,496 | |||||||||||||||||
Finance expenses (Note 6) | (133,009) | (95,541) | (91,553) | |||||||||||||||||
Net finance expenses | (105,869) | (80,607) | (70,057) | |||||||||||||||||
Share of profit (loss) of equity accounted investees (net of income tax) (Note 26) | 17,650 | 22,976 | 10,917 | |||||||||||||||||
PROFIT (LOSS) BEFORE INCOME TAX | 206,055 | (339,204) | 475,182 | |||||||||||||||||
Income tax benefit (expense) (Note 7) | (2,804) | 427 | (1,944) | |||||||||||||||||
PROFIT (LOSS) FOR THE PERIOD | 203,251 | (338,777) | 473,238 | |||||||||||||||||
Attributable to: | ||||||||||||||||||||
Owners of the company | 203,251 | (338,777) | 473,238 | |||||||||||||||||
Basic earnings per share (Note 16) | 1.01 | (1.68) | 2.25 | |||||||||||||||||
Diluted earnings per share (Note 16) | 1.01 | (1.68) | 2.25 | |||||||||||||||||
Weighted average number of shares (basic) (Note 16) | 201,747,963 | 201,677,981 | 210,193,707 | |||||||||||||||||
Weighted average number of shares (diluted) (Note 16) | 201,994,217 | 201,773,240 | 210,206,403 |
The accompanying notes on page F-12 to F-113 are an integral part of these consolidated financial statements.
F-6
2022 | 2021 | 2020 | ||||||||||||||||||
Jan. 1 - Dec 31, 2022 | Jan. 1 - Dec 31, 2021 | Jan. 1 - Dec 31, 2020 | ||||||||||||||||||
Profit/(loss) for the period | 203,251 | (338,777) | 473,238 | |||||||||||||||||
Other comprehensive income (expense), net of tax | ||||||||||||||||||||
Items that will never be reclassified to profit or loss: | ||||||||||||||||||||
Remeasurements of the defined benefit liability (asset) (Note 18) | 942 | 1,453 | (97) | |||||||||||||||||
Items that are or may be reclassified to profit or loss: | ||||||||||||||||||||
Foreign currency translation differences (Note 6) | (477) | (482) | 636 | |||||||||||||||||
Cash flow hedges - effective portion of changes in fair value (Note 15) | 30,657 | 9,852 | (2,873) | |||||||||||||||||
Equity-accounted investees - share of other comprehensive income (Note 26) | 159 | 951 | (2) | |||||||||||||||||
Other comprehensive income (expense), net of tax | 31,281 | 11,774 | (2,336) | |||||||||||||||||
Total comprehensive income (expense) for the period | 234,532 | (327,003) | 470,902 | |||||||||||||||||
Attributable to: | ||||||||||||||||||||
Owners of the company | 234,532 | (327,003) | 470,902 |
The accompanying notes on page F-12 to F-113 are an integral part of these consolidated financial statements.
F-7
Share capital | Share premium | Translation reserve | Hedging reserve | Treasury shares | Retained earnings | Total equity | ||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2020 | 239,148 | 1,702,549 | 299 | (4,583) | (45,616) | 420,058 | 2,311,855 | |||||||||||||||||||||||||||||||||||||
Profit (loss) for the period | — | — | — | — | — | 473,238 | 473,238 | |||||||||||||||||||||||||||||||||||||
Total other comprehensive income / (expense) | — | — | 636 | (2,873) | — | (99) | (2,336) | |||||||||||||||||||||||||||||||||||||
Total comprehensive income / (expense) | — | — | 636 | (2,873) | — | 473,139 | 470,902 | |||||||||||||||||||||||||||||||||||||
Transactions with owners of the company | ||||||||||||||||||||||||||||||||||||||||||||
Dividends to equity holders | — | — | — | — | — | (352,483) | (352,483) | |||||||||||||||||||||||||||||||||||||
Treasury shares acquired (Note 15) | — | — | — | — | (118,488) | — | (118,488) | |||||||||||||||||||||||||||||||||||||
Total transactions with owners | — | — | — | — | (118,488) | (352,483) | (470,971) | |||||||||||||||||||||||||||||||||||||
Balance at December 31, 2020 | 239,148 | 1,702,549 | 935 | (7,456) | (164,104) | 540,714 | 2,311,786 | |||||||||||||||||||||||||||||||||||||
Balance at January 1, 2021 | 239,148 | 1,702,549 | 935 | (7,456) | (164,104) | 540,714 | 2,311,786 | |||||||||||||||||||||||||||||||||||||
Profit (loss) for the period | — | — | — | — | — | (338,777) | (338,777) | |||||||||||||||||||||||||||||||||||||
Total other comprehensive income / (expense) | — | — | (482) | 9,852 | — | 2,404 | 11,774 | |||||||||||||||||||||||||||||||||||||
Total comprehensive income / (expense) | — | — | (482) | 9,852 | — | (336,373) | (327,003) | |||||||||||||||||||||||||||||||||||||
Transactions with owners of the company | ||||||||||||||||||||||||||||||||||||||||||||
Dividends to equity holders (Note 15) | — | — | — | — | — | (24,201) | (24,201) | |||||||||||||||||||||||||||||||||||||
Total transactions with owners | — | — | — | — | — | (24,201) | (24,201) | |||||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 239,148 | 1,702,549 | 453 | 2,396 | (164,104) | 180,140 | 1,960,582 |
F-8
Consolidated Statement of Changes in Equity (Continued)
(in thousands of USD)
Share capital | Share premium | Translation reserve | Hedging reserve | Treasury shares | Retained earnings | Total equity | ||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2022 | 239,148 | 1,702,549 | 453 | 2,396 | (164,104) | 180,140 | 1,960,582 | |||||||||||||||||||||||||||||||||||||
Profit (loss) for the period | — | — | — | — | — | 203,251 | 203,251 | |||||||||||||||||||||||||||||||||||||
Total other comprehensive income / (expense) | — | — | (477) | 30,657 | — | 1,101 | 31,281 | |||||||||||||||||||||||||||||||||||||
Total comprehensive income / (expense) | — | — | (477) | 30,657 | — | 204,352 | 234,532 | |||||||||||||||||||||||||||||||||||||
Transactions with owners of the company | ||||||||||||||||||||||||||||||||||||||||||||
Dividends to equity holders (Note 15) | — | (24,213) | — | — | — | — | (24,213) | |||||||||||||||||||||||||||||||||||||
Treasury shares delivered in respect of share-based payment plans (Note 15) | — | — | — | — | 1,080 | — | 1,080 | |||||||||||||||||||||||||||||||||||||
Equity-settled share-based payment (Note 24) | — | — | — | — | — | 1,484 | 1,484 | |||||||||||||||||||||||||||||||||||||
Total transactions with owners | — | (24,213) | — | — | 1,080 | 1,484 | (21,649) | |||||||||||||||||||||||||||||||||||||
Balance at December 31, 2022 | 239,148 | 1,678,336 | (24) | 33,053 | (163,024) | 385,976 | 2,173,465 |
The accompanying notes on page F-12 to F-113 are an integral part of these consolidated financial statements.
F-9
2022 | 2021 | 2020 | ||||||||||||||||||
Jan. 1 - Dec 31, 2022 | Jan. 1 - Dec 31, 2021 | Jan. 1 - Dec 31, 2020 | ||||||||||||||||||
Cash flows from operating activities | ||||||||||||||||||||
Profit (loss) for the period | 203,251 | (338,777) | 473,238 | |||||||||||||||||
Adjustments for: | 217,545 | 386,903 | 357,720 | |||||||||||||||||
Depreciation of tangible assets (Note 8) | 221,576 | 344,904 | 319,652 | |||||||||||||||||
Depreciation of intangible assets | 1,021 | 90 | 99 | |||||||||||||||||
Provisions | (262) | (227) | (388) | |||||||||||||||||
Income tax (benefits)/expenses (Note 7) | 2,804 | (427) | 1,944 | |||||||||||||||||
Share of profit of equity-accounted investees, net of tax (Note 26) | (17,650) | (22,976) | (10,917) | |||||||||||||||||
Net finance expenses (Note 6) | 105,869 | 80,607 | 70,057 | |||||||||||||||||
(Gain)/loss on disposal of assets (Note 8) | (95,813) | (15,068) | (22,727) | |||||||||||||||||
Changes in working capital requirements | (82,727) | (20,504) | 180,576 | |||||||||||||||||
Change in cash guarantees (Note 11) | 570 | 8 | (12,339) | |||||||||||||||||
Change in inventory (Note 12) | 27,391 | 6,745 | 107,602 | |||||||||||||||||
Change in receivables from contracts with customers (Note 13) | (105,538) | (25,485) | 85,830 | |||||||||||||||||
Change in accrued income (Note 13) | (2,941) | (331) | 12,667 | |||||||||||||||||
Change in deferred charges and fulfillment costs (Note 13) | 1,263 | (1,285) | (263) | |||||||||||||||||
Change in other receivables (Note 11 and 13) | (4,600) | 4,070 | (3,826) | |||||||||||||||||
Change in trade payables (Note 19) | (1,316) | (1,215) | 4,490 | |||||||||||||||||
Change in accrued payroll (Note 19) | (39) | (3,689) | 2,536 | |||||||||||||||||
Change in accrued expenses (Note 19) | (2,808) | 2,698 | (10,675) | |||||||||||||||||
Change in deferred income (Note 19) | 9,998 | (5,594) | (4,645) | |||||||||||||||||
Change in other payables (Note 19) | (2,113) | 2,953 | (148) | |||||||||||||||||
Change in provisions for employee benefits (Note 18) | (2,594) | 621 | (653) | |||||||||||||||||
Income taxes paid during the period | 2,761 | 12 | 78 | |||||||||||||||||
Interest paid (Note 6-20) | (99,744) | (60,999) | (56,084) | |||||||||||||||||
Interest received (Note 6-13) | 11,446 | 3,425 | 6,723 | |||||||||||||||||
Dividends received from equity-accounted investees (Note 26) | 3,021 | 4,635 | 7,534 | |||||||||||||||||
Net cash from (used in) operating activities | 255,553 | (25,305) | 969,785 | |||||||||||||||||
Acquisition of vessels (Note 8) | (523,494) | (413,062) | (224,904) | |||||||||||||||||
Proceeds from the sale of vessels (Note 8) | 356,730 | 55,844 | 78,075 | |||||||||||||||||
Acquisition of other tangible assets and prepayments (Note 8) | (164) | (142) | (285) | |||||||||||||||||
Acquisition of intangible assets (Note 9) | (16,582) | (115) | (221) | |||||||||||||||||
Loans from (to) related parties (Note 26) | 32,844 | 2,242 | 26,443 | |||||||||||||||||
Proceeds from sale (Purchase of) shares in equity-accounted investees (Note 26) | — | — | 2,000 | |||||||||||||||||
Repayment of loans from related parties | (10,215) | — | — | |||||||||||||||||
Lease payments received from finance leases | 2,036 | 1,987 | 1,786 | |||||||||||||||||
Net cash from (used in) investing activities | (158,845) | (353,246) | (117,106) | |||||||||||||||||
(Purchase of) Proceeds from sale of treasury shares (Note 15) | 1,080 | — | (118,488) | |||||||||||||||||
Proceeds from new borrowings (Note 17) | 1,270,295 | 1,509,580 | 893,827 | |||||||||||||||||
Repayment of borrowings (Note 17) | (976,670) | (726,032) | (994,989) | |||||||||||||||||
Repayment of commercial paper (Note 17) | (279,314) | (303,426) | (359,295) | |||||||||||||||||
(Repayment of) Proceeds from sale and leaseback (Note 17) | (22,667) | (22,667) | (22,853) | |||||||||||||||||
Repayment of lease liabilities (Note 17) | (25,527) | (54,928) | (37,779) | |||||||||||||||||
Transaction costs related to issue of loans and borrowings (Note 17) | (5,871) | (4,422) | (8,083) | |||||||||||||||||
Dividends paid (Note 15) | (24,221) | (24,212) | (352,041) | |||||||||||||||||
Net cash from (used in) financing activities | (62,895) | 373,893 | (999,701) | |||||||||||||||||
Net increase (decrease) in cash and cash equivalents | 33,813 | (4,658) | (147,022) | |||||||||||||||||
Net cash and cash equivalents at the beginning of the period (Note 14) | 152,528 | 161,478 | 296,954 | |||||||||||||||||
Effect of changes in exchange rates | (6,412) | (4,292) | 11,546 | |||||||||||||||||
Net cash and cash equivalents at the end of the period (Note 14) | 179,929 | 152,528 | 161,478 | |||||||||||||||||
The accompanying notes on page F-12 to F-113 are an integral part of these consolidated financial statements.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Notes to the consolidated financial statements for the year ended December 31, 2022
F-11
Note 1 - Significant accounting policies
1. Reporting Entity
Euronav NV (the “Company”) is a company domiciled in Belgium. The address of the Company’s registered office is De Gerlachekaai 20, 2000 Antwerpen, Belgium. The consolidated financial statements of the Company comprise the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interests in associates and joint ventures.
Euronav NV is a fully-integrated provider of international maritime shipping and offshore services engaged in the transportation and storage of crude oil. The Company was incorporated under the laws of Belgium on June 26, 2003, and grew out of three companies that had a strong presence in the shipping industry; Compagnie Maritime Belge NV, or CMB, formed in 1895, Compagnie Nationale de Navigation SA, or CNN, formed in 1938, and Ceres Hellenic formed in 1950. The Company started doing business under the name “Euronav” in 1989 when it was initially formed as the international tanker subsidiary of CNN. Euronav NV merged in 2018 with Gener8 Maritime, Inc, which became a wholly-owned subsidiary of Euronav NV. Through the merger Euronav NV is a leading independent large crude tanker operator.
Euronav NV charters its vessels to leading international energy companies. The Company pursues a chartering strategy of primarily employing its vessels on the spot market, including through the Tankers International (TI) Pool and also under fixed-rate contracts and long-term time charters, which typically include a profit sharing component.
A spot market voyage charter is a contract to carry a specific cargo from a load port to a discharge port for an agreed freight per ton of cargo or a specified total amount. Under spot market voyage charters, the Company pays voyage expenses such as port, canal and bunker costs. Spot charter rates have historically been volatile and fluctuate due to seasonal changes, as well as general supply and demand dynamics in the crude oil marine transportation sector. Although the revenues generated by the Company in the spot market are less predictable, the Company believes their exposure to this market provides them with the opportunity to capture better profit margins during periods when vessel demand exceeds supply leading to improvements in tanker charter rates. The Company principally employs and commercially manages their VLCCs through the TI Pool, a leading spot market-oriented VLCC pool in which other third-party shipowners with vessels of similar size and quality participate along with the Company. The Company participated in the formation of the TI Pool in 2000 to allow themselves and other TI Pool participants to gain economies of scale, obtain increased cargo flow of information, logistical efficiency and greater vessel utilization.
Time charters provide the Group with a fixed and stable cash flow for a known period of time. Time charters may help the Group mitigate, in part, its exposure to the spot market, which tends to be volatile in nature, being seasonal and generally weaker in the second and third quarters of the year due to refinery shutdowns and related maintenance during the warmer summer months. The Group may when the cycle matures or otherwise opportunistically employ more of its vessels under time charter contracts as the available rates for time charters improve. The Group may also enter into time charter contracts with profit sharing arrangements, which the Group believes will enable it to benefit if the spot market increases above a base charter rate as calculated either by sharing sub charter profits of the charterer or by reference to a market index and in accordance with a formula provided in the applicable charter contract.
The Group currently deploys its two FSOs as floating storage units under service contracts with North Oil Company, in the offshore services sector.
2. Basis of accounting
These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and as adopted by the European Union as of December 31, 2022.
Changes in significant accounting policies are described in policy 7. All accounting policies have been consistently applied for all periods presented in the consolidated financial statements unless disclosed otherwise.
The consolidated financial statements were authorized for issue by the Supervisory Board on April 12, 2023.
F-12
3. Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position:
•Derivative financial instruments are measured at fair value
•Non-current assets held for sale are recognized at fair value less cost of disposal if it is lower than their carrying amount
4. Functional and presentation currency
The consolidated financial statements are presented in USD, which is the Company's functional and presentation currency. All financial information presented in USD has been rounded to the nearest thousand except when otherwise indicated.
5. Use of estimates and judgments
The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of the Group's accounting policies and the reported amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which are the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
A. Judgments
Information about judgments made in applying accounting policies that have the most significant effects on the amounts recognized in the consolidated financial statement is included in the following notes:
•Note 8 - Impairment;
•Note 20 - Lease term: whether the Group is reasonably certain to exercise renewal, termination, purchase options.
•Note 8 - Acquisition of the remaining 50% in TI Asia Ltd. and TI Africa Ltd. Euronav already had 50% in these 2 joint ventures and signed on June 7, 2022 a Share Sale and Purchase Agreement with the JV partner International Seaways, Inc. to take control over these 2 joint ventures by purchasing the remaining 50% of the shares. The acquisition of the remaining 50% in the 2 joint ventures has been treated as an asset acquisition as the asset concentration test was met under IFRS 3, given that substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset (i.e. the FSO and related lease component in the customer contract). Therefore, the consideration paid is allocated over the assets acquired (see Note 8, 9 and 26) and the transaction is not accounted for as a business combination.
•Note 8 and Note 17 - Whether the Group is reasonably certain to exercise the re-purchase options under the sale and leaseback agreements. If not reasonably certain, the residual value is estimated as the amount that the Group could receive from disposal of the vessels at the reporting date if the vessels were already of the age and in the condition that they will be in at the end of the lease term, and the financial liability is estimated using the fair value at the end of the lease term.
B. Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment to the carrying amounts in the next financial years is included in the following notes:
•Accounting policy 11.5 - Depreciation policy: The Group reviewed the residual value of its vessels, an accounting estimate, in accordance with its accounting policy. The Group considered its continued focus on sustainability,
F-13
recent trends of the steel industry and the direction of the industry moving forward. Specifically, Euronav considered the steel industry’s commitment to be carbon neutral in 2050 and the impact of this on scrap steel.
Scrap steel is easily recoverable and infinitely recyclable and all scenarios leading to carbon neutrality in 2050 are likely to lead to an increased consumption of scrap steel. Further, the use of scrap steel to produce finished products instead of metal ore results in reduced greenhouse gas emissions.
The recycling of steel scrap obtained from end-of-life vessels also helps reduce air and water pollution. Steel scrap from end-of-life products can be recycled back into new steel products with potentially a very low CO2 footprint. This indicates that there will likely be a continuous need for scrap steel and, given the limited availability of scrap steel, this in turn should have a positive impact on the price of steel.
The costs of recycling a vessel with due respect for the environment and the safety of the workers in specialized yards is challenging to forecast as regulations and good industry practice leading to self-regulation can dramatically change over time. As a result, the Group has applied a residual value estimate for its vessels equal to the lightweight tonnage of each vessel multiplied by a forecast scrap value per ton less supplemental costs such as repositioning the vessel, commissions and preparation fees, and after consideration of the impact of (changes in) worldwide recycling regulations (EU regulation versus other) and developments. The scrap value per ton is estimated by taking into consideration the historical four-year scrap market rate average, taking into account any significant impact of (changes in) worldwide recycling regulations (EU regulation versus other) and developments, which is updated annually. Management judgement also took into consideration the long term perspective for the sector, including peak oil and oil demand in the energy mix for the next 20 years using the IEA reports and forecasts.
Based on the annual re-assessment of the residual value, there is no change in residual value as of December 31, 2022.
•Note 8 - Impairment test: key assumptions underlying the recoverable amount and in particular forecasted TCE, discount rates and residual value;
•Note 9 - Measurement of deferred tax assets: availability of future taxable profit against which deductible temporary differences and tax losses carried forward can be utilized.
•Note 8 and 17 - Intention to re-purchase vessels under the sale and leaseback agreements: during its annual re-assessment performed at the end of 2022 of the reasonable certainty to exercise the re-purchase options of these vessels, the Group opted to change the subsequent accounting of the transaction as from the date of re-assessment as the Group intends to exercise the re-purchase options. Therefore, prospectively, the vessels will be depreciated to their residual values over their remaining useful lives. The financial liabilities have been remeasured at the re-assessment date at the end of 2022.
The significant assumptions and accounting estimates used to support the reported amounts of assets and liabilities, income and expenses were regularly reviewed, and if needed updated, during 2022. The main judgements, estimates and assumptions are:
•Note 8 – Impairment test: the carrying amount of the vessels is reviewed to determine whether an indication of impairment exists. No impairment is required as of December 31, 2022 as the recoverable amount of each CGU continues to be in excess of the carrying amounts.
•Bunkers on the Oceania and the vessels are valued at lower of cost or net realizable value. Positive results were realized in 2022 for our fleet and the Group expects for 2023 the same based on the forecasted TCE rates.
•Allowance for expected credit losses: in accordance with IFRS 9, the group recognizes expected credit losses on trade receivables following the simplified approach. Lifetime expected losses are recognized for the trade receivables, excluding recoverable VAT amounts. Based on customer’s payment behavior, no significant additional allowances for expected credit losses were to be recognized as per December 31, 2022.
As the COVID-19 pandemic further evolves, potential changes in these views might occur in 2023.
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Measurement of fair values
A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.
The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the CFO.
The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified. Significant valuation issues are reported to the Group Audit and Risk Committee.
When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.
•Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
•Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e.as prices) or indirectly (i.e. derived from prices).
•Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability might be categorized in different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The Group recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Further information about the assumptions made in measuring fair values is included in the following notes:
•Note 3 - Assets and liabilities held for sale and discontinued operations;
•Note 20 - Financial instruments and
•Note 24 - Share-based payment arrangements
6. Changes in accounting policies
The accounting policies adopted in the preparation of the consolidated financial statements for the year ended December 31, 2022 are consistent with those applied in the preparation of the consolidated financial statements for the year ended December 31, 2021. A number of new standards are effective from January 1, 2022 but they do not have a material effect on the Group's financial statements.
7. Basis of Consolidation
7.1. Business Combinations
The Group accounts for business combinations using the acquisition method when the acquired set of activities and assets meets the definition of a business and control is transferred to the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In determining whether a particular set of activities and assets is a business, the Group assesses whether the set of assets and activities acquired includes, at a minimum, an input and substantive process and whether the acquired set has the ability to produce outputs. The Group has an option to apply a ‘concentration test’ that permits a simplified assessment of whether an acquired set of activities and assets is not a business. The optional concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.
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For acquisitions the Group measures goodwill at the acquisition date as:
•the fair value of the consideration transferred; plus
•the recognized amount of any non-controlling interests in the acquiree; plus if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less
•the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is recognized immediately in profit or loss.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts
generally are recognized in profit or loss. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in profit or loss.
7.2. Non-controlling interests (NCI)
NCI are measured at their proportionate share of the acquiree's identifiable net assets at the date of acquisition. Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
7.3. Subsidiaries
Subsidiaries are those entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which the control commences until the date on which control ceases.
7.4. Loss of control
On the loss of control, the Group derecognizes the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in profit or loss. If the Group retains any interest in the former subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or as a Fair Value through Other Comprehensive Income (FVOCI) or Fair Value through Profit or Loss (FVTPL) financial asset depending on the level of influence retained.
7.5. Interests in equity-accounted investees
The Group’s interests in equity-accounted investees comprise interest in associates and joint ventures.
Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.
Interests in associates and joint ventures are accounted for using the equity method. They are recognized initially at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income (OCI) of equity-accounted investees, until the date on which significant influence or joint control ceases.
Interests in associates and joint ventures include any long-term interests that, in substance, form part of the Group’s investment in those associates or joint ventures and include unsecured shareholder loans for which settlement is neither planned nor likely to occur in the foreseeable future, which, therefore, are an extension of the Group’s investment in those associates and joint ventures. The Group’s share of losses that exceeds its investment is applied to the carrying amount of those loans. After the Group’s interest is reduced to zero, a liability is recognized to the extent that the Group has a legal or constructive obligation to fund the associates’ or joint ventures’ operations or has made payments on their behalf.
7.6. Transactions eliminated on consolidation
Intragroup balances and transactions, and any unrealized gains arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with equity-accounted investees
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are eliminated against the underlying asset to the extent of the Group's interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
8. Foreign currency
8.1. Foreign currency transactions
Transactions in foreign currencies are translated to USD at the foreign exchange rate applicable at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to USD at the foreign exchange rate applicable at that date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign exchange differences arising on translation are generally recognized in profit or loss. However, foreign currency differences arising from the translation of the following items are recognized in OCI:
•a financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective; and
•qualifying cash flow hedges to the extent that the hedges are effective.
8.2. Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to USD at exchange rates at the reporting date. The income and expenses of foreign operations are translated to USD at rates approximating the exchange rates at the dates of the transactions.
Foreign currency differences are recognized directly in equity (Translation reserve). When a foreign operation is disposed of, in part or in full, the relevant amount in the translation reserve is transferred to profit or loss.
9. Financial Instruments
Recognition and initial measurement
Trade receivables, debt securities issued and subordinated liabilities are initially recognized when they are originated. All other financial assets and financial liabilities (including liabilities designated as at FVTPL) are initially recognized on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component which is initially measured at the transaction price) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue.
Financial liabilities are recognized initially at fair value less any directly attributable transaction costs.
The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer’s specific circumstances.
Financial assets and liabilities are offset and the net amount is presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.
9.1. Financial assets
Classification and subsequent measurement
On initial recognition, a financial asset is classified as measured at: amortized cost; FVOCI - debt investment; FVOCI - equity instrument; or FVTPL. The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics.
Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.
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A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:
•it is held within a business model whose objectives is to hold assets to collect contractual cash flows; and
•its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:
•it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
•its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment's fair value in OCI. This election is made on an investment-by-investment basis.
All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
Assessment whether contractual cash flows are solely payments of principal and interest
For the purposes of this assessment, 'principal' is defined as the fair value of the financial asset on initial recognition. 'Interest' is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers:
•contingent events that would change the amount or timing of cash flows;
•terms that may adjust the contractual coupon rate, including variable-rate features;
•prepayment and extension features; and
•terms that limit the Group's claim to cash flows from specified assets (e.g. non-resource features).
A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract. Additionally, for a financial asset acquired at a discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable additional compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition.
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Financial assets at FVTPL | These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss. | ||||
Financial assets at amortized cost | These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses (see accounting policy 12 below). Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss. | ||||
Debt investments at FVOCI | These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss. | ||||
Equity investments at FVOCI | These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss. | ||||
Derecognition
The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.
The Group enters into transactions whereby it transfers assets recognized in its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases the transferred assets are not derecognized. Any interest in such transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability.
9.2. Financial liabilities
Classification and subsequent measurement
Financial liabilities are classified as measured at amortized cost or FVTPL.
A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss.
Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gains or loss on derecognition is also recognized
in profit or loss.
The financial liability related to the three VLCCs under the sale and leaseback agreement entered into on December 30, 2019 (see Note 17) is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the fair value of the assets transferred at the end of the lease term or if the Group changes its assessment of whether it will exercise the purchase option.
Any changes in the financial liabilities from remeasurement are recognized through profit or loss.
Derecognition
The Group derecognizes a financial liability when its contractual obligations are discharged, canceled, or expired. The Group also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value.
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On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid
(including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.
Non-derivative financial liabilities comprise loans and borrowings, bank overdrafts, and trade and other payables. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
9.3. Derivative financial instruments
Derivative financial instruments and hedge accounting
The Group from time to time may enter into derivative financial instruments to hedge its exposure to market fluctuations, foreign exchange and interest rate risks arising from operational, financing and investment activities.
Derivatives are initially measured at fair value; attributable transaction costs are expensed as incurred. Subsequent to initial recognition, derivatives are remeasured at fair value, and changes therein are generally recognized in profit or loss.
The group designated certain derivatives as hedging instruments to hedge the variability in cash flows. The Group entered into interest rate swaps and forward CAP contracts to hedge this risk (see Note 15).
The Group ensure that hedge accounting relationships are aligned with its risk management objectives and strategy and apply a more qualitative and forward looking approach in assessing hedge effectiveness. On initial designation of the derivative as hedging instrument, the Group formally documents the economic relationship between the hedging instrument(s) and hedged item(s), including the risk management objective(s) and strategy for undertaking the hedge. The Group also documents the methods that will be used to assess the effectiveness of the hedging relationship and makes an assessment whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the cash flows of the respective hedged items during the period for which the hedge is designated.
On an ongoing basis, the Group assesses whether the hedge relationship continues and is expected to continue to remain highly effective using retrospective and prospective quantitative and qualitative analysis.
The Group entered into several commodity swaps and futures in connection with its low sulfur fuel oil project. These instruments qualified as hedging instruments. These instruments were measured at their fair value; effective changes in fair value were recognized in OCI and the ineffective portion was recognized in profit or loss during 2020. As from 2021, all changes were recognized in profit or loss (see Note 15).
Hedges directly affected by the interest rate benchmark reform
The Group has adopted the Phase 2 amendments and retrospectively applied them from January 1, 2021.
When the basis for determining the contractual cash flows of the hedged item or hedging instrument changes as a result of the IBOR reform and therefore there is no longer uncertainty arising about the cash flows of the hedged item or the hedging instrument, the Group amends the hedge documentation of that hedging relationships to reflect the change(s) required by the IBOR reform. For this purpose, the hedge designation is amended only to make one or more of the following changes:
•designating an alternative benchmark rate as the hedged risk;
•updating the description of the hedged item, including the description of the designated portion of the cash flows or fair value being hedged; or
•updating the description of the hedging instrument.
The Group amends the description of the hedging instrument only if the following conditions are met:
•it makes a change required by the IBOR reform by using an approach other than changing the basis for determining the contractual cash flows of the hedging instrument or using another approach that is economically equivalent to changing the basis for determining the contractual cash flows of the original hedging instrument; and
•the original hedging instrument is not derecognized.
The Group amends the formal hedge documentation by the end of the reporting period during which a change required by the IBOR reform is made to the hedged risk, hedged item or hedging instrument. These amendments in the formal hedge documentation do not constitute the discontinuation of the hedging relationship or the designation of a new hedging relationship.
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If changes are made in addition to these changes required by the IBOR reform described above, then the Group first considers whether those additional changes result in the discontinuation of the hedge accounting relationship. If the additional changes do not result in the discontinuation of the hedge accounting relationship, then the Group amends the formal hedge documentation as mentioned above.
When the interest rate benchmark on which the hedged future cash flows had been used is changed as required by the IBOR reform, for the purpose of determining whether the hedged future cash flows are expected to occur, the Group deems that the hedging reserve recognized in OCI for that hedging relationship is based on the alternative benchmark rate on which the hedged future cash flows will be based.
See Note 20 for related disclosures.
Cash flow hedges
When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in OCI and presented in the hedging reserve in equity. The amount recognized in OCI is removed and included in profit or loss in the same period as the hedged cash flows affect profit or loss under the same line item in the statement of profit or loss as the hedged item. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.
The Group designates only the change in fair value of the spot element of forward exchange contracts as the hedging instrument in cash flow hedging relationships. The change in fair value of the forward element of forward exchange contracts (forward points) is separately accounted for as a cost of hedging and recognized in a costs of hedging reserve within equity.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated in the hedging reserve remains in equity until, for a hedge of a transaction resulting in the recognition of a non-financial item, it is included in the non-financial item's cost on its initial recognition or, for other cash flow hedges, it is reclassified to profit or loss in the same period or periods as the hedged expected future cash flows affect profit or loss.
If the hedged future cash flows are no longer expected to occur, then the balance in equity is reclassified to profit or loss.
9.4. Share capital
Ordinary share capital
Ordinary share capital is classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity, net of any tax effects.
Repurchase of share capital
When share capital recognized as equity is repurchased, the amount of the consideration paid, including directly attributable costs, net of any tax effects, is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and presented in the reserve for own shares. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity, and the resulting surplus or deficit on the transaction is presented in retained earnings.
9.5. Compound financial instruments
Compound financial instruments issued by the Group comprise Notes denominated in USD that can be converted to ordinary shares at the option of the holder, when the number of shares is fixed and does not vary with changes in fair value.
The liability component of compound financial instruments is initially recognized at the fair value of a similar liability that does not have an equity conversion option. The equity component is initially recognized at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity component in proportion to their initial carrying amounts.
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Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not remeasured.
Interest related to the financial liability is recognized in profit and loss. On conversion, the financial liability is reclassified to equity and no gain or loss is recognized.
10. Goodwill and intangible assets
10.1. Goodwill
Goodwill that arises on the acquisition of subsidiaries is presented as an intangible asset. For the measurement of goodwill at initial recognition, refer to accounting policy 7.1.
After initial recognition goodwill is measured at cost less accumulated impairment losses, refer to accounting policy 12. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and any impairment loss is allocated to the carrying amount of the equity accounted investee as a whole.
10.2. Intangible assets
Intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortization and impairment losses, refer to accounting policy 11.
The cost of an intangible asset acquired in a separate acquisition is the cash paid or the fair value of any other consideration given. The cost of an internally generated intangible asset includes the directly attributable expenditure of preparing the asset for its intended use.
10.3. Subsequent expenditure
Subsequent expenditure on intangible assets is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates and its cost can be measured reliably. All other expenditure is expensed as incurred.
10.4. Amortization
Amortization is charged to the income statement on a straight-line basis over the estimated useful lives of the intangible assets from the date they are available for use. The estimated useful lives are as follows:
•Software: 3 - 5 years
•Customer contracts (service component of the NOC contract): ten years
Amortization methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
11. Vessels, property, plant and equipment
11.1. Owned assets
Vessels and items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation (see below) and impairment losses, refer to accounting policy 12. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of assets includes the following:
•The cost of materials and direct labor;
•Any other costs directly attributable to bringing the assets to a working condition for their intended use;
•When the Group has an obligation to remove the asset or restore the site, an estimate of the costs of dismantling and removing the items and restoring the site on which they are located; and
•Capitalized borrowing costs.
Where an item of property, plant and equipment comprises major components having different useful lives, they are accounted for as separate items of property, plant and equipment, refer to accounting policy 11.6.
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Gains and losses on disposal of a vessel or of another item of property, plant and equipment are determined by comparing the net proceeds from disposal with the carrying amount of the vessel or the item of property, plant and equipment and are recognized in profit or loss.
For the sale of vessels, transfer of risk and rewards usually occurs upon delivery of the vessel to the new owner.
11.2. Assets under construction
Assets under construction, especially newbuilding vessels, are accounted for in accordance with the stage of completion of the newbuilding contract. Typical stages of completion are the milestones that are usually part of a newbuilding contract: signing or receipt of refund guarantee, steel cutting, keel laying, launching and delivery. All stages of completion are guaranteed by a refund guarantee provided by the shipyard.
11.3. Subsequent expenditure
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the item of property, plant and equipment and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. All other expenditure is recognized in the consolidated statement of profit or loss as an expense as incurred.
11.4. Borrowing costs
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset.
11.5. Depreciation
Depreciation is charged to the consolidated statement of profit or loss on a straight-line basis over the estimated useful lives of vessels and items of property, plant and equipment. The right-of-use asset is depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the basis of those of property and equipment (refer to accounting policy 19).
Vessels and items of property, plant and equipment are depreciated from the date that they are available for use. Internally constructed assets are depreciated from the date that the assets are completed and ready for use.
The estimated useful lives of significant items of property, plant and equipment are as follows:
- | tankers | 20 years | ||||||
- | FSO/FpSO/FPSO | 30 years | ||||||
- | plant and equipment | 5 - 20 years | ||||||
- | fixtures and fittings | 5 - 10 years | ||||||
- | other tangible assets | 3 - 20 years | ||||||
- | dry-docking | 2.5 - 5 years |
The useful life of the FSOs have been assessed as 30 years due to the extension for ten years of the timecharter contract in direct continuation of their current contractual service, or until July 21, 2032 and September 21, 2032 respectively. The end of the useful economic life of the FSO vessels was set equal to the contract end date or approximately 30 years since build date.
As explained in policy 5.B., management re-assesses on a yearly basis the residual value of its fleet. During 2022, each vessel’s residual value is equal to the product of its lightweight tonnage and an estimated net scrap rate of $390/LDT. This rate was not applied during 2022 for the three VLCCs under the sale and leaseback agreement entered into on December 30, 2019 (see Note 17). In accordance with IFRS, this transaction was not accounted for as a sale but Euronav as seller-lessee will continue to recognize the transferred assets. During the annual re-assessment at the end of 2022, the Company concluded it is now reasonably certain that the Group will exercise the re-purchase options due to the increase in second-hand prices for 15+ VLCCs. During 2022, the three vessels were depreciated over the period until the end of the lease term, using a residual value of $21 million, which was the estimation from the prior year re-assessment of the amount that the Group could receive from disposal of the vessels at the reporting date if the vessels were already of the age and in the condition that they will be in at the end of the lease term. As a result of the annual re-assessment at the end of 2022, the
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three vessels will prospectively be depreciated from that date to the end of their useful lives using the same residual value as other vessels in the fleet (i.e. $390/LDT).
Depreciation methods, useful lives and residual values are reviewed at year-end and adjusted if appropriate.
11.6. Dry-docking – component approach
Where an item of property, plant and equipment comprises major components having different useful lives, they are accounted for as separate items of property, plant and equipment. Costs associated with routine repairs and maintenance are expensed as incurred including routine maintenance performed whilst the vessel is in dry-dock. Components installed during dry-dock with a useful life of more than 1 year are depreciated over their estimated useful-life.
12. Impairment
12.1. Non-derivative financial assets
Financial instruments and contract assets
The impairment model applies to financial assets measured at amortized cost, contract assets and debt investments at FVOCI.
The financial assets at amortized cost consist of trade and other receivables, cash and cash equivalents and non-current receivables.
Under IFRS 9, loss allowances are measured on either of the following bases:
•12-month 'expected credit loss' (ECL): these are ECLs that result from possible default events within the 12 months after the reporting date; and
•lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.
The Group measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured in accordance with 12-months ECLs model:
•debt securities that are determined to have low credit risk at the reporting date; and
•other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.
Loss allowances for trade receivables are measured at an amount equal to lifetime ECLs.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group's historical experience and informed credit assessment and including forward-looking information.
The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 180 days past due. The financial assets that are more than 180 days past due, which mainly relates to demurrage and TI pool outstanding, are followed up closely and as long as their collection is highly probable, they are not considered in default.
The Group considers a financial asset to be in default when the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realizing security (if any is held).
The cash and cash equivalents are held with bank and financial institution counterparties, which are rated A- to AA+, based on rating agency S&P. Derivatives are entered into with banks and financial institution counterparties, which are rated A to AA+, based on rating agency S&P.
The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.
Measurement of ECLs
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ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between cash flows due to the entity in accordance with the contract and cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset.
Credit-impaired financial assets
At each reporting date, the Group assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is 'credit-impaired' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Presentation of allowance for ECL
Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. The impairment loss on trade receivable has been presented in 'general and administrative expenses'.
For debt securities at FVOCI, the loss allowance is recognized in OCI, instead of being recorded in the statement of profit or loss.
Impairment losses on other financial assets are not presented separately in the statement of profit or loss and OCI, because the amount is not material. It has been presented as part of the line 'finance expenses'.
Write-off
The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. The Group calculates the ELC on trade and other receivables based on actual credit loss experience over the past 10 years taking into account reasonable and supportable forecast of future economic conditions.
12.2 Non-financial assets
The carrying amounts of the Group’s non-financial assets, other than deferred tax assets (refer to accounting policy 21), inventory and contract assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. Goodwill is tested annually for impairment.
For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash generating units (CGUs). Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.
The recoverable amount of an asset or CGU is the greater of its fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. Future cash flows are based on current market conditions, historical trends as well as future expectations.
An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are recognized in profit or loss.
An impairment loss recognized for goodwill shall not be reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
Tankers
The Group analyzes the following internal and external indicators to assess whether tankers might be impaired:
• the obsolescence or physical damage of an asset;
• significant changes in the extent or manner in which vessels are (or are expected to be) used that have (or will have) an adverse effect on the entity;
• plans to dispose of assets before the previously expected date of disposal;
• indications that the performance of a CGU is, or will be, worse than expected;
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• significant increases in cash flows for acquiring, operating or maintaining vessels that are significantly higher than originally budgeted;
• net cash flows or operating profits that are lower than originally budgeted;
• net cash outflows or operating losses;
• market capitalization significantly below net asset value for a prolonged period of time;
• a significant and unexpected decline in market value of vessels;
• significant adverse effects in the technological, market, economic, legal and regulatory environment, including but not limited to, vessel and crude oil supply and demand trends;
• increases in market interest rates.
Euronav defines its CGU for tankers as a single vessel, unless such vessel is operated in a profit-sharing pool, in which case such vessel, together with the other vessels in the pool, are collectively treated as a CGU.
When events and changes in circumstances indicate that the carrying amount of the asset or CGU might not be recovered, the Group performs an impairment test whereby the carrying amount of the asset or CGU is compared to its recoverable amount, which is the greater of its value in use and its fair value less cost to sell. For assessing value in use, assumptions are made regarding forecast charter rates, using the weighted average of past and ongoing shipping cycles including management judgment for the ongoing cycle and for the weighting factors applied, the weighted average cost of capital (WACC), the useful life of the vessels (20 years for tankers) and a residual value. After careful consideration of the trends in the shipping industry, management considers it is appropriate to use as a residual value of the vessels an amount equal to the lightweight tonnage of the vessel, multiplied by the market price of scrap per ton, less disposal costs such as repositioning the vessel, commissions and preparation fees, and after consideration of the impact of (changes in) worldwide recycling regulations (EU regulation versus other) and developments.
The market scrap value per ton is estimated by taking into consideration the historical four-year scrap market rate average, taking into account any significant impact of (changes in) worldwide recycling regulations (EU regulation versus other) and developments, which is updated annually at year-end.
Although management believes that its process to determine the assumptions used to evaluate the carrying amount of the assets, when required, are reasonable and appropriate, such assumptions are subject to judgment. Management is assessing continuously the resilience of its projections to the business cycles that can be observed in the tankers market, and concluded that a business cycle approach provides a better long-term view of the dynamics at play in the industry. By defining a shipping cycle from peak to peak over the last 20 years and including management's expectation of the completion of the current cycle, management is better able to capture the full length of a business cycle while also giving more weight to recent and current market experience. The current cycle is forecasted based on management judgment, analyst reports and past experience. Long term charter rates are used in the calculation in case available.
Management judgement also took into consideration the long term perspective for the sector, including peak oil and oil demand in the energy mix for the next 20 years using the IEA reports and forecasts.
FSOs
In the context of the valuation of the Group's investments in the respective joint ventures, the Group also reviews internal and external indicators, similar to the ones used for tankers, to assess whether the FSOs might be impaired. When events and changes in circumstances indicate that the carrying amount of the assets might not be recovered, the Group performs an impairment test on the FSO vessels owned by TI Asia Ltd and TI Africa Ltd, based on a value in use calculation to estimate the recoverable amount from the vessel. This method is chosen as there is no efficient market for transactions of FSO vessels as each vessel is often purposely built for specific circumstances. In assessing value in use, assumptions are made regarding forecast charter rates, weighted average cost of capital ('WACC'), the useful life of the FSOs (30 years) and a residual value. After careful consideration of the trends in the shipping industry, the Group elected to use as a residual value for its vessels an amount equal to the lightweight tonnage of the vessel, multiplied by the market price of scrap per ton, less disposal costs such as repositioning the vessel, commissions and preparation fees, and after consideration of the impact of (changes in) worldwide recycling regulations (EU regulation versus other) and developments.
The value in use calculation for FSOs, when required, is based on the remaining useful life of the vessels as of the reporting date, and forecast charter rates are determined using the fixed daily contract rates. The FSO Asia and the FSO Africa were on a five years timecharter contract to North Oil Company, the operator of the Al-Shaheen oil field, whose shareholders are Qatar Petroleum Oil & gas Limited and Total E&P Golfe Limited, until July 22, 2022 and September 22, 2022, respectively. In November 2020, the two joint ventures (TI Asia Ltd and TI Africa Ltd.) signed an extension for ten years in direct continuation of their current contractual service, or until July 21, 2032 and September 21, 2032 respectively. Following this extension of the contract with North Oil Company until 2032, the end of the useful economic life was set equal to the contract end date or approximately 30 years since build date.
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13. Assets held for sale
Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. Immediately before classification as held for sale, the assets, or components of a disposal group, are remeasured in accordance with the Group’s accounting policies. Thereafter generally the assets or disposal group are measured at the lower of their carrying amount and fair value less cost of disposal. Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and liabilities on a pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets or investment property, which continue to be measured in accordance with the Group’s accounting policies. Impairment losses on initial classification as held for sale and subsequent gains and losses on remeasurement are recognized in profit or loss. Gains are not recognized in excess of any cumulative impairment loss.
Once classified as held for sale, intangible assets and property, plant and equipment are no longer amortized or depreciated,
and any equity-accounted investee is no longer equity accounted.
14. Bunker inventory
The Group has been purchasing compliant bunker fuel for future use by its vessels. Bunkers are presented as inventory and are accounted for on a weighted average basis. The cost of inventories comprises of the purchase price, fuel inspection costs and transport and handling costs. The effective portion of the change in fair value of derivatives designated as cash flow hedges of the underlying price index between the date of purchase and the date of delivery is also recognized as an inventory cost. The ineffective portion of the change in fair value of these derivatives is recognized directly in profit or loss.
The inventory is accounted for at the lower of cost or net realizable value with cost being determined on a weighted average basis. No write down is needed as long as the freight market remains robust offsetting potential higher weighted average consumption costs of the bunker oil consumed from that inventory.
Bunker expenses are recognized in profit or loss upon consumption.
15. Employee benefits
15.1. Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognized as an employee benefit expense in profit or loss in the periods during which related services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan that are due more than 12 months after the end of the period in which the employees render the services are discounted to their present value. The calculation of defined contribution obligations is performed annually by a qualified actuary using the projected unit credit method.
15.2. Defined benefit plans
The Group’s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets.
The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Group, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return of plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in OCI. The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in profit and loss.
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When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group recognizes gains and losses on the settlement of a defined plan when the settlement occurs.
15.3. Other long term employee benefits
The Group’s net obligation in respect of long-term employee benefits, other than pension plans, is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using the projected unit credit method and is discounted to its present value and the fair value of any related assets is deducted. The discount rate is the yield at the reporting date on AA credit rated bonds that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the currency in which the benefits are expected to be paid. Remeasurements are recognized in profit or loss in the period in which they arise.
15.4. Termination benefits
Termination benefits are recognized as an expense when the Group is demonstrably committed, without realistic possibility or withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting date, then they are discounted to their present value.
15.5. Short-term employee benefit
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.
15.6. Share-based payment transactions
The grant-date fair value of equity-settled share-based payment awards granted to employees is generally recognized as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.
The fair value of the amount payable to beneficiaries in respect of “phantom stock unit” grants, which are settled in cash, is recognized as an expense with a corresponding increase in liabilities, over the period during which the beneficiaries become unconditionally entitled to payment. The fair value of the Transaction Based Incentive Plan is being determined by using a binomial model with cost being spread of the expected vesting period over the various tranches. The fair value of the Long term incentive plan is remeasured at each reporting date and at settlement based on the fair value of the phantom stock units. Any changes in the liability are recognized in profit or loss.
16. Provisions
A provision is recognized when the Group has a legal or constructive obligation that can be estimated reliably, as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. The provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. The unwinding of the discount is recognized as finance cost.
Restructuring
A provision for restructuring is recognized when the Group has approved a detailed and formal restructuring plan, and the restructuring has either commenced or has been announced publicly. Future operating costs are not provided for.
Onerous contracts
A provision for onerous contracts is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract, which is determined based on the incremental costs of
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fulfilling the obligation under the contract and an allocation of other costs directly related to fulfilling the contract. Before a provision is established, the Group recognizes any impairment loss on the assets associated with that contract.
17. Revenue
17.1. Pool Revenues
Aggregated revenue recognized on a daily basis from vessels operating on voyage charters in the spot market and on contract of affreightment within the pool is converted into an aggregated net revenue amount by subtracting aggregated voyage expenses (such as fuel and port charges) from gross voyage revenue. These aggregated net revenues are combined with aggregated floating time charter revenues to determine aggregated pool Time Charter Equivalent revenue (TCE). Aggregated pool TCE revenue is then allocated to pool partners in accordance with the allocated pool points earned for each vessel that recognizes each vessel’s earnings capacity based on its cargo, capacity, speed and fuel consumption performance and actual on hire days. The TCE revenue earned by our vessels operated in the pools is equal to the pool point rating of the vessels multiplied by time on hire, as reported by the pool manager.
Revenue from the floating time charter agreements under which vessels are employed by the TI Pool is accounted for under IFRS 15 Revenue from Contracts with Customers.
TI administration fees are subtracted from the net pool revenues.
17.2. Time - and bareboat charters
As a lessor, the Group leases out some of its vessels under time charters and bareboat charters, refer to accounting policy 19. Lessors shall classify each lease as an operating lease or a finance lease. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset. Otherwise a lease is classified as an operating lease.
Revenues from time charters and bareboat charters are accounted for as operating leases and are recognized on a straight line basis over the periods of such charters, as service is performed (refer to accounting policy 19.2). IFRS 16 requires the Group to separate lease and non-lease components, with the lease component qualifying as operating lease under IFRS 16 and the service components accounted for under IFRS 15.
17.3. Spot voyages
As from January 1, 2018, the Group applied IFRS 15. Voyage revenue is recognized over time for spot charters on a load-to-discharge basis. Progress is determined based on time elapsed. Voyage expenses are expensed as incurred unless they are incurred between the date on which the contract was concluded and the next load port. They are then capitalized if they qualify as fulfillment costs and if they are expected to be recovered.
When our vessels cannot start or continue performing its obligation due to other factors such as port delays, a demurrage is paid. The applicable demurrage rate is stipulated in the contract. Demurrage which occurs at the discharge port is recognized as incurred. As demurrage is often a commercial discussion between Euronav and the charterer, the outcome and total compensation received for the delay is not always certain. As such, Euronav only recognizes the revenue which is highly probable to be received. No revenue is recognized if the collection of the consideration is not highly probable. The amount of revenue recognized is estimated based on historical data. The Group updates its estimate on an annually basis.
Payment is typically done at the end of the voyage. There is no specific financing component.
18. Gain and losses on disposal of vessels
In view of their importance the Group reports capital gains and losses on the sale of vessels as a separate line item in the consolidated statement of profit or loss. For the sale of vessels, transfer of control usually occurs upon delivery of the vessel to the new owner.
19. Leases
The Group has applied IFRS 16 as from January 1, 2019.
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To
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assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16.
1. As a lessee
The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at the amount equal to the lease liability adjusted by initial direct costs incurred by the lessee. Adjustments may also be required for any payments made at or before the commencement date and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
After lease commencement, the Group measures the right-of-use asset using a cost model, namely at cost less accumulated depreciation and accumulated impairment. The right-of-use asset is subsequently depreciated using the straight-line method, refer to accounting policy 11.5. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. The lessee's incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources (e.g. World office yield rate) and makes certain adjustments to reflect the terms of the lease and type of the asset leased or by calculating the weighted average of the cost of secured debt and unsecured debt.
Lease payments included in the measurement of the lease liability comprise the following:
- fixed payments;
- variable lease payments that depend on an index or a rate;
- amounts expected to be payable under a residual value guarantee and
- the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.
The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group's estimate of the amount expected to be payable under a residual value guarantee, or if the Group changes its assessment of whether the purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.
The Group has applied judgment to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognized.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in the profit or loss if the carrying amount of the right-to-use asset has been reduced to zero.
Lease and non-lease components in the contracts are separated.
Short-term leases and leases of low-value assets
The Group has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short-term leases, including IT equipment. The Group recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
2. As a lessor
When the Group acts as a lessor, it determines at lease inception whether each lease is a finance or operating lease.
To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is
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an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset.
If the lease qualifies as an operating lease, e.g. time charter out, the leased asset remains on the balance sheet of the lessor and continues being depreciated. The adoption of IFRS 16 required the Group to separate the lease and non-lease component in the contract, with the lease component qualified as operating lease and the non-lease component accounted for under IFRS 15. The Group recognizes lease payments received under operating leases as income on a straight-line basis over the lease term as part of 'revenue' (refer to accounting policy 17.2.). Payments related to service component made under operating leases are also recognized in the income statement over the term of the lease.
The Group sub-leases some of its properties. The sub-lease contracts are classified as finance leases under IFRS 16. For these sub-lease, the right-of-use asset related to the head lease was derecognized and a lease receivable, at an amount equal to the net investment, relating to the sublease is recognized. Subsequently the Group recognizes finance income over the lease term of a finance lease, based on a pattern reflecting a constant periodic rate of return on the net investment and if applicable impairment losses on lease receivable.
20. Finance income and finance cost
Net financing costs comprise interest payable on borrowings calculated using the effective interest rate method, interest receivable on funds invested, dividend income, foreign exchange gains and losses, and gains and losses on hedging instruments that are recognized in the consolidated statement of profit or loss (refer to accounting policy 8).
The 'effective interest rate' is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to:
• the gross carrying amount of the financial asset; or
• the amortized cost of the financial liability.
In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit-impaired) or to the amortized cost of the liability.
Interest income is recognized in the consolidated statement of profit or loss as it accrues, taking into account the effective yield on the asset. Dividend income is recognized in the consolidated statement of profit or loss on the date that the dividend is declared. Interest income related to finance lease for the subleases is also recognized in the consolidated statement of profit or loss. as a finance income.
The interest expense component of lease liabilities is recognized in the consolidated statement of profit or loss using the effective interest rate method.
21. Income tax
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in OCI.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized using the balance sheet method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for: the initial recognition of goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax recognized is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity.
A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
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In application of an IFRIC agenda decision on IAS 12 Income taxes, tonnage tax is not accounted for as income taxes in accordance with IAS 12 and is not presented as part of income tax expense in the income statement but is shown as an administrative expense under the heading Other operating expenses. In accordance with IFRIC 23 the Group assesses whether there is any uncertainty over Income Tax Treatments.
22. Segment reporting
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. The Group distinguishes two segments: the operation of crude oil tankers in the international markets and the floating storage and offloading operations (FSO/FpSO). The Group's internal organizational and management structure does not distinguish any geographical segments.
23. Discontinued operations
A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is classified as a discontinued operation, the comparative statement of profit or loss is represented as if the operation had been discontinued from the start of the comparative period.
24. New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are not yet effective for the year ended December 31, 2022, and have not been applied in preparing these consolidated financial statements. The amendments are not expected to have a material impact on the Group’s consolidated financial statements.
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies, issued on February 12, 2021, include narrow-scope amendments to improve accounting policy disclosures so that they provide more useful information to investors and other primary users of the financial statements. The amendments to IAS 1 require companies to disclose their material accounting policy information rather than their significant accounting policies. The amendments to IFRS Practice Statement 2 provide guidance on how to apply the concept of materiality to accounting policy disclosures.
The amendments are effective for annual periods beginning on or after January 1, 2023 with early application permitted. These amendments have been endorsed by the EU.
Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates, issued on February 12, 2021, clarify how companies should distinguish changes in accounting policies from changes in accounting estimates. The distinction is important because changes in accounting estimates are applied prospectively only to future transactions and other future events, but changes in accounting policies are generally also applied retrospectively to past transactions and other past events.
The amendments are effective for annual periods beginning on or after January 1, 2023 with early application permitted. These amendments have been endorsed by the EU.
Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction, issued on May 7, 2021, clarifies how companies should account for deferred tax on transactions such as leases and decommissioning obligations. IAS 12 Income Taxes specifies how a company accounts for income tax, including deferred tax, which represents tax payable or recoverable in the future. In specified circumstances, companies are exempt from recognizing deferred tax when they recognize assets or liabilities for the first time. Previously, there had been some uncertainty about whether the exemption applied to transactions such as leases and decommissioning obligations—transactions for which companies recognize both an asset and a liability. The amendments clarify that the exemption does not apply and that companies are required to recognize deferred tax on such transactions. The aim of the amendments is to reduce diversity in the reporting of deferred tax on leases and decommissioning obligations.
The amendments are effective for annual periods beginning on or after January 1, 2023 with early application permitted. These amendments have been endorsed by the EU.
Amendments to IAS 1 Presentation of Financial statements:
•Classification of Liabilities as Current or Non-current (issued on January 23, 2020);
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•Classification of Liabilities as Current or Non-current - Deferral of Effective Date (issued on July 15, 2020); and
•Non-current Liabilities with Covenants (issued on October 31, 2022)
Amendments to IAS 1 Presentation of Financial statements: Classification of Liabilities as Current or Non-current, issued on January 23, 2020, clarify a criterion in IAS 1 for classifying a liability as non-current: the requirement for an entity to have the right to defer settlement of the liability for at least 12 months after the reporting period.
The amendments:
a.specify that an entity’s right to defer settlement must exist at the end of the reporting period;
b.clarify that classification is unaffected by management’s intentions or expectations about whether the entity will exercise its right to defer settlement;
c.clarify how lending conditions affect classification; and
d.clarify requirements for classifying liabilities an entity will or may settle by issuing its own equity instruments.
On July 15, 2020, the IASB issued Classification of Liabilities as Current or Non-current — Deferral of Effective Date (Amendment to IAS 1) deferring the effective date of the January 2020 amendments.
On October 31, 2022, the IASB issued Non-current liabilities with Covenants, which amends IAS 1 and specifies that covenants (i.e. conditions specified in a loan arrangement) to be complied with after the reporting date do not affect the classification of debt as current or non-current at the reporting date. Instead, the amendments require a company to disclose information about these covenants in the notes to the financial statements.
All of the amendments are effective for annual reporting periods beginning on or after January 1, 2024 with early adoption permitted. The amendments have not yet been endorsed by the EU.
Amendments to IFRS 16 Leases: Lease Liability in a Sale and Leaseback, issued on September 22, 2022, introduce a new accounting model which will impact how a seller-lessee accounts for variable lease payments in a sale-and-leaseback transaction.
Under this new accounting model for variable payments, a seller-lessee will:
a.include estimated variable lease payments when it initially measures a lease liability arising from a sale-and-leaseback transaction; and
b.after initial recognition, apply the general requirements for subsequent accounting of the lease liability such that it recognizes no gain or loss relating to the right of use it retains.
These amendments will not change the accounting for leases other than those arising in a sale and leaseback transaction.
The amendments apply retrospectively for annual periods beginning on or after January 1, 2024 with early application permitted. These amendments have not yet been endorsed by the EU.
F-33
Note 2 - Segment reporting
The Group distinguishes two operating segments: the operation of crude oil tankers on the international markets (Tankers) on the one hand and the floating production, storage and offloading operations (FSO/FPSO) on the other. These two divisions operate in completely different markets, where in the latter the assets are tailor-made or converted for specific long term projects. The tanker market requires a different marketing strategy as this is considered a very volatile market, contract duration is often less than two years and the assets are to a large extent standardized.
The segment profit or loss figures and key assets as set out below are presented to the executive committee on at least a quarterly basis to help the key decision makers in evaluating the respective segments. The Chief Operating Decision Maker (CODM) also receives the information per segment based on proportionate consolidation for the joint ventures and not by applying equity accounting. The reconciliation between the figures of all segments combined on the one hand and with the consolidated statements of financial position and profit or loss on the other hand is presented in a separate column Equity-accounted investees.
The Group has one client in the Tankers segment that represented 8% (timecharter contract) of the Tankers segment total revenue in 2022 (2021: two clients which represented 11% (timecharter contract) and 10% respectively, in 2020 one client which represented 6% (timecharter contract)). All the other clients represent less than 6% of total revenues of the Tankers segment. The Group has one client in the FSO segment.
The Group's internal organizational and management structure does not distinguish any geographical segments.
F-34
Consolidated statement of financial position
(in thousands of USD) | December 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||
ASSETS | Tankers | FSO | Less: Equity-accounted investees | Total | Tankers | FSO | Less: Equity-accounted investees | Total | ||||||||||||||||||||||||||||||||||||||||||
Vessels | 2,846,780 | 211,153 | — | 3,057,933 | 2,975,392 | 105,350 | (112,955) | 2,967,787 | ||||||||||||||||||||||||||||||||||||||||||
Assets under construction | 228,429 | — | — | 228,429 | 181,293 | — | — | 181,293 | ||||||||||||||||||||||||||||||||||||||||||
Right-of-use assets | 21,493 | — | — | 21,493 | 29,001 | — | — | 29,001 | ||||||||||||||||||||||||||||||||||||||||||
Other tangible assets | 762 | — | — | 762 | 1,218 | — | — | 1,218 | ||||||||||||||||||||||||||||||||||||||||||
Intangible assets | 89 | 15,657 | — | 15,746 | 186 | — | — | 186 | ||||||||||||||||||||||||||||||||||||||||||
Receivables | 33,297 | 1,092 | 436 | 34,825 | 46,251 | — | 9,388 | 55,639 | ||||||||||||||||||||||||||||||||||||||||||
Investments in equity accounted investees | 2,249 | — | (826) | 1,423 | 4,653 | — | 67,793 | 72,446 | ||||||||||||||||||||||||||||||||||||||||||
Deferred tax assets | 1,403 | — | — | 1,403 | 1,546 | — | — | 1,546 | ||||||||||||||||||||||||||||||||||||||||||
Total non-current assets | 3,134,502 | 227,902 | (390) | 3,362,014 | 3,239,540 | 105,350 | (35,774) | 3,309,116 | ||||||||||||||||||||||||||||||||||||||||||
Total current assets | 591,130 | 16,311 | (382) | 607,059 | 459,864 | 10,478 | (10,935) | 459,407 | ||||||||||||||||||||||||||||||||||||||||||
TOTAL ASSETS | 3,725,632 | 244,213 | (772) | 3,969,073 | 3,699,404 | 115,828 | (46,709) | 3,768,523 | ||||||||||||||||||||||||||||||||||||||||||
EQUITY and LIABILITIES | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total equity | 2,076,976 | 96,489 | — | 2,173,465 | 1,891,483 | 69,099 | — | 1,960,582 | ||||||||||||||||||||||||||||||||||||||||||
Bank and other loans | 1,141,378 | 123,290 | (425) | 1,264,243 | 1,175,835 | 11,465 | (11,465) | 1,175,835 | ||||||||||||||||||||||||||||||||||||||||||
Other notes | 197,556 | — | — | 197,556 | 196,895 | — | — | 196,895 | ||||||||||||||||||||||||||||||||||||||||||
Other borrowings | 71,011 | — | — | 71,011 | 86,198 | — | — | 86,198 | ||||||||||||||||||||||||||||||||||||||||||
Lease liabilities | 5,824 | — | — | 5,824 | 16,759 | — | — | 16,759 | ||||||||||||||||||||||||||||||||||||||||||
Other payables | — | 404 | — | 404 | 3,490 | — | — | 3,490 | ||||||||||||||||||||||||||||||||||||||||||
Deferred tax liabilities | — | — | — | — | — | 10,535 | (10,535) | — | ||||||||||||||||||||||||||||||||||||||||||
Employee benefits | 1,635 | — | — | 1,635 | 6,839 | — | — | 6,839 | ||||||||||||||||||||||||||||||||||||||||||
Provisions | 597 | — | — | 597 | 892 | — | — | 892 | ||||||||||||||||||||||||||||||||||||||||||
Total non-current liabilities | 1,418,001 | 123,694 | (425) | 1,541,270 | 1,486,908 | 22,000 | (22,000) | 1,486,908 | ||||||||||||||||||||||||||||||||||||||||||
Total current liabilities | 230,655 | 24,030 | (347) | 254,338 | 321,013 | 24,729 | (24,709) | 321,033 | ||||||||||||||||||||||||||||||||||||||||||
TOTAL EQUITY and LIABILITIES | 3,725,632 | 244,213 | (772) | 3,969,073 | 3,699,404 | 115,828 | (46,709) | 3,768,523 |
Consolidated statement of profit or loss
F-35
(in thousands of USD) | 2022 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||
Tankers | FSO | Less: Equity-accounted investees | Total | Tankers | FSO | Less: Equity-accounted investees | Total | Tankers | FSO | Less: Equity-accounted investees | Total | ||||||||||||||||||||||||||||||||||||
Shipping income | |||||||||||||||||||||||||||||||||||||||||||||||
Revenue | 810,122 | 66,297 | (21,750) | 854,669 | 422,649 | 50,132 | (53,011) | 419,770 | 1,220,843 | 49,949 | (60,451) | 1,210,341 | |||||||||||||||||||||||||||||||||||
Gains on disposal of vessels/other tangible assets | 99,437 | — | (3,277) | 96,160 | 15,068 | — | — | 15,068 | 23,107 | — | (379) | 22,728 | |||||||||||||||||||||||||||||||||||
Other operating income | 12,208 | 3,752 | (819) | 15,141 | 10,111 | 2,356 | (2,212) | 10,255 | 9,907 | 2,577 | (2,372) | 10,112 | |||||||||||||||||||||||||||||||||||
Total shipping income | 921,767 | 70,049 | (25,846) | 965,970 | 447,828 | 52,488 | (55,223) | 445,093 | 1,253,857 | 52,526 | (63,202) | 1,243,181 | |||||||||||||||||||||||||||||||||||
Operating expenses | |||||||||||||||||||||||||||||||||||||||||||||||
Voyage expenses and commissions | (176,146) | — | 959 | (175,187) | (122,374) | — | 3,566 | (118,808) | (129,833) | — | 4,403 | (125,430) | |||||||||||||||||||||||||||||||||||
Vessel operating expenses | (202,765) | (19,156) | 5,827 | (216,094) | (222,087) | (12,381) | 13,762 | (220,706) | (221,245) | (12,014) | 14,869 | (218,390) | |||||||||||||||||||||||||||||||||||
Charter hire expenses | (5,259) | — | (510) | (5,769) | (6,775) | — | (2,975) | (9,750) | (5,410) | — | (2,544) | (7,954) | |||||||||||||||||||||||||||||||||||
Losses on disposal of vessels/other tangible assets | (347) | — | — | (347) | — | — | — | — | (1) | — | — | (1) | |||||||||||||||||||||||||||||||||||
Depreciation tangible assets | (212,624) | (12,101) | 3,149 | (221,576) | (347,338) | (9,899) | 12,333 | (344,904) | (323,216) | (16,710) | 20,274 | (319,652) | |||||||||||||||||||||||||||||||||||
Depreciation intangible assets | (108) | (913) | — | (1,021) | (90) | — | — | (90) | (99) | — | — | (99) | |||||||||||||||||||||||||||||||||||
General and administrative expenses | (51,323) | (508) | 129 | (51,702) | (32,441) | (330) | 363 | (32,408) | (37,441) | (560) | 668 | (37,333) | |||||||||||||||||||||||||||||||||||
Total operating expenses | (648,572) | (32,678) | 9,554 | (671,696) | (731,105) | (22,610) | 27,049 | (726,666) | (717,245) | (29,284) | 37,670 | (708,859) | |||||||||||||||||||||||||||||||||||
RESULT FROM OPERATING ACTIVITIES | 273,195 | 37,371 | (16,292) | 294,274 | (283,277) | 29,878 | (28,174) | (281,573) | 536,612 | 23,242 | (25,532) | 534,322 | |||||||||||||||||||||||||||||||||||
Finance income | 26,747 | 313 | 80 | 27,140 | 14,050 | — | 884 | 14,934 | 20,045 | 21 | 1,430 | 21,496 | |||||||||||||||||||||||||||||||||||
Finance expenses | (128,695) | (4,569) | 255 | (133,009) | (95,626) | (1,971) | 2,056 | (95,541) | (91,645) | (3,295) | 3,387 | (91,553) | |||||||||||||||||||||||||||||||||||
Net finance expenses | (101,948) | (4,256) | 335 | (105,869) | (81,576) | (1,971) | 2,940 | (80,607) | (71,600) | (3,274) | 4,817 | (70,057) | |||||||||||||||||||||||||||||||||||
Share of profit (loss) of equity accounted investees (net of income tax) | 92 | — | 17,558 | 17,650 | 380 | — | 22,596 | 22,976 | 467 | — | 10,450 | 10,917 | |||||||||||||||||||||||||||||||||||
Profit (loss) before income tax | 171,339 | 33,115 | 1,601 | 206,055 | (364,473) | 27,907 | (2,638) | (339,204) | 465,479 | 19,968 | (10,265) | 475,182 | |||||||||||||||||||||||||||||||||||
Income tax expense | (216) | (987) | (1,601) | (2,804) | 427 | (2,638) | 2,638 | 427 | (1,944) | (10,265) | 10,265 | (1,944) | |||||||||||||||||||||||||||||||||||
Profit (loss) for the period | 171,123 | 32,128 | — | 203,251 | (364,046) | 25,269 | — | (338,777) | 463,535 | 9,703 | — | 473,238 | |||||||||||||||||||||||||||||||||||
Attributable to: | |||||||||||||||||||||||||||||||||||||||||||||||
Owners of the company | 171,123 | 32,128 | — | 203,251 | (364,046) | 25,269 | — | (338,777) | 463,535 | 9,703 | — | 473,238 |
F-36
Summarized consolidated statement of cash flows
(in thousands of USD) | 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tankers | FSO | Less: Equity-accounted investees | Total | Tankers | FSO | Less: Equity-accounted investees | Total | Tankers | FSO | Less: Equity-accounted investees | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net cash from (used in) operating activities | 230,207 | 33,474 | (8,128) | 255,553 | (32,132) | 35,532 | (28,705) | (25,305) | 958,798 | 36,328 | (25,341) | 969,785 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net cash from (used in) investing activities | (132,942) | (134,402) | 108,499 | (158,845) | (351,767) | — | (1,479) | (353,246) | (110,314) | — | (6,792) | (117,106) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net cash from (used in) financing activities | (65,916) | 101,582 | (98,561) | (62,895) | (378,528) | (35,259) | 787,680 | 373,893 | (995,151) | (36,503) | 31,953 | (999,701) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Capital expenditure | (395,802) | (144,438) | — | (540,240) | (413,319) | — | — | (413,319) | (226,663) | — | 1,253 | (225,410) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
On June 7, 2022, the Group announced that it has become the full owner of the FSO platform as previously held in its 50-50 joint venture with International Seaways, Inc. (“INSW”). The Group recognized the FSOs Asia and Africa fully due to the acquisition of the remaining 50% in TI Asia and TI Africa for an amount of $223.1 million. The price paid amounted to $129.9 million and can be retrieved under 'Acquisitions of vessels' in the cash flow statement. The transaction was booked as an asset acquisition as the asset concentration test was met under IFRS 3, given that substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset (i.e. the FSO and related lease component in the customer contract). The intangible asset related to the service component in the customer contract (see Note 9) has been separately recorded on the balance sheet as this could not be included in the single identifiable asset related to the FSO. The intangible asset was valued at $16.6 million which did not alter the "substantially all" criterium.
F-37
Note 3 - Assets and liabilities held for sale and discontinued operations
Assets held for sale
The assets held for sale can be detailed as follows:
(in thousands of USD) | December 31, 2022 | December 31, 2021 | December 31, 2020 | |||||||||||||||||
Vessels | 18,459 | — | — | |||||||||||||||||
Of which in Tankers segment | 18,459 | — | — | |||||||||||||||||
Of which in FSO segment | — | — | — |
(in thousands of USD) | (Estimated) Net sale price | Book Value | Asset Held For Sale | Impairment Loss | (Expected) Gain | |||||||||||||||||||||||||||
At January 1, 2021 | — | — | — | — | — | |||||||||||||||||||||||||||
At December 31, 2021 | — | — | — | — | — | |||||||||||||||||||||||||||
At January 1, 2022 | — | — | — | — | — | |||||||||||||||||||||||||||
Assets transferred to assets held for sale | ||||||||||||||||||||||||||||||||
Cap Charles | 40,523 | 18,459 | 18,459 | — | 22,064 | |||||||||||||||||||||||||||
At December 31, 2022 | — | — | 18,459 | — | 22,064 | |||||||||||||||||||||||||||
On December 14, 2022, the Company sold the Suezmax Cap Charles (2006 - 158,881 dwt), for $41.4 million. This vessel was accounted for as a non-current asset held for sale as at December 31, 2022, and had a carrying value of $18.5 million as of that date. The vessel was delivered to its new owner on February 16, 2022. Taking into account the sales commission, the net gain on this vessel amounts to $22.1 million and was recorded in the consolidated statement of profit or loss in the first quarter of 2023.
As of December 31, 2021 the Group had no assets held for sale.
Discontinued operations
As of December 31, 2022 and December 31, 2021, the Group had no operations that meet the criteria of a discontinued operation.
F-38
Note 4 – Revenue and other operating income
(in thousands of USD) | 2022 | 2021 | ||||||||||||||||||||||||||||||
Tankers | FSO | Less: Equity-accounted investees | Total | Tankers | FSO | Less: Equity-accounted investees | Total | |||||||||||||||||||||||||
Pool Revenue | 359,926 | — | (6) | 359,920 | 136,160 | — | 11 | 136,171 | ||||||||||||||||||||||||
Spot Voyages | 377,900 | — | (540) | 377,360 | 215,158 | — | (2,890) | 212,268 | ||||||||||||||||||||||||
Revenue from contracts with customers | 737,826 | — | (546) | 737,280 | 351,318 | — | (2,879) | 348,439 | ||||||||||||||||||||||||
Time Charters | 72,296 | 66,297 | (21,204) | 117,389 | 71,331 | 50,132 | (50,132) | 71,331 | ||||||||||||||||||||||||
Lease income | 72,296 | 66,297 | (21,204) | 117,389 | 71,331 | 50,132 | (50,132) | 71,331 | ||||||||||||||||||||||||
Total revenue | 810,122 | 66,297 | (21,750) | 854,669 | 422,649 | 50,132 | (53,011) | 419,770 | ||||||||||||||||||||||||
Other operating income | — | — | — | 15,141 | — | — | — | 10,255 | ||||||||||||||||||||||||
For the accounting treatment of revenue, we refer to the accounting policies (see Note 1.17) - Revenue.
The increase in revenue is mainly related to the increase in pool and spot voyage revenue which is driven by improved freight rates mainly in the last quarter of 2022 compared to 2021. Notwithstanding, in 2022, there were less onhire days compared to 2021 due to a decrease in the fleet size mainly resulting from a vessel sale program completed in 2022. The latter is illustrating our fleet rejuvenation strategy.
The increase in revenue from time charters is also benefiting from these favorable market conditions triggering additional profit split earnings despite a lower number of vessels on time charter compared to 2021.
Other operating income includes revenues related to the daily standard business operation of the fleet which are not directly attributable to an individual voyage.
F-39
Note 5 - Expenses for shipping activities and other expenses from operating activities
Voyage expenses and commissions
(in thousands of USD) | 2022 | 2021 | 2020 | |||||||||||||||||
Commissions paid | (14,778) | (8,014) | (12,748) | |||||||||||||||||
Bunkers | (131,089) | (84,614) | (98,761) | |||||||||||||||||
Other voyage related expenses | (29,320) | (26,180) | (13,921) | |||||||||||||||||
Total voyage expenses and commissions | (175,187) | (118,808) | (125,430) |
The voyage expenses and commissions, which relate to the Suezmax fleet only, increased in 2022 compared to 2021 mainly due to a strong increase in bunker related expenses, whilst noting an increase for commissions paid and other voyage related expenses.
The increase in bunker cost follows the increase in crude oil prices since the beginning of the year due to the war between Russia and Ukraine and the economic sanctions that have been imposed.
The majority of the bunkers consumed by Euronav vessels are procured through the Company's IMO 2020 fuel compliance program (see Note 12). For vessels operated on the spot market, voyage expenses are paid by the shipowner while voyage expenses for vessels under a time charter contract, are paid by the charterer. Voyage expenses for vessels operated in a Pool, are paid by the Pool. IMO’s initial GHG strategy aims to reduce carbon emissions by 40% by 2030 (IMO 2030) from 2008’s levels and at least 50% of the shipping industry’s total greenhouse gas emissions by 2050 (IMO 2050). Based on the continuous renewal of the fleet and selling of the older vessels (> 15 years), Euronav is seeking to reach the 2030 target via its AER trajectory.
The majority of other voyage expenses are port costs, agency fees and agent fees paid to operate the vessels on the spot market. Port costs vary depending on the number of spot voyages performed, number and type of ports.
The increase in commissions paid is due to slightly more vessels on the spot as well as increased market rates compared to 2021.
Vessel operating expenses
(in thousands of USD) | 2022 | 2021 | 2020 | |||||||||||||||||
Operating expenses | (199,286) | (204,702) | (204,433) | |||||||||||||||||
Insurance | (16,808) | (16,004) | (13,957) | |||||||||||||||||
Total vessel operating expenses | (216,094) | (220,706) | (218,390) |
The operating expenses relate mainly to the crewing expenses (including crew bonuses), technical and other costs (including shore staff working entirely on ship management) which are needed to operate tankers. In 2022, these expenses were slightly lower compared to 2021, resulting from a smaller fleet size on average in 2022 compared to 2021.
Following the Ballast water Management convention, the installation of new ballast water treatment systems was mandatory. However, these costs are to be made by almost the entire industry and do not make vessels obsolete or significantly more expensive to operate or maintain.
The IMO is looking to reduce the carbon intensity of shipping through implementation of further phases of the energy efficiency design index (EEDI) for new vessels. From January 1, 2023, all existing vessels must meet new energy efficiency standards. EEXI is the sister to EEDI, Energy Efficiency Design Index, which has been in force since 2013. These indexes measure the same in practice; however, EEDI is applied to new vessels while EEXI applies to existing vessels. EEXI regulation is one of the most significant measures by the IMO to promote more environmentally friendly technologies and reduce the shipping industry’s carbon footprint. The costs to comply with this new legislation are to be made by almost the entire industry and do not make vessels obsolete or significantly more expensive to operate or maintain.
Carbon Intensity Indicator (“CII”) takes effect from January 1, 2023. The CII (Carbon Intensity Indicator) measures how efficiently a vessel above 5,000 GT transports goods or passengers and is calculated in grams of CO2 emitted per cargo-carrying capacity and nautical mile. The first annual reporting will be completed in 2023, with initial ratings given in 2024. Vessels will receive a rating of A (major superior), B (minor superior), C (moderate), D (minor inferior) or E (inferior performance level). The rating thresholds will become increasingly stringent towards 2030. A vessel rated D for three consecutive years or rated as E, will need to develop a plan of corrective actions.
F-40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Euronav has projected the future CII rating for its current fleet based on the 2021 AER data and the Group expects CII ratings require no significant investments.
Charter hire expenses
(in thousands of USD) | 2022 | 2021 | 2020 | |||||||||||||||||
Charter hire | (3,912) | (8,473) | (7,954) | |||||||||||||||||
Bareboat hire | (1,857) | (1,277) | — | |||||||||||||||||
Total charter hire expenses | (5,769) | (9,750) | (7,954) |
The charter-hire expenses in 2022 are entirely attributable to the internal short term time charter agreement with our joint venture Bari Shipholding Ltd. and the hire expenses for the barge (Cougar Satu) in relation to our fuel compliance program (see Note 12). The Group elected to apply the short-term lease exemption and accordingly, the lease payments were recognized as an expense and right-of-use assets and lease liabilities were not recognized. The decrease noted in 2022 compared to 2021 is due to the sale of Suezmax Bari (2005 - 159,186 dwt) on March 24, 2022.
The bareboat hire is related to four bareboat contracts ended on December 15, 2021 with one vessel (VLCC Nautilus) redelivered to the owners before December 31, 2021. The expenses for the bareboat hire days upon redelivery of the three remaining vessels (VLCCs Navarin, Neptun and Nucleus) were recorded as bareboat hire instead of accounting for a lease modification. All vessels were redelivered during the first quarter of 2022.
General and administrative expenses
(in thousands of USD) | 2022 | 2021 | 2020 | |||||||||||||||||
Wages and salaries | (8,272) | (7,566) | (10,641) | |||||||||||||||||
Social security costs | (1,242) | (1,295) | (1,360) | |||||||||||||||||
Provision for employee benefits (Note 18) | 205 | 687 | (545) | |||||||||||||||||
Cash-settled share-based payments (Note 24) | 2,973 | (548) | 1,338 | |||||||||||||||||
Equity-settled share-based payments (Note 24) | (2,411) | (761) | (140) | |||||||||||||||||
Other employee benefits | (919) | (1,000) | (1,272) | |||||||||||||||||
Employee benefits | (9,666) | (10,482) | (12,620) | |||||||||||||||||
Administrative expenses | (37,955) | (18,355) | (21,652) | |||||||||||||||||
Tonnage Tax | (4,343) | (3,346) | (3,459) | |||||||||||||||||
Claims | — | (452) | 10 | |||||||||||||||||
Provisions | 262 | 227 | 388 | |||||||||||||||||
Total general and administrative expenses | (51,702) | (32,408) | (37,333) | |||||||||||||||||
Average number of full time equivalents (shore staff) | 192.81 | 189.05 | 185.66 |
The general and administrative expenses which include amongst others: shore staff wages excluding shore staff working entirely on ship management, director fees, office rental, consulting and audit fees and tonnage tax, increased in 2022 compared to 2021. This increase was mainly due to an increase in administrative expenses.
The increase in administrative expenses is mainly due to legal and other fees incurred in relation to the potential merger discussions with Frontline Plc, following the Combination Agreement, as well as the vesting of variable stock option plans of the Management Board (TBIP 2019).
The share-based payments are lower compared to 2021 mainly due to the reversal of the provision on cash-settled share-based payments as the TBIP 2019 was fully vested during 2022 and for which the payout is reflected in the administrative expenses. In 2022, the LTIP 2015, LTIP 2019, LTIP 2020 and LTIP 2021 were recognized in the equity-settled share-based payment expenses (see Note 15).
The increase in tonnage tax for the year ended in 2022 is mainly driven by the unilateral decision of the Greek Authority to increase the Greek voluntary tax.
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Note 6 - Net finance expense
Recognized in profit or loss
(in thousands of USD) | 2022 | 2021 | 2020 | |||||||||||||||||
Interest income | 7,063 | 1,896 | 3,687 | |||||||||||||||||
Change in fair value of fuel derivatives recognized in P&L | 6,132 | 1,668 | 2,800 | |||||||||||||||||
Foreign exchange gains | 13,945 | 11,370 | 15,009 | |||||||||||||||||
Finance income | 27,140 | 14,934 | 21,496 | |||||||||||||||||
Interest expense on financial liabilities measured at amortized cost | (85,418) | (57,961) | (60,627) | |||||||||||||||||
Interest leasing | (1,237) | (2,378) | (3,287) | |||||||||||||||||
Change in fair value of fuel derivatives recognized in P&L | (26,388) | (8,966) | (1,723) | |||||||||||||||||
Fair value adjustment on interest rate swaps | (507) | (78) | (108) | |||||||||||||||||
Other financial charges | (5,930) | (14,265) | (9,936) | |||||||||||||||||
Foreign exchange losses | (13,529) | (11,893) | (15,872) | |||||||||||||||||
Finance expense | (133,009) | (95,541) | (91,553) | |||||||||||||||||
Net finance expense recognized in profit or loss | (105,869) | (80,607) | (70,057) |
Finance income is higher during the year ended December 31, 2022 compared to December 31, 2021 which is mainly due to an increased interest income received on the interest swaps enhanced by an increase in change in fair value of fuel derivatives recognized through P&L.
Finance expenses increased during the year ended December 31, 2022 compared to December 31, 2021. This is mainly due to an increase in interest expenses on financial liabilities enhanced by an increase in change in fair value of fuel derivatives recognized through P&L. The increased interest expenses on financial liabilities are mainly related to an increase in interest expenses on bank loans due to an increasing interest rate environment and a higher average outstanding debt compared to the period ended December 31, 2021. The increased expense in change in fair value of fuel derivatives is mainly due to the higher negative result on the fuel derivatives related to the hedging program of the bunker fuel on board of the Oceania.
The decrease in other financial charges is mainly due to the correction above pari in relation with the bond renewal completed in 2021 as well as a decrease in commitment fees incurred during 2022 compared to 2021.
Interest leasing is the interest on lease liabilities.
The above finance income and expenses include the following in respect of assets (liabilities) not recognized at fair value through profit or loss:
2022 | 2021 | 2020 | ||||||||||||||||||
Total interest income on financial assets | 7,063 | 1,896 | 3,687 | |||||||||||||||||
Total interest expense on financial liabilities | (85,418) | (57,961) | (60,627) | |||||||||||||||||
Total interest leasing | (1,237) | (2,378) | (3,287) | |||||||||||||||||
Total other financial charges | (5,930) | (14,265) | (9,936) |
F-42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Recognized directly in equity
(in thousands of USD) | 2022 | 2021 | 2020 | |||||||||||||||||
Foreign currency translation differences for foreign operations | (477) | (482) | 636 | |||||||||||||||||
Cash flow hedges - effective portion of changes in fair value | 30,657 | 9,852 | (2,873) | |||||||||||||||||
Net finance expense recognized directly in equity | 30,180 | 9,370 | (2,237) | |||||||||||||||||
Attributable to: | ||||||||||||||||||||
Owners of the Company | 30,180 | 9,370 | (2,237) | |||||||||||||||||
Net finance expense recognized directly in equity | 30,180 | 9,370 | (2,237) | |||||||||||||||||
Recognized in: | ||||||||||||||||||||
Translation reserve | (477) | (482) | 636 | |||||||||||||||||
Hedging reserve | 30,657 | 9,852 | (2,873) |
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Note 7 - Income tax benefit (expense)
(in thousands of USD) | 2022 | 2021 | 2020 | |||||||||||||||||
Current tax | ||||||||||||||||||||
Current period | (1,736) | (206) | (575) | |||||||||||||||||
Changes related to prior years | 57 | 436 | — | |||||||||||||||||
Total current tax | (1,680) | 230 | (575) | |||||||||||||||||
Deferred tax | ||||||||||||||||||||
Recognition of unused tax losses/(use of tax losses) | (137) | 201 | (1,369) | |||||||||||||||||
Other | (987) | (4) | — | |||||||||||||||||
Total deferred tax | (1,124) | 197 | (1,369) | |||||||||||||||||
Total tax benefit/(expense) | (2,804) | 427 | (1,944) |
Reconciliation of effective tax | 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||
Profit (loss) before tax | 206,055 | (339,204) | 475,182 | |||||||||||||||||||||||||||||||||||
Tax at domestic rate | (25.00) | % | (51,514) | (25.00) | % | 84,801 | (25.00) | % | (118,796) | |||||||||||||||||||||||||||||
Effects on tax of : | ||||||||||||||||||||||||||||||||||||||
Tax exempt profit / loss | 2,642 | 4,541 | 241 | |||||||||||||||||||||||||||||||||||
Tax adjustments for previous years | 57 | 436 | — | |||||||||||||||||||||||||||||||||||
Loss for which no DTA (*) has been recognized | 4,481 | 27 | (61) | |||||||||||||||||||||||||||||||||||
Non-deductible expenses | (315) | (188) | (482) | |||||||||||||||||||||||||||||||||||
Use of previously unrecognized tax losses and tax credits | 4,431 | 4,101 | 267 | |||||||||||||||||||||||||||||||||||
Effect of Tonnage Tax regime | 40,670 | (84,881) | 115,174 | |||||||||||||||||||||||||||||||||||
Effect of share of profit of equity-accounted investees | 4,389 | 5,649 | 2,613 | |||||||||||||||||||||||||||||||||||
Effects of tax regimes in foreign jurisdictions | (7,645) | (14,059) | (900) | |||||||||||||||||||||||||||||||||||
Total taxes | (1.36) | % | (2,804) | (0.13) | % | 427 | (0.41) | % | (1,944) |
* Deferred Tax Asset
In application of an IFRIC agenda decision on ‘IAS 12 Income taxes’, tonnage tax is not accounted for as income taxes in accordance with IAS 12 and is not presented as part of income tax expense in the consolidated statement of profit or loss but
has been shown as an administrative expense under the heading General and administrative expenses. The amount paid for tonnage tax in the year ended December 31, 2022 was $4.3 million (2021: $3.3 million) (see Note 5).
Subject to further detailed analysis for confirmation, but the Group expects no material impact due to the OECD global minimum tax initiatives because of international shipping carve out rules & mechanism.
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Note 8 - Property, plant and equipment
(in thousands of USD) | Vessels | Vessels under construction | Right-of-use assets | Other tangible assets | Total PPE | |||||||||||||||||||||||||||||||||
At January 1, 2020 | ||||||||||||||||||||||||||||||||||||||
Cost | 4,815,910 | — | 88,182 | 5,042 | 4,909,134 | |||||||||||||||||||||||||||||||||
Depreciation & impairment losses | (1,638,648) | — | (29,274) | (2,777) | (1,670,699) | |||||||||||||||||||||||||||||||||
Net carrying amount | 3,177,262 | — | 58,908 | 2,265 | 3,238,435 | |||||||||||||||||||||||||||||||||
Acquisitions | 17,835 | 207,069 | 25,701 | 285 | 250,890 | |||||||||||||||||||||||||||||||||
Disposals and cancellations | (42,641) | — | — | (2) | (42,643) | |||||||||||||||||||||||||||||||||
Depreciation charges | (287,148) | — | (31,702) | (802) | (319,652) | |||||||||||||||||||||||||||||||||
Translation differences | — | — | 48 | 13 | 61 | |||||||||||||||||||||||||||||||||
Balance at December 31, 2020 | 2,865,308 | 207,069 | 52,955 | 1,759 | 3,127,091 | |||||||||||||||||||||||||||||||||
At January 1, 2021 | ||||||||||||||||||||||||||||||||||||||
Cost | 4,608,326 | 207,069 | 113,859 | 5,189 | 4,934,443 | |||||||||||||||||||||||||||||||||
Depreciation & impairment losses | (1,743,018) | — | (60,904) | (3,430) | (1,807,352) | |||||||||||||||||||||||||||||||||
Net carrying amount | 2,865,308 | 207,069 | 52,955 | 1,759 | 3,127,091 | |||||||||||||||||||||||||||||||||
Acquisitions | 56,111 | 356,951 | 23,476 | 142 | 436,680 | |||||||||||||||||||||||||||||||||
Disposals and cancellations | (39,522) | — | — | — | (39,522) | |||||||||||||||||||||||||||||||||
Depreciation charges | (296,837) | — | (47,387) | (680) | (344,904) | |||||||||||||||||||||||||||||||||
Transfers | 382,727 | (382,727) | — | — | — | |||||||||||||||||||||||||||||||||
Translation differences | — | — | (43) | (3) | (46) | |||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 2,967,787 | 181,293 | 29,001 | 1,218 | 3,179,299 | |||||||||||||||||||||||||||||||||
At January 1, 2022 | ||||||||||||||||||||||||||||||||||||||
Cost | 4,875,810 | 181,293 | 53,226 | 5,244 | 5,115,573 | |||||||||||||||||||||||||||||||||
Depreciation & impairment losses | (1,908,023) | — | (24,225) | (4,026) | (1,936,274) | |||||||||||||||||||||||||||||||||
Net carrying amount | 2,967,787 | 181,293 | 29,001 | 1,218 | 3,179,299 | |||||||||||||||||||||||||||||||||
Acquisitions | 448,850 | 165,246 | 14,060 | 164 | 628,320 | |||||||||||||||||||||||||||||||||
Disposals and cancellations | (258,899) | — | — | — | (258,899) | |||||||||||||||||||||||||||||||||
Depreciation charges | (199,457) | — | (21,509) | (610) | (221,576) | |||||||||||||||||||||||||||||||||
Transfer to assets held for sale (Note 3) | (18,459) | — | — | — | (18,459) | |||||||||||||||||||||||||||||||||
Transfers | 118,110 | (118,110) | — | — | — | |||||||||||||||||||||||||||||||||
Translation differences | — | — | (59) | (10) | (69) | |||||||||||||||||||||||||||||||||
Balance at December 31, 2022 | 3,057,932 | 228,429 | 21,493 | 762 | 3,308,616 | |||||||||||||||||||||||||||||||||
At December 31, 2022 | ||||||||||||||||||||||||||||||||||||||
Cost | 5,014,747 | 228,429 | 66,785 | 5,159 | 5,315,120 | |||||||||||||||||||||||||||||||||
Depreciation & impairment losses | (1,956,815) | — | (45,292) | (4,397) | (2,006,504) | |||||||||||||||||||||||||||||||||
Net carrying amount | 3,057,932 | 228,429 | 21,493 | 762 | 3,308,616 |
On October 27, 2020 and November 6, 2020, the Company entered into a time charter agreement for two Suezmaxes, Marlin Sardinia and Marlin Somerset (see Note 21). In accordance with IFRS, the Group recognized a right-of-use asset of $24.9 million.
In 2021, the Group completed an intensive dry dock program to take advantage of the current challenging freight rate background. The Aegean, Alboran, Alex, Alice, Andaman, Anne, Antigone, Aquitaine, Arafura, Aral, Ardeche, Cap Charles, Cap Guillaume, Cap Leon, Cap Philippe, Cap Victor, Desirade, Donoussa, Drenec, Heron, Hirado, Sandra, Sara, Selena and
F-45
Stella have been dry-docked in 2021 (18 VLCCs and seven Suezmaxes). The cost of planned repairs is capitalized and included under the heading Acquisitions.
During 2021, four newbuilding VLCCs were delivered from Daewoo Shipbuilding & Marine Engineering shipyard for an aggregate amount of $382.7 million. In January 2021, Euronav took delivery of the first two newbuildings, Delos (2021 - 300,200 dwt) and Diodorus (2021 - 300,200 dwt). In March 2021, Euronav took delivery of the third and fourth newbuilding, Doris (2021 - 300,200 dwt) and Dickens (2021 - 300,200 dwt). These four vessels were previously reported as vessels under construction as at December 31, 2020.
In 2022, the Maria, Cap Pierre, Amundsen, Captain Michael, Sonia, Iris, Ingrid, Cap Lara, Alsace, Dalma, Daishan, Hatteras, Ilma, Sienna and Simone have been dry-docked. The VLCCs Iris, Ingrid, Alsace and Ilma have been equipped with scrubber installations during the dry-dock. The cost of planned repairs is capitalized and included under the heading Acquisitions.
During 2022, two newbuilding Suezmaxes joined our fleet for an aggregate amount of $118.0 million. Cedar (2022 - 157,310 dwt) was delivered on January 7, 2022 and Cypress (2022 - 157,310 dwt) on January 20, 2022. Both were constructed at Daehan Shipbuilding (DHSC) in South Korea. These two vessels were previously reported as vessels under construction as at December 31, 2021.
On April 29, 2022, Euronav announced the purchase of two eco-VLCCs, the Chelsea (2020 – 299,995 dwt) and the Ghillie (2019 – 297,750 dwt), for $179 million in total. They are sisters of our D-class vessels (Delos, (2021 – 300,200 dwt), Diodorus (2021 – 300,200 dwt), Doris (2021 – 300,200 dwt) and Dickens (2021 – 299,550 dwt). These vessels were all built in Korea at Daewoo Shipbuilding & Marine Engineering, are fitted with scrubbers and are the latest generation of ecotype VLCC's. The vessels entered the fleet under their new names Dalis (previously Chelsea) and Derius (previously Ghillie).
As of June 7, 2022, the Group recognized the FSOs Asia and Africa fully in property, plant and equipment due to the acquisition of the remaining 50% in TI Asia and TI Africa for an amount of $223.1 million (see Note 2).
On June 24, 2022, Euronav has declared the options to extend the time charter agreement for the two Suezmaxes Marlin Sardinia and Marlin Somerset with an additional 12 months. This resulted in the recognition of a right-of-use asset of $13.4 million.
It is further noted that for the year ended at December 31, 2022, the depreciation charges decreased significantly compared to previous years. This is related to the re-assessment of the residual value at year end 2021 (see Note 1.5 B).
The Group had eight vessels under construction at December 31, 2022 for an aggregate amount of $228.4 million (2021: eight vessels under construction). The amounts presented within "vessels under construction" relate to three Eco-type VLCCs and five Eco-Type Suezmaxes.
F-46
Disposal of assets – Gains/losses
(in thousands of USD) | Sale price | Book Value | Gain | Loss | ||||||||||||||||||||||
Finesse - Sale | 21,003 | 12,705 | 8,298 | — | ||||||||||||||||||||||
Cap Diamant - Sale | 20,072 | 7,242 | 12,830 | — | ||||||||||||||||||||||
TI Hellas - Sale | 37,000 | 35,400 | 1,600 | — | ||||||||||||||||||||||
At December 31, 2020 | 78,075 | 55,347 | 22,728 | — | ||||||||||||||||||||||
Sale price | Book Value | Gain | Loss | |||||||||||||||||||||||
Newton - Sale | 35,370 | 32,953 | 1,163 | — | ||||||||||||||||||||||
Filikon - Sale | 15,974 | 6,570 | 9,404 | — | ||||||||||||||||||||||
Other | — | — | 4,500 | — | ||||||||||||||||||||||
At December 31, 2021 | 51,344 | 39,523 | 15,068 | — | ||||||||||||||||||||||
Sale price | Book Value | Gain | Loss | |||||||||||||||||||||||
Sandra - Sale | 47,520 | 47,299 | 221 | — | ||||||||||||||||||||||
Sara - Sale | 47,520 | 46,013 | 1,507 | — | ||||||||||||||||||||||
Sonia - Sale | 50,490 | 50,837 | — | (347) | ||||||||||||||||||||||
Simone - Sale | 50,490 | 50,070 | 420 | — | ||||||||||||||||||||||
Cap Leon - Sale | 19,924 | 9,081 | 10,843 | — | ||||||||||||||||||||||
Cap Pierre - Sale | 19,058 | 11,537 | 7,521 | — | ||||||||||||||||||||||
Cap Philippe - Sale | 32,046 | 19,165 | 12,881 | — | ||||||||||||||||||||||
Europe - Sale | 40,013 | 5,300 | 34,713 | — | ||||||||||||||||||||||
Cap Guillaume - Sale | 34,153 | 19,597 | 14,556 | — | ||||||||||||||||||||||
Other | — | — | 13,500 | — | ||||||||||||||||||||||
At December 31, 2022 | 341,214 | 258,899 | 96,161 | (347) |
On January 26, 2022, Euronav announced that the Company booked a $18 million capital gain on disposal of assets upon the redelivery of 4 VLCCs, which occurred at the maturity of a five-year sale and leaseback agreement. The four VLCCs are: the Nautilus (2006 - 307,284 dwt), Navarin (2007 - 307,284 dwt), Neptun (2007 - 307,284 dwt) and the Nucleus (2007 - 307,284 dwt). As the first ship was redelivered on December 15, 2021, $4.5 million was booked in the fourth quarter of 2021, whereas the remaining $13.5 million was booked in the first quarter of 2022.
On April 29, 2022, Euronav has sold four older S-class VLCCs for an en-bloc price of $198 million. The four vessels are the Sandra (2011 – 323,527 dwt), Sonia (2012 – 314,000 dwt), Sara (2011 – 322,000 dwt), and Simone (2012 – 315,988 dwt). The vessels were delivered to their new owners respectively on May 9, 17 and 20, 2022 and October 10, 2022. A net capital gain of $1.8 million was recorded on the sale of the four vessels of which $1.4 million in the second quarter and $0.4 million in the fourth quarter of 2022.
On June 13, 2022, Euronav announced that it has sold its two eldest Suezmax vessels Cap Pierre (2004 - 159,048 dwt) and Cap Leon (2003 - 159,048 dwt). The combined net capital gains realised on these sales amount to $18.4 million upon delivery on April 28, 2022 and June 30, 2022 respectively to its new owners and were booked in the second quarter of 2022.
F-47
On August 9, 2022, the Group sold the Suezmax Cap Philippe (2006 - 158,920 dwt) for a net sale price of $32 million. A capital gain on the sale of $12.8 million was recorded in the fourth quarter of 2022 upon delivery to its new owner on October 13, 2022.
On September 23, 2022, Euronav sold the ULCC Europe (2002 - 441,561) for a net sale price of $40 million. The Company recorded a capital gain of $34.7 million in the fourth quarter of 2022 upon delivery to its new owner on October 26, 2022.
On September 30, 2022, Euronav sold the Suezmax Cap Guillaume (2006 – 158,889 dwt) for a net sale price of $34.2 million. The Company recorded a capital gain of $14.6 million in the fourth quarter of 2022 upon delivery to its new owner on November 23, 2022.
Impairment
In previous years, Euronav carefully assessed through a detailed approach if the carrying amounts of the vessels would require an impairment. No impairment was booked so far. In 2021, the Group performed the annual impairment test due to two indicators which triggered the requirement for such test, being the further decline in market rates, and the net operating losses of the Group. In 2022, both for the CGUs under the tankers segment and the FSO segment (as defined in Note 2), the Group performed a review of the internal as well as external indicators of impairment to consider whether further testing was necessary.
For the tankers segment, when analysing the potential impairment indicators set out in accounting policy 13.2 and taking into account the strong performance in 2022, the stronger share price, and the current elevated freight rates and market values for VLCCs and Suezmaxes, there is no potential indicator for impairment.
The Group also reviews internal and external indicators, similar to the ones used for tankers, to assess whether the FSO’s might be impaired. The FSO Asia and FSO Africa are on a ten years timecharter contract to North Oil Company, the operator of the Al-Shaheen oil field, whose shareholders are Qatar Petroleum Oil & Gas Limited and Total E&P Golfe Limited, until July 21, 2032 and September 21, 2032 respectively. It is further noted that the contracts remain profitable until the end of the useful lives of both FSOs and therefore, no impairment indicators have been identified. The review of the indicators did not trigger the requirement to perform a more in-depth impairment analysis at December 31, 2022.
Security
All tankers financed with bank loans are subject to a mortgage to secure bank loans (see Note 17).
Capital commitment
As at December 31, 2022 the Group's total capital commitments amounts to $404.1 million (December 31, 2021: $414.3 million capital commitments). These capital commitments relate to five eco-type Suezmaxes and three eco-type VLCCs newbuilding contracts. The capital commitments can be detailed as follows:
(in thousands of USD) | Total | 2023 | 2024 | 2024 | ||||||||||||||||
Commitments in respect of VLCCs | 167,880 | 167,880 | — | — | ||||||||||||||||
Commitments in respect of Suezmaxes | 236,185 | 99,589 | 136,596 | — | ||||||||||||||||
Commitments in respect of FSOs | — | — | — | — | ||||||||||||||||
Total | 404,065 | 267,469 | 136,596 | — | ||||||||||||||||
F-48
Note 9 - Intangible Assets
(in thousands of USD) | Customer contracts | Other intangible assets | Total intangible assets | |||||||||||
At January 1, 2021 | ||||||||||||||
Cost | — | 1,123 | 1,123 | |||||||||||
Depreciation | — | (962) | (962) | |||||||||||
Net carrying amount | — | 161 | 161 | |||||||||||
Acquisitions | — | 115 | 115 | |||||||||||
Depreciation charges | — | (90) | (90) | |||||||||||
Balance at December 31, 2021 | — | 186 | 186 | |||||||||||
At January 1, 2022 | ||||||||||||||
Cost | — | 1,205 | 1,205 | |||||||||||
Depreciation | — | (1,019) | (1,019) | |||||||||||
Net carrying amount | — | 186 | 186 | |||||||||||
Acquisitions | 16,569 | 13 | 16,582 | |||||||||||
Depreciation charges | (913) | (108) | (1,021) | |||||||||||
Translation differences | — | (1) | (1) | |||||||||||
Balance at December 31, 2022 | 15,656 | 90 | 15,746 | |||||||||||
At December 31, 2022 | ||||||||||||||
Cost | 16,569 | 1,212 | 17,781 | |||||||||||
Depreciation | (913) | (1,122) | (2,035) | |||||||||||
Net carrying amount | 15,656 | 90 | 15,746 |
In connection with the acquisition of the remaining 50% in TI Asia and TI Africa (see Note 25 and 26), a part of the price paid is related to an intangible asset (customer contracts with NOC for the service part, i.e. recharge of opex, maintenance and crew). Management estimated the fair value of the intangible asset related to the service component of the NOC contract, resulting in a value of $16.6 million at May 31, 2022. This amount will be depreciated till the end of the contractual service, or until July 21, 2032 and September 21, 2032 respectively.
The other intangible assets are mainly related to software assets.
F-49
Note 10 - Deferred tax assets and liabilities
Recognized deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
(in thousands of USD) | ASSETS | LIABILITIES | NET | |||||||||||||||||
Employee benefits | 23 | — | 23 | |||||||||||||||||
Unused tax losses & tax credits | 66,304 | — | 66,304 | |||||||||||||||||
Unremitted earnings | — | (64,781) | (64,781) | |||||||||||||||||
66,327 | (64,781) | 1,546 | ||||||||||||||||||
Offset | (64,781) | 64,781 | ||||||||||||||||||
Balance at December 31, 2021 | 1,546 | — | ||||||||||||||||||
Employee benefits | 25 | — | 25 | |||||||||||||||||
Unused tax losses & tax credits | 60,308 | — | 60,308 | |||||||||||||||||
Unremitted earnings | — | (58,930) | (58,930) | |||||||||||||||||
60,333 | (58,930) | 1,403 | ||||||||||||||||||
Offset | (58,930) | 58,930 | ||||||||||||||||||
Balance at December 31, 2022 | 1,403 | — |
Unrecognized deferred tax assets and liabilities
Deferred tax assets and liabilities have not been recognized in respect of the following items:
(in thousands of USD) | December 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||
ASSETS | LIABILITIES | ASSETS | LIABILITIES | |||||||||||||||||||||||
Deductible temporary differences | 261 | — | 291 | — | ||||||||||||||||||||||
Taxable temporary differences | — | (12,162) | — | (12,162) | ||||||||||||||||||||||
Tax losses & tax credits | 29,776 | — | 29,753 | — | ||||||||||||||||||||||
30,037 | (12,162) | 30,044 | (12,162) | |||||||||||||||||||||||
Offset | (12,162) | 12,162 | (12,162) | 12,162 | ||||||||||||||||||||||
Total | 17,875 | — | 17,882 | — |
The unrecognized deferred tax assets in respect of tax losses and tax credits relates to tax losses carried forward, investment deduction allowances and excess dividend received deduction. Tax losses and tax credits have no expiration date.
A deferred tax asset (DTA) is recognized for unused tax losses and tax credits carried forward, to the extent that it is probable that future taxable profits will be available. The Group considers future taxable profits as probable when it is more likely than not that taxable profits will be generated in the foreseeable future. When determining whether probable future taxable profits are available the probability threshold is applied to portions of the total amount of unused tax losses or tax credits, rather than the entire amount.
Given the nature of the tonnage tax regime, the Group has a substantial amount of unused tax losses and tax credits for which no future taxable profits are probable and therefore no DTA has been recognized.
No deferred tax liabilities have been recognized for temporary differences related to vessels for which the Group expects that the reversal of these differences will not have a tax effect.
In December 2017, changes to the Belgian corporate income tax rate were enacted, lowering the rate to 29.58% as from 2018 and to 25% from 2020. These changes have been reflected in the calculation of the amounts of deferred tax assets and liabilities in respect of Belgian Group entities as at December 31, 2022 and December 31, 2021.
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Movement in deferred tax balances during the year
(in thousands of USD) | Balance at Jan 1, 2020 | Recognized in income | Recognized in equity | Other movements | Translation Differences | Balance at Dec 31, 2020 | ||||||||||||||||||||||||||||||||
Employee benefits | 26 | — | — | — | 3 | 29 | ||||||||||||||||||||||||||||||||
Unused tax losses & tax credits | 2,689 | (1,369) | — | — | 8 | 1,328 | ||||||||||||||||||||||||||||||||
Total | 2,715 | (1,369) | — | — | 11 | 1,357 | ||||||||||||||||||||||||||||||||
Balance at Jan 1, 2021 | Recognized in income | Recognized in equity | Other movements | Translation Differences | Balance at Dec 31, 2021 | |||||||||||||||||||||||||||||||||
Employee benefits | 29 | (4) | — | — | (2) | 23 | ||||||||||||||||||||||||||||||||
Unused tax losses & tax credits | 1,328 | 201 | — | — | (6) | 1,523 | ||||||||||||||||||||||||||||||||
Total | 1,357 | 197 | — | — | (8) | 1,546 | ||||||||||||||||||||||||||||||||
Balance at Jan 1, 2022 | Recognized in income | Recognized in equity | Other movements | Translation Differences | Balance at Dec 31, 2022 | |||||||||||||||||||||||||||||||||
Employee benefits | 23 | 4 | — | — | (2) | 25 | ||||||||||||||||||||||||||||||||
Unused tax losses & tax credits | 1,523 | (137) | — | — | (8) | 1,378 | ||||||||||||||||||||||||||||||||
Reclassification | — | (991) | — | 991 | — | — | ||||||||||||||||||||||||||||||||
Total | 1,546 | (1,124) | — | 991 | (10) | 1,403 |
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Note 11 - Non-current receivables
(in thousands of USD) | December 31, 2022 | December 31, 2021 | ||||||||||||
Shareholders loans to joint ventures | 24 | 30,242 | ||||||||||||
Derivatives | 18,091 | 6,392 | ||||||||||||
Other non-current receivables | 13,855 | 14,426 | ||||||||||||
Lease receivables | 2,854 | 4,578 | ||||||||||||
Investment | 1 | 1 | ||||||||||||
Total non-current receivables | 34,825 | 55,639 |
The decrease in shareholders loans to joint ventures is related to the full repayment of the shareholders loan to TI Africa Ltd following the acquisition of the remaining 50% shares in TI Africa Ltd as well as the sale of Suezmax Bari in March 2022. In consequence of the sale, the shareholders loan to Bari Shipholding Ltd. was fully repaid. Please refer to Note 26 for more information on the shareholders loans to joint ventures.
The derivatives as of December 31, 2022 relate to the fair market value of the Interest Rate Swaps in connection with the financing for the long term charter parties with Valero for four Suezmaxes (Cap Quebec, Cap Pembroke, Cap Corpus Christi and Cap Port Arthur), Interest Rate Swaps in connection with the $713.0 million sustainability linked loan, Interest Rate Swaps in connection with the 73.45 million facility (Cedar and Cypress) and Interest Rate Swaps in connection with the $150 million facility (FSO Africa and FSO Asia). The increase relates to the higher fair market value of the Interest Rate Swaps in connection with an increasing interest rate environment.
The other non-current receivables mainly relate to the issuance of a bank guarantee for the amount of $12.3 million through a cash deposit in the context of the enforcement proceedings lodged by Unicredit on January 15, 2021 (see Note 22).
The lease receivables relate to the subleases of office space to third parties regarding the leased offices of Euronav UK and Euronav MI II Inc. (formerly Gener8 Maritime Inc.).
The maturity date of the non-current receivables is as follows:
(in thousands of USD) | December 31, 2022 | December 31, 2021 | ||||||||||||
Receivable: | ||||||||||||||
Within two years | 1,591 | 2,294 | ||||||||||||
Between two and three years | 16,101 | 20,368 | ||||||||||||
Between three and four years | — | 9,157 | ||||||||||||
Between four and five years | 3,663 | — | ||||||||||||
More than five years | 13,470 | 23,820 | ||||||||||||
Total non-current receivables | 34,825 | 55,639 |
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Note 12 - Bunker inventory
In addition to bunker fuel stored on board of the Euronav vessels, the Group purchases and stores compliant fuel on board of a Euronav vessel, the ULCC Oceania, so that there is a safe, high quality inventory available for the use of its own fleet. The Group has set up a Bunker Fuel Management Group to manage this fuel oil exposure relating to the IMO 2020 requirements, which require the vessels to operate with low sulfur fuel oil (LSFO), unless equipped with scrubbers.
The bunker inventory is accounted for at the lower of cost or net realizable value with cost being determined on a weighted average basis. The cost includes: the purchase price, initial fuel inspection costs, the transport and handling costs for loading the bunker on our vessel and the change in fair value of the derivatives (see Note 15). The change in fair value of commodity derivatives in connection with the bunker fuel management are measured at fair value with fair value changes recognized in the consolidated statement of profit or loss.
In the course of 2022, the Company purchased an additional 208,877 metric tonnes (2021: 269,677 metric ton) of compliant fuel for an amount of $158.8 million (2021: $140.1 million) (all costs included). As of December 31, 2022 the carrying amount of the total bunker inventory amounted to $41.6 million (2021: $69.0 million) of which $19.6 million (2021: $45.0 million) was the carrying amount of the bunker inventory related to the purchase and storage of compliant fuel oil inventory on board of the Oceania.
The compliant fuel has already been partially transferred to our fleet and will continue to be transferred and used in the course of 2022. $8.1 million (2021: $17.4 million) has been recognized as bunker expense in the consolidated statement of profit or loss during 2022 which is included under voyage expenses and commissions (as discussed in Note 5). As of December 31, 2022 the carrying amount of the bunker inventory on board of our vessels amounted to $22.0 million (2021: $24.0 million). Bunkers delivered to vessels operating in the TI Pool, are sold to the TI Pool at market price and bunkers on board of these pooled vessels are no longer shown as bunker inventory but as trade and other receivables.
In compliance with the accounting policy no write-down had to be considered at the end of December 31, 2022, the net realizable value remained positive as a positive result was realized in 2022 for our fleet.
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Note 13 - Trade and other receivables - current
(in thousands of USD) | December 31, 2022 | December 31, 2021 | ||||||||||||
Receivable from contracts with customers | 106,972 | 55,704 | ||||||||||||
Receivable from contracts with customers - TI Pool | 193,945 | 139,672 | ||||||||||||
Accrued income | 11,421 | 8,480 | ||||||||||||
Accrued interest | 2,329 | 580 | ||||||||||||
Deferred charges | 20,388 | 22,083 | ||||||||||||
Deferred fulfillment costs | 1,587 | 1,156 | ||||||||||||
Other receivables | 12,578 | 7,977 | ||||||||||||
Lease receivables | 1,699 | 2,091 | ||||||||||||
Derivatives | 15,870 | 2 | ||||||||||||
Total trade and other receivables | 366,789 | 237,745 |
The increase in receivables from contracts with customers mainly relates to an increase in market freight rates at year-end as well as the full consolidation of TI Asia Ltd and TI Africa Ltd.
The increase in receivables from contracts with customers - TI Pool relates to income to be received by the Group from the Tankers International Pool. These amounts increased in 2022 mainly due to increased market freight rates compared to December 31, 2021 and an increase in working capital per vessel.
Fulfillment costs represent primarily bunker costs incurred between the date on which the contract of a spot voyage charter was concluded and the next load port. These expenses are deferred according to IFRS 15 Revenue from Contracts with Customers and are amortized on a systematic basis consistent with the pattern of transfer of service.
The increase in other receivables is mainly due an increase in VAT recoverable.
The lease receivables relate to the sublease of office space to third parties regarding the leased offices of Euronav UK and Euronav MI II Inc. (formerly Gener8 Maritime Inc.).
The increase in derivatives as of December 31, 2022 relates to the higher fair market value of the Interest Rate Swaps allocated to the short term portion (see Note 11).
For currency and credit risk, we refer to Note 20.
Note 14 - Cash and cash equivalents
(in thousands of USD) | December 31, 2022 | December 31, 2021 | ||||||||||||
Bank deposits | — | — | ||||||||||||
Cash at bank and in hand | 179,929 | 152,528 | ||||||||||||
TOTAL | 179,929 | 152,528 | ||||||||||||
No bank deposits were held at December 31, 2022 and December 31, 2021. All cash is in different banks which all have a high credit rating.
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Note 15 - Equity
Number of shares issued
(in shares) | December 31, 2022 | December 31, 2021 | December 31, 2020 | |||||||||||||||||
On issue at January 1 | 220,024,713 | 220,024,713 | 220,024,713 | |||||||||||||||||
On issue at December 31 - fully paid | 220,024,713 | 220,024,713 | 220,024,713 |
As at December 31, 2022, the share capital is represented by 220,024,713 shares. The shares have no nominal value.
As at December 31, 2022, the authorized share capital not issued amounts to $83,898,616 (2021 and 2020: $83,898,616) or the equivalent of 77,189,888 shares (2021 and 2020: 77,189,888 shares).
The holders of ordinary shares are entitled to receive dividends when declared and are entitled to one vote per share at the shareholders' meetings of the Group.
Translation reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations.
Hedging reserve
The hedging instruments were as follows:
2022 | |||||||||||||||||||||||
(in thousands of USD) | Notional Value | Fair Value - Assets | Fair Value - Liabilities | Change recognized in OCI | |||||||||||||||||||
Interest rate swaps | |||||||||||||||||||||||
$173.6 million facility - Cap Quebec and Cap Pembroke | 56,838 | 1,791 | — | 4,757 | |||||||||||||||||||
$173.6 million facility - Cap Corpus Christi and Cap Port Arthur | 60,164 | 5,202 | — | 3,830 | |||||||||||||||||||
$713.0 million facility | 223,667 | 17,819 | — | 12,859 | |||||||||||||||||||
$73.45 million facility | 71,155 | 5,465 | — | 5,465 | |||||||||||||||||||
$150.0 million facility | 106,310 | 2,249 | — | 2,249 | |||||||||||||||||||
Forward cap contracts | |||||||||||||||||||||||
Cap options | — | — | — | 466 | |||||||||||||||||||
Fx swaps | |||||||||||||||||||||||
Fx Euro hedge | 18,398 | 1,032 | — | 1,032 |
The Group, through two of its JV companies in connection to the $220.0 million facility raised in March 2018, entered on June 29, 2018 in several Interest Rate Swaps (IRSs) for a combined notional value of $208.8 million (Euronav’s share amounts to 50%). These IRSs were used to hedge the risk related to the fluctuation of the LIBOR rate and qualified as hedging instruments in a cash flow hedge relationship under IFRS 9. These instruments have been measured at their fair value; effective changes in fair value have been recognized in OCI and the ineffective portion has been recognized in profit or loss. On June 28, 2022 these hedges have been unwound and have been recognized in profit or loss.
The Group, through the long term charter parties with Valero for two Suezmaxes (Cap Quebec and Cap Pembroke), entered on March 28, 2018 and April 20, 2018, in two IRSs for a combined notional value of $86.8 million. These IRSs are used to hedge the risk related to the fluctuation of the LIBOR rate and qualify as hedging instruments in a cash flow hedge relationship under IFRS 9. These instruments have been measured at their fair value; effective changes in fair value have been recognized in OCI and the ineffective portion has been recognized in profit or loss. These IRSs have the same duration as the long term charter parties matching the repayment profile of the underlying $173.6 million facility and mature on March 28, 2025. The notional value of these instruments at December 31, 2022 amounted to $56.8 million. The fair value of these instruments at December 31, 2022 amounted to $1.8 million (see Note 11) and $4.8 million has been recognized in OCI in 2022.
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The Group entered on December 7, 2018 into two forward cap contracts (CAPs) with a strike at 3.25% starting on October 1, 2020, to hedge against future increase of interest rates with a notional value of $200.0 million and qualify as hedging instruments in a cash flow hedge relationship under IFRS 9. These instruments have been measured at their fair value; effective changes in fair value have been recognized in OCI and the ineffective portion has been recognized in profit or loss. On October 3, 2022 these CAPs have been unwound and have been recognized in OCI.
As part of the fuel hedging program, the Group entered during 2022 and 2021 into several commodity swaps and futures in connection with its low sulfur fuel oil project for a combined notional value of $157.8 million and $140.1 million, respectively. These swaps are used to hedge a potential increase in the index underlying the price of low sulfur fuel between the purchase date and the delivery date of the product, i.e. when title to the low sulfur fuel is actually transferred. These instruments do not qualify as hedging instruments in a cash flow hedge relationship under IFRS9. The changes in fair value are directly recognized in profit or loss.
The Group, through the long term charter parties with Valero for two Suezmaxes (Cap Corpus Christi and Cap Port Arthur), entered on October 26, 2020 in two IRSs for a combined notional value of $70.1 million with effective date in 2021. These IRSs are used to hedge the risk related to the fluctuation of the LIBOR rate and qualify as hedging instruments in a cash flow hedge relationship under IFRS 9. These instruments have been measured at their fair value; effective changes in fair value have been recognized in OCI and the ineffective portion has been recognized in profit or loss. These IRSs have the same duration as the long term charter parties matching the repayment profile of the underlying $173.6 million facility and mature on September 28, 2025. The notional value of these instruments at December 31, 2022 amounted to $60.2 million. The fair value of these instruments at December 31, 2022 amounted to $5.2 million (see Note 11) and $3.8 million has been recognized in OCI in 2022.
The Group entered in the second half of 2020 in six Interest Rate Swaps (IRSs) for a combined notional value of $237.2 million with effective date in 2021. These IRSs are used to hedge the risk related to the fluctuation of the LIBOR rate in connection with the new $713.0 million sustainability linked loan and qualify as hedging instruments in a cash flow hedge relationship under IFRS 9. These instruments have been measured at their fair value; effective changes in fair value have been recognized in OCI and the ineffective portion has been recognized in profit or loss. These IRSs mature on March 11, 2025. The notional value of these instruments at December 31, 2022 amounted to $223.7 million. The fair value of these instruments at December 31, 2022 amounted to $17.8 million (see Note 11) and $12.9 million has been recognized in OCI in 2022.
The Group entered on January 26, 2022 into an interest rate swap agreement, in relation to the $73.45 million term loan which had been concluded for the acquisition of the Suezmaxes Cedar and Cypress for a notional value of $73.45 million. This IRS is used to hedge the risk related to the fluctuation of the LIBOR rate and qualifies as hedging instrument in a cash flow hedge relationship under IFRS 9. This instrument has been measured at fair value; effective changes in fair value have been recognized in OCI and the ineffective portion has been recognized in profit or loss. This IRS is matching the repayment profile of the underlying $73.45 million facility and matures on January 20, 2027. The notional value of these instruments at December 31, 2022 amounted to $71.15 million. The fair value of these instruments at December 31, 2022 amounted to $5.5 million (see Note 11) and $5.5 million has been recognized in OCI in 2022.
The Group, in connection to the $150.0 million facility raised on June 21, 2022, entered into several Interest Rate Swaps (IRSs) for a combined notional value of $109.4 million. These IRSs are used to hedge the risk related to the fluctuation of the LIBOR rate and qualify as hedging instruments in a cash flow hedge relationship under IFRS 9. These instruments have been measured at their fair value; effective changes in fair value have been recognized in OCI and the ineffective portion has been recognized in profit or loss. These IRSs are matching the repayment profile of the facility and mature on March 29, 2030. The notional value of these instruments at December 31, 2022 amounted to $106.3 million. The fair value of these instruments at December 31, 2022 amounted to $2.2 million (see Note 11) and $2.2 million has been recognized in OCI in 2022.
The Group entered on August 22, 2022 into four Fx Swaps to hedge 20% of the short position for 2023 at parity for a notional amount of 18 million Euro in total. These Fx Swaps are used to hedge the risk related to the fluctuation of EUR/USD and qualify as hedging instruments in a cash flow hedge relationship under IFRS 9. These instruments have been measured at their fair value; effective changes in fair value have been recognized in OCI and the ineffective portion has been recognized in profit or loss. The notional value of these instruments at December 31, 2022 amounted to $18.4 million. The fair value of these instruments at December 31, 2022 amounted to $1.0 million (see Note 13) and $1.0 million has been recognized in OCI in 2022.
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Treasury shares
As of December 31, 2022 Euronav owned 18,241,181 of its own shares, compared to 18,346,732 of shares owned on December 31, 2021. In the twelve months period ended December 31, 2022, Euronav transferred 105,551 shares to members of the Management Board in accordance with the Long Term Incentive Plan 2019.
Distributions
On May 19, 2022, the Annual Shareholders' meeting approved a full year dividend for 2021 of $0.09 per share and a distribution of $0.03 per share via the issue premium reserve. Taking into account the interim dividends paid based on the Group’s policy to target a return of 80% of the net income to shareholders, no closing dividend was paid for 2021.
Following the decision of the shareholders meeting of November 2021 to make the issue premium reserve account available for distribution, the fixed distribution of $3 cents related to the fourth quarter of 2021, the first quarter of 2022, the second quarter of 2022 and for the third quarter of 2022 was paid via a repayment from that issue premium reserve. The distributions to shareholders in the amount of $0.06 which was related to the fourth quarter of 2021 and the first quarter of 2022 was payable as from June 8, 2022. The distribution to shareholders in the amount of $0.03 related to the second quarter of 2022 was payable as from September 9, 2022. The distribution to shareholders in the amount of $0.03 related to the third quarter of 2022 was payable as from November 29, 2022. The dividend to shareholders in the amount of $0.03 related to the fourth quarter of 2022 was payable as from March 2, 2023. The distribution to shareholders was paid in EUR at the USD/EUR exchange rate of the respective record date.
On March 31, 2023, the Supervisory Board proposed the Annual Shareholders' meeting be held on May 17, 2023, to approve a full year dividend for 2022 of $1.10 per share to all shareholders. This pay out will be a combination of a dividend of $0.051 per share and a share premium of $1.049. This proposal adds up to the shareholders distribution already paid for the first quarter of 2022, the second quarter of 2022 and the third quarter of 2022 of $0.03 each for a total of $0.09 out of the available issue premium reserve account, next to the interim dividend paid for the fourth quarter of 2022 of $0.03. This proposal would bring the total return to shareholders to $1.22 for the full year 2022.
The total amount of dividends paid in 2022 was $24.2 million ($24.2 million in 2021).
Long term incentive plan 2015
The Group's Board of Directors (as of February 2020 Supervisory Board) implemented in 2015 a long term incentive plan (LTIP) for key management personnel. Under the terms of this LTIP, the beneficiaries will obtain 40% of their respective LTIP in the form of Euronav stock options, with vesting over three years and 60% in the form of restricted stock units (RSUs), with cliff vesting on the third anniversary. In total 236,590 options and 65,433 RSUs were granted on February 12, 2015.
Long term incentive plan 2016
The Group's Board of Directors (as of February 2020 Supervisory Board) implemented in 2016 an additional long term incentive plan for key management personnel. Under the terms of this LTIP, key management personnel are eligible to receive phantom stock unit grants. Each phantom stock unit grants the holder a conditional right to receive an amount of cash equal to the fair market value of one share of the company on the settlement date. The phantom stock units will mature one-third each year on the second, third and fourth anniversary of the award. In total a number of 54,616 phantom stocks were granted on February 2, 2016.
Long term incentive plan 2017
The Group's Board of Directors (as of February 2020 Supervisory Board) implemented in 2017 an additional long term incentive plan for key management personnel. Under the terms of this LTIP, key management personnel are eligible to receive phantom stock unit grants. Each phantom stock unit grants the holder a conditional right to receive an amount of cash equal to the fair market value of one share of the company on the settlement date. The phantom stock units will mature one-third each year on the second, third and fourth anniversary of the award. In total a number of 66,449 phantom stock units were granted on February 9, 2017.
Long term incentive plan 2018
The Group's Board of Directors (as of February 2020 Supervisory Board) implemented in 2018 an additional long term incentive plan for key management personnel. Under the terms of this LTIP, key management personnel are eligible to
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receive phantom stock unit grants. Each phantom stock unit grants the holder a conditional right to receive an amount of cash equal to the fair market value of one share of the company on the settlement date. The phantom stock units will mature one-third each year on the second, third and fourth anniversary of the award. In total a number of 154,432 phantom stock units were granted on February 16, 2018.
Transaction Based Incentive Plan 2019
The Group’s Board of Directors (as of February 2020 Supervisory Board) has implemented in 2019 a transaction-based incentive plan for key management personnel. Under the terms of this TBIP, key management personnel are eligible to receive phantom stock unit grants. Each phantom stock unit grants the holder a conditional right to receive an amount of cash equal to the Fair Market Value (FMV) of one share of the Company multiplied by the number of phantom stock units that have vested prior to the settlement date. The TBIP defines FMV as the volume weighted average price of the shares on the New York Stock Exchange over the thirty (30) Business Days preceding such date.
Long term incentive plan 2019
The Group’s Board of Directors (as of February 2020 Supervisory Board) implemented in 2019 an additional long term incentive plan (LTIP) for key management personnel. Under the terms of this LTIP, key management personnel will obtain 100% of their respective LTIP in the form of Euronav restricted stock units (RSUs). The RSUs vest over three years in three equal annual installments at the three anniversary dates from the reference date (April 1, 2019) and will be settled in shares. In total 152,346 RSUs were granted on April 1, 2019.
Long term incentive plan 2020
The Group’s Supervisory Board implemented in 2020 an additional long term incentive plan (LTIP) for key management personnel. Under the terms of this LTIP, key management personnel will obtain 100% of their respective LTIP in the form of Euronav restricted stock units (RSUs). The RSUs vest over three years in three equal annual installments at the three anniversary dates from the reference date (April 1, 2020) and will be settled in shares. In total 144,392 RSUs were granted on April 1, 2020.
Long term incentive plan 2021
The Group’s Supervisory Board implemented in 2021 an additional long term incentive plan (LTIP) for key management personnel. Under the terms of this LTIP, key management personnel will obtain 100% of their respective LTIP in the form of Euronav RSUs. The RSUs vest over three years in three equal annual installments at the three anniversary dates from the reference date (April 1, 2021) and will be settled in shares. In total 193,387 RSUs were granted on April 1, 2021.
Long term incentive plan 2022
The Group’s Supervisory Board implemented in 2022 an additional long term incentive plan (LTIP) for key management personnel. Under the terms of this LTIP, key management personnel will obtain 100% of their respective LTIP in the form of Euronav RSUs. The RSUs vest over three years in three equal annual installments at the three anniversary dates from the reference date (April 1, 2022) and will be settled in shares. In total 163,022 RSUs were granted on April 1, 2022.
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Note 16 - Earnings per share
Basic earnings per share
The calculation of basic earnings per share was based on a result attributable to ordinary shares and a weighted average number of ordinary shares outstanding during the period ended December 31 of each year, calculated as follows:
Result attributable to ordinary shares
2022 | 2021 | 2020 | ||||||||||||||||||
Result for the period (in USD) | 203,251,347 | (338,777,184) | 473,237,286 | |||||||||||||||||
Weighted average number of ordinary shares | 201,747,963 | 201,677,981 | 210,193,707 | |||||||||||||||||
Basic earnings per share (in USD) | 1.01 | (1.68) | 2.25 |
Weighted average number of ordinary shares
(in shares) | Shares issued | Treasury shares | Shares outstanding | Weighted number of shares | ||||||||||||||||||||||
On issue at January 1, 2020 | 220,024,713 | 4,946,216 | 215,078,497 | 215,078,497 | ||||||||||||||||||||||
Issuance of shares | — | — | — | — | ||||||||||||||||||||||
Purchases of treasury shares | — | 13,400,516 | (13,400,516) | (4,884,790) | ||||||||||||||||||||||
Withdrawal of treasury shares | — | — | — | — | ||||||||||||||||||||||
Transfer of treasury shares | — | — | — | — | ||||||||||||||||||||||
On issue at December 31, 2020 | 220,024,713 | 18,346,732 | 201,677,981 | 210,193,707 | ||||||||||||||||||||||
On issue at January 1, 2021 | 220,024,713 | 18,346,732 | 201,677,981 | 201,677,981 | ||||||||||||||||||||||
Issuance of shares | — | — | — | — | ||||||||||||||||||||||
Purchases of treasury shares | — | — | — | — | ||||||||||||||||||||||
Withdrawal of treasury shares | — | — | — | — | ||||||||||||||||||||||
Transfer of treasury shares | — | — | — | — | ||||||||||||||||||||||
On issue at December 31, 2021 | 220,024,713 | 18,346,732 | 201,677,981 | 201,677,981 | ||||||||||||||||||||||
On issue at January 1, 2022 | 220,024,713 | 18,346,732 | 201,677,981 | 201,677,981 | ||||||||||||||||||||||
Issuance of shares | — | — | — | — | ||||||||||||||||||||||
Purchases of treasury shares | — | — | — | — | ||||||||||||||||||||||
Withdrawal of treasury shares | — | — | — | — | ||||||||||||||||||||||
Transfer of treasury shares | — | (105,551) | 105,551 | 69,982 | ||||||||||||||||||||||
On issue at December 31, 2022 | 220,024,713 | 18,241,181 | 201,783,532 | 201,747,963 |
Diluted earnings per share
For the twelve months ended December 31, 2022, the diluted earnings per share (in USD) amount to 1.01 (2021: (1.68) and 2020: 2.25). At December 31, 2021 and December 31, 2020, 236,590 options issued under the LTIP 2015 were excluded from the calculation of the diluted weighted average number of shares because these 236,590 options were out-of-the money and have been considered as anti-dilutive. At December 31, 2022, these 236,590 options were not outstanding anymore (see Note 24). At December 31, 2022, the 105,626 vested RSUs under the LTIP 2019, 76,166 vested RSUs under the LTIP 2020 and 64,462 vested RSUs under the LTIP 2021 have been considered as dilutive, as these are only subject to the passage of time and therefore no longer contingent.
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Weighted average number of ordinary shares (diluted)
The table below shows the potential weighted number of shares that could be created if all stock options and restricted stock units were to be converted into ordinary shares.
(in shares) | 2022 | 2021 | 2020 | |||||||||||||||||
Weighted average of ordinary shares outstanding (basic) | 201,747,963 | 201,677,981 | 210,193,707 | |||||||||||||||||
Effect of Share-based Payment arrangements | 246,254 | 95,259 | 12,696 | |||||||||||||||||
Weighted average number of ordinary shares (diluted) | 201,994,217 | 201,773,240 | 210,206,403 |
There are no more remaining outstanding instruments at December 31, 2022, December 31, 2021 and December 31, 2020 which can give rise to dilution, except for the RSUs of the LTIP 2019, LTIP 2020 and LTIP 2021.
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Note 17 - Interest-bearing loans and borrowings
(in thousands of USD) | Bank loans | Other notes | Lease liabilities | Other borrowings | Total | |||||||||||||||||||||||||||
More than 5 years | 631,044 | — | — | — | 631,044 | |||||||||||||||||||||||||||
Between 1 and 5 years | 205,274 | 198,279 | 21,172 | 100,056 | 524,781 | |||||||||||||||||||||||||||
More than 1 year | 836,318 | 198,279 | 21,172 | 100,056 | 1,155,825 | |||||||||||||||||||||||||||
Less than 1 year | 20,542 | — | 45,749 | 51,297 | 117,588 | |||||||||||||||||||||||||||
At January 1, 2021 | 856,860 | 198,279 | 66,921 | 151,353 | 1,273,413 | |||||||||||||||||||||||||||
New loans | 937,825 | 200,000 | 24,729 | 371,755 | 1,534,309 | |||||||||||||||||||||||||||
Scheduled repayments | (27,232) | — | (52,550) | (316,069) | (395,851) | |||||||||||||||||||||||||||
Early repayments | (567,000) | (131,800) | — | — | (698,800) | |||||||||||||||||||||||||||
Other changes | 4,695 | (2,559) | — | — | 2,136 | |||||||||||||||||||||||||||
Translation differences | — | — | (49) | (2,978) | (3,027) | |||||||||||||||||||||||||||
Balance at December 31, 2021 | 1,205,148 | 263,920 | 39,051 | 204,061 | 1,712,180 | |||||||||||||||||||||||||||
More than 5 years | 102,419 | — | 74 | — | 102,493 | |||||||||||||||||||||||||||
Between 1 and 5 years | 1,073,416 | 196,895 | 16,685 | 86,198 | 1,373,194 | |||||||||||||||||||||||||||
More than 1 year | 1,175,835 | 196,895 | 16,759 | 86,198 | 1,475,687 | |||||||||||||||||||||||||||
Less than 1 year | 29,313 | 67,025 | 22,292 | 117,863 | 236,493 | |||||||||||||||||||||||||||
Balance at December 31, 2021 | 1,205,148 | 263,920 | 39,051 | 204,061 | 1,712,180 | |||||||||||||||||||||||||||
Bank loans | Other notes | Lease liabilities | Other borrowings | Total | ||||||||||||||||||||||||||||
More than 5 years | 102,419 | — | 74 | — | 102,493 | |||||||||||||||||||||||||||
Between 1 and 5 years | 1,073,416 | 196,895 | 16,685 | 86,198 | 1,373,194 | |||||||||||||||||||||||||||
More than 1 year | 1,175,835 | 196,895 | 16,759 | 86,198 | 1,475,687 | |||||||||||||||||||||||||||
Less than 1 year | 29,313 | 67,025 | 22,292 | 117,863 | 236,493 | |||||||||||||||||||||||||||
At January 1, 2022 | 1,205,148 | 263,920 | 39,051 | 204,061 | 1,712,180 | |||||||||||||||||||||||||||
New loans | 1,038,450 | — | 14,060 | 231,845 | 1,284,355 | |||||||||||||||||||||||||||
Scheduled repayments | (44,470) | (67,200) | (24,290) | (293,171) | (429,131) | |||||||||||||||||||||||||||
Early repayments | (865,000) | — | — | (865,000) | ||||||||||||||||||||||||||||
F-61
Other changes | (945) | 836 | — | — | (109) | |||||||||||||||||||||||||||
Translation differences | — | — | (142) | (5,873) | (6,015) | |||||||||||||||||||||||||||
Balance at December 31, 2022 | 1,333,183 | 197,556 | 28,679 | 136,862 | 1,696,280 | |||||||||||||||||||||||||||
More than 5 years | 221,304 | — | 41 | — | 221,345 | |||||||||||||||||||||||||||
Between 1 and 5 years | 1,042,938 | 197,556 | 5,783 | 71,011 | 1,317,288 | |||||||||||||||||||||||||||
More than 1 year | 1,264,242 | 197,556 | 5,824 | 71,011 | 1,538,633 | |||||||||||||||||||||||||||
Less than 1 year | 68,941 | — | 22,855 | 65,851 | 157,647 | |||||||||||||||||||||||||||
Balance at December 31, 2022 | 1,333,183 | 197,556 | 28,679 | 136,862 | 1,696,280 |
The amounts shown under "New Loans" and "Early Repayments" related to bank loans include drawdowns and repayments under revolving credit facilities during the year.
The amounts shown under "New Loans" related to lease liabilities is mainly attributable to the extension of the time charter agreement for the two Suezmaxes Marlin Sardinia and Marlin Somerset with an additional 12 months. In accordance with IFRS, the Group recognized a lease liability of $13.4 million. For more details, see Note 8.
Bank Loans
On August 19, 2015, the Group entered into a $750.0 million senior secured amortizing revolving credit facility with a syndicate of banks. The facility is available for the purpose of (i) refinancing 21 vessels; (ii) financing four newbuilding VLCCs vessels as well as (iii) Euronav's general corporate and working capital purposes. As of December 31, 2021, the outstanding balance under this facility was $0.0 million. The credit has been repaid on June 30, 2022 and carried a rate of LIBOR plus a margin of 195 bps.
On December 16, 2016, the Group entered into a $409.5 million senior secured amortizing revolving credit facility for the purpose of refinancing 11 vessels as well as Euronav's general corporate purposes. The credit facility was used to refinance the $500 million senior secured credit facility dated March 25, 2014 and will mature on January 31, 2023 carrying a rate of LIBOR plus a margin of 2.25%. Following the sale and lease back of the VLCC Nautica, Nectar and Noble in December 2019, this facility was reduced by $56.9 million. Following the sale of the VLCC Newton in February 2021, the total revolving credit facility was reduced by $16.3 million. Following the sale of VLCC Sara, Sandra, Sonia in the second quarter of 2022 and Simone in the fourth quarter of 2022, the commitment was reduced by $68.6 million. As of December 31, 2021, the outstanding balance on this facility was $65.0 million. The credit has been repaid and cancelled on September 30, 2022 and the vessels remaining in the facility VLCC Iris, Ingrid and Ilma were refinanced with the new $377.0 million facility.
On January 30, 2017, the Group signed a loan agreement for a nominal amount of $110.0 million with the purpose of financing the Ardeche and the Aquitaine. On April 25, 2017, following a successful syndication, the loan was replaced with a new Korean Export Credit facility for a nominal amount of $108.5 million with Korea Trade Insurance Corporation (K-sure) as insurer. The new facility is comprised of (i) a $27.1 million commercial tranche, which bears interest at LIBOR plus a margin of 1.95% per annum and (ii) a $81.4 million tranche insured by K-sure which bears interest at LIBOR plus a margin of 1.50% per annum. The facility is repayable over a term of 12 years, in 24 installments at successive six month intervals, each in the amount of $3.6 million together with a balloon installment of $21.7 million payable with the 24th installment on January 12, 2029. The K-sure insurance premium and other related transaction costs for a total amount of $3.2 million are amortized over the lifetime of the instrument using the effective interest rate method. As of December 31, 2022 and December 31, 2021, the outstanding balance on this facility was $68.7 million and $76.0 million, respectively in aggregate. This facility is secured by the VLCCs the Ardeche and the Aquitaine. The facility agreement also contains a provision that entitles the lenders to require us to prepay to the lenders, on January 12, 2024, with 180 days’ notice, their respective portion of any advances granted to us under the facility. The facility agreement also contains provisions that allow the remaining lenders to assume an outgoing lender’s respective portion(s) of the advances made to us or to allow us to suggest a replacement lender to assume the respective portion of such advances.
F-62
On March 22, 2018, the Group signed a senior secured credit facility for an amount of $173.6 million with Kexim, BNP and Credit Agricole Corporate and Investment bank acting also as Agent and Security Trustee. The purpose of the loan was to finance up to 70 per cent of the aggregate contract price of the four Ice Class Suezmax vessels that were delivered over the course of 2018. The new facility was comprised of (i) a $69.4 million commercial tranche, which bears interest at LIBOR plus a margin of 2.0% per annum and (ii) a $104.2 million ECA tranche which bears interest at LIBOR plus a margin of 2.0% per annum. The commercial tranche is repayable by 24 equal consecutive semi-annual installments, each in the amount of $0.6 million per vessel together with a balloon installment of $3.5 million payable with the 24th and last installment on August 24, 2030. The ECA tranche is repayable by 24 consecutive semi-annual installments, each in the amount of $1.1 million per vessel and last installment on August 24, 2030. Transaction costs for a total amount of $1.6 million are amortized over the lifetime of the instrument using the effective interest rate method. As of December 31, 2022 and December 31, 2021, the outstanding balance on this facility was $117.0 million and $130.3 million, respectively. Lenders of the facility have a put option on the 7th anniversary of the facility, for which a notice has to be served 13 months in advance requesting a prepayment of their remaining contribution. After receiving notice, the Group will have to either repay the relevant contribution on the 7th year anniversary or to transfer this contribution to another acceptable lender. The put option can only be exercised if the employment of the vessel at that time is not satisfactory to the lenders.
On September 7, 2018, the Group signed a senior secured credit facility for an amount of $200.0 million. The Group used the proceeds of this facility to refinance all remaining indebtedness under the $581.0 million senior secured loan facility, the $67.5 million secured loan facility (Larvotto), and the $76.0 million secured loan facility (Fiorano). This facility is secured by nine of our wholly-owned vessels. This revolving credit facility is reduced in 12 installments of consecutive six-month interval and a final $55.0 million repayment is due at maturity in 2025. This facility bears interest at LIBOR plus a margin of 2.0% per annum plus applicable mandatory costs. As of December 31, 2022 and December 31, 2021, the outstanding balance on this facility was $90.0 million and $55.0 million, respectively.
On June 27, 2019, the Group entered into a $100.0 million senior secured amortizing revolving credit facility with a syndicate of banks of which ABN Amro Bank also acting as Coordinator, Agent and Security Trustee. The facility, secured by the Oceania and the bunker inventory bought in anticipation of the new IMO legislation starting in January 1, 2020, was due to mature on December 31, 2021 and carried a rate of LIBOR plus a margin of 2.10%. On June 30, 2021, the Group terminated the facility. As of December 31, 2020, the outstanding balance on this facility was $0.0 million and was not used any longer during the first half year of 2021.
On August 28, 2019, the Group entered into a $700.0 million senior secured amortizing revolving credit facility with a syndicate of banks and Nordea Bank Norge SA acting as Agent and Security Trustee for the purpose of refinancing all remaining indebtedness under the $633.5 million senior secured loan facility. This revolving credit facility is reduced in 12 installments of consecutive six-month interval and a final repayment of $407.0 million is due at maturity in 2026. The credit facility will mature on January 31, 2026 carrying a rate of LIBOR plus margin of 1.95%. The facility is secured by 13 of our wholly-owned vessels. As of December 31, 2022 and December 31, 2021, the outstanding balance on this facility was $470.0 million and $370.0 million, respectively.
On September 11, 2020, the Group entered into a $713.0 million sustainability-linked loan with specific targets to emission reduction. This facility is secured by 16 of our wholly-owned vessels, 13 VLCCs and three Suezmaxes. The credit facility will mature on March 31, 2026 and carries a rate of LIBOR plus a margin of 2.35% with margin adjustment of plus or minus
0.05%. The facility consist of (i) a revolver of $469.0 million to refinance the $340.0 million senior secured credit facility and part of the $750.0 million senior secured credit facility and (ii) a term loan of $244.0 million to finance the acquisition of four newbuilding VLCCs which were delivered in the first quarter of 2021. The revolver commitment includes terms with specific targets to reduce our GHG emissions with compliance being rewarded with a reduced interest coupon by five basis points. As of December 31, 2022 and December 31, 2021, the outstanding balance on this facility was $350.8 million and $524.1 million, respectively.
On April 7, 2021, the Group entered into an €80 million ($100 million) unsecured revolving credit facility. This new facility has been concluded with a range of commercial banks and the support of Gigarant, with sustainability and emission reductions as a component of the margin pricing. A range of measurable sustainability features such as year-on-year reduction in carbon emissions starting from 2021 will be supported by compliance with the Poseidon principles. The facility will have a duration of minimum three years, with two one-year extension options. As of December 31, 2022 and December 31, 2021, the outstanding balance on this facility was $0.0 million and $0.0 million, respectively.
F-63
On December 2, 2021, the Group entered into a secured $73.45 million sustainability-linked loan at LIBOR to finance two newbuilding Suezmaxes which have been delivered in the first quarter of 2022. The loan has been concluded with DNB and includes terms with clear targets to reduce our GHG emissions on the basis of the Poseidon Principles with compliance being rewarded with a reduced interest coupon of five basis points. The conclusion of this funding brings facilities with an integrated sustainability component to 41% of Euronav’s commercial bank financing. The facility will have a duration of six years. As of December 31, 2022 and December 31, 2021, the outstanding balance on this facility was $71.2 million and $0.0 million, respectively.
On June 21, 2022, the Group entered into a $150 million senior secured amortizing term loan facility to finance the acquisition of the 50% ownership in the FSO joint ventures. The new facility has been concluded with ING and ABN Amro who were also the supporting banks in the existing facility. At the same time the existing facilities for the FSO JV companies which were maturing in July 2022 and September 2022 have also been repaid (see Note 26). The new facility carries a rate of daily compounded SOFR plus a margin of 2.15% with margin adjustment of plus or minus 10 bps. The new facility is linked to the sustainability performance of the Company. The commercial terms include a reduction of the interest rate when the Company achieves its targets in relation to two sustainability KPI's. The facility has a duration of 7.75 years with maturity on March 30, 2030. As of December 31, 2022, the outstanding balance on this facility was $141.7 million.
On December 6, 2022, the Group entered into a $377.0 million senior secured amortizing facility comprising a revolving credit facility of up to $307.0 million and a newbuild term loan facility of up to $70.0 million and an upsize term loan facility of, initially, $0 which may be increased to up to $70 million and has been concluded with a syndicate of banks and Nordea Bank Norge SA acting as Agent and Security Trustee. The facility was concluded to refinance the $750.0 million senior secured amortizing revolving credit facility dated August 19, 2015 and the $409.5 million senior secured amortizing revolving credit facility dated December 16, 2016. Additionally the facility was used to finance the purchase of two second hand eco scrubber fitted VLCC’s in purchases in the second quarter of 2023 and to finance one newbuilding VLCC with the option of a second one. The new facility will mature on January 10, 2028 and is based on Term SOFR plus a margin of 1.90% with a margin adjustment possibility of 0.10% based on 3 sustainability KPI’s. As of December 31, 2022, the outstanding balance on this facility was $40.0 million. The credit facility is currently secured by 8 of our wholly-owned vessels.
Undrawn borrowing facilities
At December 31, 2022, Euronav and its fully-owned subsidiaries have undrawn credit line facilities amounting to $671.3 million (2021: $595.3 million), of which $152.2 million will mature within 12 months.
F-64
Terms and debt repayment schedule
The terms and conditions of outstanding loans were as follows:
(in thousands of USD) | December 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Curr | Nominal interest rate | Year of mat. | Facility size | Drawn | Carrying value | Facility size | Drawn | Carrying value | ||||||||||||||||||||||||||||||||||||||||||||||||
Secured vessels Revolving loan 750M* | USD | LIBOR + 1.95% | 2022 | — | — | — | 8,474 | — | (231) | |||||||||||||||||||||||||||||||||||||||||||||||
Secured vessels Revolving loan 409.5M* | USD | LIBOR + 2.25% | 2023 | — | — | — | 125,880 | 65,000 | 64,544 | |||||||||||||||||||||||||||||||||||||||||||||||
Secured vessels loan 27.1M | USD | LIBOR + 1.95% | 2029 | 24,650 | 24,650 | 24,650 | 25,102 | 25,102 | 25,102 | |||||||||||||||||||||||||||||||||||||||||||||||
Secured vessels loan 81.4M | USD | LIBOR + 1.50% | 2029 | 44,098 | 44,098 | 42,960 | 50,883 | 50,883 | 49,454 | |||||||||||||||||||||||||||||||||||||||||||||||
Secured vessels loan 69.4M | USD | LIBOR + 2.0% | 2030 | 49,751 | 49,751 | 49,751 | 54,379 | 54,379 | 54,379 | |||||||||||||||||||||||||||||||||||||||||||||||
Secured vessels loan 104.2M | USD | LIBOR + 2.0% | 2030 | 67,251 | 67,251 | 66,562 | 75,928 | 75,928 | 75,071 | |||||||||||||||||||||||||||||||||||||||||||||||
Secured vessels Revolving loan 200.0M* | USD | LIBOR + 2.0% | 2025 | 97,376 | 90,000 | 89,554 | 123,032 | 55,000 | 54,245 | |||||||||||||||||||||||||||||||||||||||||||||||
Secured vessels Revolving loan 700.0M* | USD | LIBOR + 1.95% | 2026 | 553,480 | 470,000 | 466,211 | 602,320 | 370,000 | 364,987 | |||||||||||||||||||||||||||||||||||||||||||||||
Secured vessels Revolving loan 713.0M* | USD | LIBOR + 2.30% | 2026 | 582,876 | 350,756 | 346,866 | 649,695 | 524,135 | 518,568 | |||||||||||||||||||||||||||||||||||||||||||||||
Secured vessels loan 73.45M | USD | LIBOR + 1.80% | 2028 | 71,155 | 71,155 | 70,730 | — | — | (508) | |||||||||||||||||||||||||||||||||||||||||||||||
Unsecured Revolving loan 80M | EUR | LIBOR + 1.50% | 2026 | 100,000 | — | (265) | 100,000 | — | (463) | |||||||||||||||||||||||||||||||||||||||||||||||
Secured FSO loan 150M | USD | SOFR + 2.15% | 2030 | 141,747 | 141,747 | 140,227 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Secured vessels Revolving loan 377.0M* | USD | SOFR + 1.90% | 2028 | 288,276 | 40,000 | 35,938 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Total interest-bearing bank loans | 2,020,659 | 1,349,408 | 1,333,183 | 1,815,693 | 1,220,428 | 1,205,148 |
* The total amount available under the revolving loan Facilities depends on the total value of the fleet of tankers securing the facility.
The facility size of the vessel loans can be reduced if the value of the collateralized vessels falls under a certain percentage of the outstanding amount under that loan. For further information, we refer to Note 20.
F-65
Other notes
(in thousands of USD) | December 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Curr | Nominal interest rate | Year of mat. | Facility size | Drawn | Carrying value | Facility size | Drawn | Carrying value | ||||||||||||||||||||||||||||||||||||||||||||||||
Unsecured notes | USD | 7.50% | 2022 | — | — | — | 67,200 | 67,200 | 67,025 | |||||||||||||||||||||||||||||||||||||||||||||||
Unsecured notes | USD | 6.25% | 2026 | 200,000 | 200,000 | 197,556 | 200,000 | 200,000 | 196,895 | |||||||||||||||||||||||||||||||||||||||||||||||
Total other notes | 200,000 | 200,000 | 197,556 | 267,200 | 267,200 | 263,920 | ||||||||||||||||||||||||||||||||||||||||||||||||||
On September 2, 2021, the Group announced a successful placement of a new $200 million senior unsecured bonds. The bonds mature in September 2026 and carry a coupon of 6.25%. An application has been made for the bonds to be listed on Oslo Stock Exchange. The related transaction costs of $3.3 million are amortized over the lifetime of the instrument using the effective interest rate method. The net proceeds from the bond issue will be used for general corporate purposes and/or refinancing of the old $200 million bond (ISIN: NO0010793888). As part of this transaction Euronav bought back $132 million of the $200 million senior bonds issued in 2017 in the course of 2021. DNB Markets, Nordea, SEB and Arctic Securities AS acted as joint bookrunners in connection with the placement of the bond issue. In line with the successful placement of the new $200 million senior unsecured bond, the old bond has been fully repaid during the second quarter of 2022.
On March 18, 2022, the Financial Supervisory Authority of Norway approved the listing on the Oslo Stock Exchange of Euronav Luxembourg S.A.’s $200 million senior unsecured bonds due September 2026.
Other borrowings
On June 6, 2017, the Group signed an agreement with BNP Paribas Fortis SA/NV to act as dealer for a Treasury Notes Program with a maximum outstanding amount of €50 million. On October 1, 2018, KBC has been appointed as an additional dealer in the agreement and the maximum amount has been increased from €50 million to €150 million. As of December 31, 2022, the outstanding amount was $50.7 million or €47.5 million (December 31, 2021: $104.0 million or €91.8 million). The Treasury Notes are issued on an as needed basis with different durations not exceeding 1 year, and initial pricing is set to 60 bps over Euribor. The Company enters into FX forward contracts to manage the currency risks related to these instruments issued in Euro compared to the USD Group functional currency. The FX contracts have the same nominal amount and duration as the issued Treasury Notes and they are measured at fair value with changes in fair value recognized in the consolidated statement of profit or loss. On December 31, 2022, the fair value of these forward contracts amounted to $0.3 million (December 31, 2021: $(2.9) million).
On December 30, 2019, the Company entered into a sale and leaseback agreement for three VLCCs. The three VLCCs are the Nautica (2008 – 307,284), Nectar (2008 – 307,284) and Noble (2008 – 307,284). The vessels were sold and were leased back under a 54-months bareboat contract at an average rate of $20,681 per day per vessel. In accordance with IFRS, this transaction was not accounted for as a sale but Euronav as seller-lessee will continue to recognize the transferred assets, and recognized a financial liability equal to the net transfer proceeds of $124.4 million. As of December 31, 2022, the outstanding amount was $86.2 million. At the end of the bareboat contract, the vessels will be redelivered to their new owners. Euronav may, at any time on and after the 1st anniversary, notify the owners by serving an irrevocable written notice at least three months prior to the proposed purchase option date of the charterers' intention to terminate this charter on the purchase option date and purchase the vessel from the owners for the applicable purchase option price.
As explained in Note 1.5.B., the Group changed its estimation and concluded that during its annual re-assessment that it is reasonably certain to exercise the re-purchase options. Hence, the financial liability was remeasured.
F-66
The future lease payments for these leaseback agreements are as follows:
(in thousands of USD) | December 31, 2022 | December 31, 2021 | ||||||||||||
Less than one year | 22,667 | 22,667 | ||||||||||||
Between one and five years | 11,212 | 33,878 | ||||||||||||
Total future lease payables | 33,878 | 56,545 | ||||||||||||
Transaction and other financial costs
The heading 'Other changes' in the first table of this footnote reflects the recognition of directly attributable transaction costs as a deduction from the fair value of the corresponding liability, and the subsequent amortization of such costs. In 2022, the Group recognized $5.8 million of amortization of financing costs. The Group recognized $1.7 million of directly attributable transaction costs as a deduction from the fair value of the $150.0 million secured amortizing term loan facility entered into June 21, 2022 and $4.1 million of directly attributable transaction costs as a deduction from the fair value of the $377.0 million secured amortizing facility comprising a revolving credit facility of up to $307.0 million and a newbuild term loan facility of up to $70.0 million and an upsize term loan facility of, initially, $0 which may be increased to up to $70 million entered into December 6, 2022.
Interest expense on financial liabilities measured at amortized cost increased during the year ended December 31, 2022, compared to 2021 (2022: $(-85.4) million, 2021: $(-58.0) million). Other financial charges decreased in 2022 compared to 2021 (2022: $(-4.8) million, 2021: $(-14.3) million) which was mainly due to the correction above pari in relation with the bond renewal completed in 2021 as well as a decrease in commitment fees incurred during 2022 compared to 2021.
Interest on lease liabilities (2022: $(-1.2) million, 2021: $(-2.4) million) were recognized due to the adoption of IFRS 16 on January 1, 2019 (see Note 1.20).
F-67
Reconciliation of movements of liabilities to cash flows arising from financing activities
Liabilities | Equity | ||||||||||||||||||||||||||||||||||
Loans and borrowings | Other Notes | Other borrowings | Lease liabilities | Share capital / premium | Reserves | Treasury shares | Retained earnings | Total | |||||||||||||||||||||||||||
Balance at January 1, 2021 | 856,860 | 198,279 | 151,353 | 66,921 | 1,941,697 | (6,521) | (164,104) | 540,714 | 3,585,199 | ||||||||||||||||||||||||||
Changes from financing cash flows | |||||||||||||||||||||||||||||||||||
Proceeds from loans and borrowings (Note 17) | 937,825 | 200,000 | — | — | — | — | — | — | 1,137,825 | ||||||||||||||||||||||||||
Proceeds from issue of other borrowings (Note 17) | — | — | 371,755 | — | — | — | — | — | 371,755 | ||||||||||||||||||||||||||
Repayment of sale and leaseback agreement (Note 17) | — | — | (22,667) | — | — | — | — | — | (22,667) | ||||||||||||||||||||||||||
Transaction costs related to loans and borrowings (Note 17) | (1,122) | (3,300) | — | — | — | — | — | — | (4,422) | ||||||||||||||||||||||||||
Repayment of borrowings (Note 17) | (594,232) | (131,800) | — | — | — | — | — | — | (726,032) | ||||||||||||||||||||||||||
Repayment of commercial paper (Note 17) | — | — | (303,426) | — | — | — | — | — | (303,426) | ||||||||||||||||||||||||||
Repayment of lease liabilities (Note 17) | — | — | — | (54,928) | — | — | — | — | (54,928) | ||||||||||||||||||||||||||
Dividend paid | — | — | — | — | — | — | — | (24,212) | (24,212) | ||||||||||||||||||||||||||
Total changes from financing cash flows | 342,471 | 64,900 | 45,662 | (54,928) | — | — | — | (24,212) | 373,893 | ||||||||||||||||||||||||||
Other changes | |||||||||||||||||||||||||||||||||||
Liability-related | |||||||||||||||||||||||||||||||||||
Amortization of transaction costs (Note 17) | 5,817 | 887 | — | — | — | — | — | — | 6,704 | ||||||||||||||||||||||||||
Amortization of above par issuance (Note 17) | — | (174) | — | — | — | — | — | — | (174) | ||||||||||||||||||||||||||
Amortization of below par issuance (Note 17) | — | 28 | — | — | — | — | — | — | 28 | ||||||||||||||||||||||||||
New leases (Note 17) | — | — | — | 24,729 | — | — | — | — | 24,729 | ||||||||||||||||||||||||||
Interest expense (Note 6) | — | — | 10,024 | 2,378 | — | — | — | — | 12,402 | ||||||||||||||||||||||||||
Translation differences (Note 17) | — | — | (2,978) | (49) | — | — | — | — | (3,027) | ||||||||||||||||||||||||||
Total liability-related other changes | 5,817 | 741 | 7,046 | 27,058 | — | — | — | — | 40,662 | ||||||||||||||||||||||||||
Total equity-related other changes (Note 15) | — | — | — | — | — | 9,370 | — | (336,362) | (326,992) | ||||||||||||||||||||||||||
Balance at December 31, 2021 | 1,205,148 | 263,920 | 204,061 | 39,051 | 1,941,697 | 2,849 | (164,104) | 180,140 | 3,672,762 |
F-68
Liabilities | Equity | |||||||||||||||||||||||||||||||
Loans and borrowings | Other Notes | Other borrowings | Lease liabilities | Share capital / premium | Reserves | Treasury shares | Retained earnings | Total | ||||||||||||||||||||||||
Balance at January 1, 2022 | 1,205,148 | 263,920 | 204,061 | 39,051 | 1,941,697 | 2,849 | (164,104) | 180,140 | 3,672,762 | |||||||||||||||||||||||
Changes from financing cash flows | ||||||||||||||||||||||||||||||||
Proceeds from loans and borrowings (Note 17) | 1,038,450 | — | — | — | — | — | — | — | 1,038,450 | |||||||||||||||||||||||
Proceeds from issue of other borrowings (Note 17) | — | — | 231,845 | — | — | — | — | — | 231,845 | |||||||||||||||||||||||
Proceeds from transfer of treasury shares (Note 15) | — | — | — | — | — | — | 1,080 | — | 1,080 | |||||||||||||||||||||||
Repayment of sale and leaseback liability (Note 17) | — | — | (22,667) | — | — | — | — | — | (22,667) | |||||||||||||||||||||||
Transaction costs related to loans and borrowings (Note 17) | (5,871) | — | — | — | — | — | — | — | (5,871) | |||||||||||||||||||||||
Repayment of borrowings (Note 17) | (909,470) | (67,200) | — | — | — | — | — | — | (976,670) | |||||||||||||||||||||||
Repayment of commercial paper (Note 17) | — | — | (279,314) | — | — | — | — | — | (279,314) | |||||||||||||||||||||||
Repayment of lease liabilities (Note 17) | — | — | — | (25,527) | — | — | — | — | (25,527) | |||||||||||||||||||||||
Dividend paid | — | — | — | — | (24,221) | — | — | (24,221) | ||||||||||||||||||||||||
Total changes from financing cash flows | 123,109 | (67,200) | (70,136) | (25,527) | (24,221) | — | 1,080 | — | (62,895) | |||||||||||||||||||||||
Other changes | ||||||||||||||||||||||||||||||||
Liability-related | ||||||||||||||||||||||||||||||||
Amortization of transaction costs (Note 17) | 4,926 | 865 | — | — | — | — | — | — | 5,791 | |||||||||||||||||||||||
Amortization of above par issuance (Note 17) | — | (57) | — | — | — | — | — | — | (57) | |||||||||||||||||||||||
Amortization of below par issuance (Note 17) | — | 28 | — | — | — | — | — | — | 28 | |||||||||||||||||||||||
New leases (Note 17) | — | — | — | 14,060 | — | — | — | — | 14,060 | |||||||||||||||||||||||
Interest expense (Note 6) | — | — | 8,809 | 1,237 | — | — | — | — | 10,046 | |||||||||||||||||||||||
Translation differences (Note 17) | — | — | (5,873) | (142) | — | — | — | — | (6,015) | |||||||||||||||||||||||
Total liability-related other changes | 4,926 | 836 | 2,936 | 15,155 | — | — | — | — | 23,853 | |||||||||||||||||||||||
Total equity-related other changes (Note 15) | — | — | — | — | — | 30,180 | — | 205,836 | 236,016 | |||||||||||||||||||||||
Balance at December 31, 2022 | 1,333,183 | 197,556 | 136,861 | 28,679 | 1,917,476 | 33,029 | (163,024) | 385,976 | 3,869,736 |
F-69
Note 18 - Employee benefits
The amounts recognized in the balance sheet are as follows:
(in thousands of USD) | December 31, 2022 | December 31, 2021 | December 31, 2020 | |||||||||||||||||
NET LIABILITY AT BEGINNING OF PERIOD | (6,839) | (7,987) | (8,094) | |||||||||||||||||
Recognized in profit or loss | 2,594 | (621) | 653 | |||||||||||||||||
Recognized in other comprehensive income | 942 | 1,453 | (97) | |||||||||||||||||
Foreign currency translation differences | 184 | 316 | (449) | |||||||||||||||||
Reclassification equity-settled LTIPs | 1,484 | — | — | |||||||||||||||||
NET LIABILITY AT END OF PERIOD | (1,635) | (6,839) | (7,987) | |||||||||||||||||
Present value of funded obligation | (4,595) | (4,865) | (5,074) | |||||||||||||||||
Fair value of plan assets | 4,434 | 4,224 | 3,940 | |||||||||||||||||
(161) | (641) | (1,134) | ||||||||||||||||||
Present value of unfunded obligations | (1,474) | (6,198) | (6,853) | |||||||||||||||||
NET LIABILITY | (1,635) | (6,839) | (7,987) | |||||||||||||||||
Amounts in the balance sheet: | ||||||||||||||||||||
Liabilities | (1,635) | (6,839) | (7,987) | |||||||||||||||||
Assets | — | — | — | |||||||||||||||||
NET LIABILITY | (1,635) | (6,839) | (7,987) |
Liability for defined benefit obligations
The Group makes contributions to three defined benefit plans that provide pension benefits for employees upon retirement. One plan - the Belgian plan - is fully insured through an insurance company. The second and third - French and Greek plans - are uninsured and unfunded. The unfunded obligations at December 31, 2021 and December 31, 2020 also include provisions in respect of LTIP 2017, LTIP 2018, TBIP 2019, LTIP 2019 and LTIP 2020 (see Note 24). At December 31, 2022, the unfunded obligations related to LTIP 2020 and LTIP 2021 were reclassified to equity because these obligations are equity-settled incentive plans (see Note 24).
The Group expects to contribute the following amount to its defined benefit pension plans in 2023: $50,186.
The valuation used for the defined contribution plans is the Projected Unit Credit Cost as prescribed by IAS 19 R.
The Group expects to contribute the following amount to its defined contribution pension plans in 2023: $348,383.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 19 - Trade and other payables
(in thousands of USD) | December 31, 2022 | December 31, 2021 | ||||||||||||
Advances received on contracts in progress, between 1 and 5 years | — | 503 | ||||||||||||
Derivatives | 404 | 2,987 | ||||||||||||
Total non-current other payables | 404 | 3,490 | ||||||||||||
Trade payables | 24,696 | 26,012 | ||||||||||||
Accrued expenses | 35,212 | 38,020 | ||||||||||||
Accrued payroll | 2,121 | 2,160 | ||||||||||||
Dividends payable | 547 | 555 | ||||||||||||
Accrued interest | 8,910 | 6,570 | ||||||||||||
Deferred income | 17,542 | 7,545 | ||||||||||||
Other payables | 1,441 | 3,050 | ||||||||||||
Total current trade and other payables | 90,469 | 83,912 |
The decrease in advances received on contracts in progress relates to the lease contract of office space of Euronav UK which expires within 1 year.
The non-current derivatives relate to the interest rate swap derivatives used to hedge the risk related to the fluctuation of the LIBOR rate (see Note 15). The decrease is due to a positive mark-to-market on these IRSs at December 31, 2022.
The increase in accrued interest is related to a higher market interest rate at December 31, 2022 compared to 2021.
The increase in deferred income is due to more deferred freight spot voyage revenue and a higher amount of deferred income from vessels on time charter due to improved freight rates as of December 31, 2022 compared to December 31, 2021.
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Note 20 - Financial instruments - Fair values and risk management
Accounting classifications and fair values
The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value, such as trade and other receivables and payables.
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Note 20 - Financial instruments - Fair values and risk management (Continued)
Carrying amount | Fair value | |||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands of USD) | Fair value - Hedging instruments | Financial assets at amortized cost | Other financial liabilities | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||||||||||||||||
December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Financial assets measured at fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate swaps (Note 11) | 6,392 | — | — | 6,392 | — | 6,392 | — | 6,392 | ||||||||||||||||||||||||||||||||||||||||||
Cap contracts (Note 13) | 2 | — | — | 2 | — | 2 | — | 2 | ||||||||||||||||||||||||||||||||||||||||||
6,394 | — | — | 6,394 | |||||||||||||||||||||||||||||||||||||||||||||||
Financial assets not measured at fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||
Non-current receivables (Note 11) | — | 44,669 | — | 44,669 | — | — | 42,150 | 42,150 | ||||||||||||||||||||||||||||||||||||||||||
Lease receivables (Note 11) | — | 4,578 | — | 4,578 | — | 3,816 | — | 3,816 | ||||||||||||||||||||||||||||||||||||||||||
Trade and other receivables * (Note 13) | — | 213,641 | — | 213,641 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents (Note 14) | — | 152,528 | — | 152,528 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
— | 415,416 | — | 415,416 | |||||||||||||||||||||||||||||||||||||||||||||||
Financial liabilities measured at fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||
Forward exchange contracts (Note 17) | 2,927 | — | 0 | — | 2,927 | — | 2,927 | — | 2,927 | |||||||||||||||||||||||||||||||||||||||||
Interest rate swaps (Note 19) | 2,987 | — | — | 2,987 | — | 2,987 | — | 2,987 | ||||||||||||||||||||||||||||||||||||||||||
5,914 | — | — | 5,914 | |||||||||||||||||||||||||||||||||||||||||||||||
Financial liabilities not measured at fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||
Secured bank loans (Note 17) | — | — | 1,205,148 | 1,205,148 | — | 1,234,739 | — | 1,234,739 | ||||||||||||||||||||||||||||||||||||||||||
Unsecured other notes (Note 17) | — | — | 263,920 | 263,920 | 68,722 | 194,586 | — | 263,308 | ||||||||||||||||||||||||||||||||||||||||||
Other borrowings (Note 17) | — | — | 204,061 | 204,061 | — | 204,061 | — | 204,061 | ||||||||||||||||||||||||||||||||||||||||||
Lease liabilities (Note 17) | — | — | 39,051 | 39,051 | — | 36,913 | — | 36,913 | ||||||||||||||||||||||||||||||||||||||||||
Trade and other payables * (Note 19) | — | — | 76,319 | 76,319 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Advances received on contracts (Note 19) | — | — | 503 | 503 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
— | 1,789,002 | 1,789,002 |
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Note 20 - Financial instruments - Fair values and risk management (Continued)
Carrying amount | Fair value | |||||||||||||||||||||||||||||||||||||||||||||||||
Fair value - Hedging instruments | Financial assets at amortized cost | Other financial liabilities | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||||||||||||||||
December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Financial assets measured at fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||
Forward exchange contracts (Note 11 and 17) | 1,309 | — | — | 1,309 | — | 1,309 | — | 1,309 | ||||||||||||||||||||||||||||||||||||||||||
Interest rate swaps (Note 11 and 17) | 32,652 | — | — | 32,652 | — | 32,652 | — | 32,652 | ||||||||||||||||||||||||||||||||||||||||||
33,961 | — | — | 33,961 | |||||||||||||||||||||||||||||||||||||||||||||||
Financial assets not measured at fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||
Non-current receivables (Note 11) | — | 13,880 | — | 13,880 | — | — | 13,789 | 13,789 | ||||||||||||||||||||||||||||||||||||||||||
Lease receivables (Note 11) | — | 2,854 | — | 2,854 | — | 2,268 | — | 2,268 | ||||||||||||||||||||||||||||||||||||||||||
Trade and other receivables * (Note 13) | — | 325,592 | — | 325,592 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents (Note 14) | — | 179,929 | — | 179,929 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
— | 522,255 | — | 522,255 | |||||||||||||||||||||||||||||||||||||||||||||||
Financial liabilities measured at fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||
Forward exchange contracts (Note 17) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Interest rate swaps (Note 19) | 404 | — | — | 404 | — | 404 | — | 404 | ||||||||||||||||||||||||||||||||||||||||||
404 | — | — | 404 | |||||||||||||||||||||||||||||||||||||||||||||||
Financial liabilities not measured at fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||
Secured bank loans (Note 17) | — | — | 1,333,184 | 1,333,184 | — | 1,356,270 | — | 1,356,270 | ||||||||||||||||||||||||||||||||||||||||||
Unsecured other notes (Note 17) | — | — | 197,556 | 197,556 | 194,480 | — | — | 194,480 | ||||||||||||||||||||||||||||||||||||||||||
Other borrowings (Note 17) | — | — | 136,862 | 136,862 | — | 136,862 | — | 136,862 | ||||||||||||||||||||||||||||||||||||||||||
Lease liabilities (Note 17) | — | — | 28,679 | 28,679 | — | 26,778 | — | 26,778 | ||||||||||||||||||||||||||||||||||||||||||
Trade and other payables * (Note 19) | — | — | 72,878 | 72,878 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Advances received on contracts (Note 19) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
— | — | 1,769,159 | 1,769,159 | |||||||||||||||||||||||||||||||||||||||||||||||
* Deferred charges, deferred fulfillment costs and VAT receivables (included in other receivables) (see Note 13), deferred income and VAT payables (included in other payables) (see Note 19), which are not financial assets (liabilities) are not included.
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Note 20 - Financial instruments - Fair values and risk management (Continued)
Measurement of fair values
Valuation techniques and significant unobservable inputs
Level 1 fair value was determined based on the actual trading of the unsecured notes, due in 2026, and the trading price on December 31, 2022. The following tables show the valuation techniques used in measuring Level 1, Level 2 and Level 3 fair values, as well as the significant unobservable inputs used.
Financial instruments measured at fair value | |||||||||||||||||||||||
Type | Valuation Techniques | Significant unobservable inputs | |||||||||||||||||||||
Forward exchange contracts | Forward pricing: the fair value is determined using quoted forward exchange rates at the reporting date and present value calculations based on high credit quality yield curve in the respective currencies. | Not applicable | |||||||||||||||||||||
Interest rate swaps | Swap models: the fair value is calculated as the present value of the estimated future cash flows. Estimates of future floating-rate cash flows are based on quoted swap rates, futures prices and interbank borrowing rates. | Not applicable | |||||||||||||||||||||
Forward cap contracts | Fair values for both the derivative and the hypothetical derivative are determined based on the net present value of the expected cash flows using LIBOR rate curves, futures and basis spreads. | Not applicable | |||||||||||||||||||||
Commodity derivatives | Fair value is determined based on the present value of the quoted forward price. | Not applicable | |||||||||||||||||||||
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Note 20 - Financial instruments - Fair values and risk management (Continued)
Financial instruments not measured at fair value | ||||||||||||||
Type | Valuation Techniques | Significant unobservable inputs | ||||||||||||
Non-current receivables (consisting primarily of shareholders' loans) | Discounted cash flow | Discount rate and forecasted cash flows | ||||||||||||
Lease receivables | Discounted cash flow | Discount rate | ||||||||||||
Other financial liabilities (consisting of secured and unsecured bank loans and other notes and lease liabilities) | Discounted cash flow | Discount rate | ||||||||||||
Other financial notes (consisting of unsecured notes) | List price | Not applicable |
Transfers between Level 1, 2 and 3
There were no transfers between these levels in 2021 and 2022.
Financial risk management
In the course of its normal business, the Group is exposed to the following risks:
•Credit risk
•Liquidity risk
•Market risk (Tanker market risk, interest rate risk, currency risk and commodity risk)
The Company's Supervisory Board has overall responsibility for the establishment and oversight of the Group's risk management framework. The Supervisory Board has established the Audit and Risk Committee, which is responsible for developing and monitoring the Group's risk management policies. The Committee reports regularly to the Supervisory Board on its activities.
The Group's risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.
The Group's Audit and Risk Committee oversees how management monitors compliance with the Group's risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Group's Audit and Risk Committee is assisted in its oversight role by internal audit. Internal audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit and Risk Committee.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 20 - Financial instruments - Fair values and risk management (Continued)
Credit risk
Trade and other receivables
The Group has a formal credit policy. Credit evaluations - when necessary - are performed on an ongoing basis. At the balance sheet date there were no significant concentrations of credit risk. All trade and other receivables were with oil majors within the same industry but with a geographic spread and a different business focus. Based on past experience, and considering any forward-looking factors, there was only a small impact on doubtful amounts at year-end. Based on individual analyses, provisions for doubtful debtors were in line with 2021. In particular, the client representing 8% of the Tankers segment's total revenue in 2022 (see Note 2) only represented 1.17% of the total trade and other receivables at December 31, 2022 (2021: two clients representing 1.21% and 0.02%). The maximum exposure to credit risk is represented by the carrying amount of each financial asset.
The ageing of current trade and other receivables is as follows:
(in thousands of USD) | 2022 | 2021 | ||||||||||||
Not past due | 320,823 | 205,737 | ||||||||||||
Past due 0-30 days | 16,560 | 12,980 | ||||||||||||
Past due 31-365 days | 26,820 | 16,518 | ||||||||||||
More than one year | 2,585 | 2,510 | ||||||||||||
Total trade and other receivables | 366,789 | 237,745 |
Past due amounts are not credit impaired as collection is considered to be likely and management is confident the outstanding amounts can be recovered. As at December 31, 2022 52.88% (2021: 58.75%) of the total current trade and other receivables relate to TI Pool. TI Pool is paid after completion of the voyages and only deals with oil majors, national oil companies and other actors of the oil industry whose credit worthiness historically has been high. Amounts not past due are also with customers with high credit worthiness and are therefore not credit impaired.
Non-current receivables
Non-current receivables as at December 31, 2022 mainly consist of derivatives which relate to the fair market value of Interest Rate Swaps (see Note 11). Non-current receivables as at December 31, 2021 mainly related to shareholder's loans to joint ventures (see Note 11). These receivables were not credit impaired as there was no credit risk exposure for the Group.
Cash and cash equivalents
The Group held cash and cash equivalents of $179.9 million at December 31, 2022 (2021: $152.5 million). The cash and cash equivalents are held with bank and financial institution counterparties, which are rated A- to AA+, based on rating agency S&P (see Note 14) and spread over different banks.
Derivatives
Derivatives are entered into with banks and financial institution counterparties, which are rated A- to AA+, based on rating agency S&P.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 20 - Financial instruments - Fair values and risk management (Continued)
Guarantees
The Group's policy is to provide financial guarantees only for subsidiaries and joint ventures. At December 30, 2019, the Group issued a guarantee to the buyer of the three VLCCs in relation to the sale and leaseback transaction (see Note 17) whereby the VLCCs were leased back in a subsidiary under a 54-months bareboat contract. At December 31, 2022, the guarantees towards TI Africa and TI Asia (for the full 100% due to the acquisition of the remaining 50%) were still outstanding but have not been called upon.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation. The sources of financing are diversified and the bulk of the loans are irrevocable, long-term and maturities are spread over different years.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 20 - Financial instruments - Fair values and risk management (Continued)
The following are the remaining contractual maturities of financial liabilities:
Contractual cash flows December 31, 2021 | ||||||||||||||||||||||||||||||||
(in thousands of USD) | Carrying Amount | Total | Less than 1 year | Between 1 and 5 years | More than 5 years | |||||||||||||||||||||||||||
Non derivative financial liabilities | ||||||||||||||||||||||||||||||||
Bank loans and other notes (Note 17) | 1,469,068 | 1,667,567 | 145,175 | 1,413,221 | 109,172 | |||||||||||||||||||||||||||
Other borrowings (Note 17) | 204,061 | 223,550 | 126,672 | 96,878 | — | |||||||||||||||||||||||||||
Lease liabilities (Note 17) | 39,051 | 41,125 | 23,464 | 17,585 | 77 | |||||||||||||||||||||||||||
Current trade and other payables * (Note 19) | 76,319 | 76,319 | 76,319 | — | — | |||||||||||||||||||||||||||
1,788,499 | 2,008,562 | 371,629 | 1,527,684 | 109,249 | ||||||||||||||||||||||||||||
Derivative financial liabilities | ||||||||||||||||||||||||||||||||
Interest rate swaps (Note 19) | 2,987 | 6,505 | 2,397 | 4,108 | — | |||||||||||||||||||||||||||
2,987 | 6,505 | 2,397 | 4,108 | — | ||||||||||||||||||||||||||||
Contractual cash flows December 31, 2022 | ||||||||||||||||||||||||||||||||
Carrying Amount | Total | Less than 1 year | Between 1 and 5 years | More than 5 years | ||||||||||||||||||||||||||||
Non derivative financial liabilities | ||||||||||||||||||||||||||||||||
Bank loans and other notes (Note 17) | 1,530,739 | 1,819,230 | 278,311 | 1,349,384 | 191,534 | |||||||||||||||||||||||||||
Other borrowings (Note 17) | 136,862 | 154,292 | 73,330 | 80,962 | — | |||||||||||||||||||||||||||
Lease liabilities (Note 17) | 28,679 | 29,745 | 23,624 | 6,080 | 41 | |||||||||||||||||||||||||||
Current trade and other payables * (Note 19) | 72,878 | 72,878 | 72,878 | — | — | |||||||||||||||||||||||||||
1,769,158 | 2,076,144 | 448,144 | 1,436,426 | 191,575 | ||||||||||||||||||||||||||||
Derivative financial liabilities | ||||||||||||||||||||||||||||||||
Interest rate swaps (Note 19) | 404 | 9 | (1,359) | 1,152 | 216 | |||||||||||||||||||||||||||
404 | 9 | (1,359) | 1,152 | 216 |
* Deferred income and VAT payables (included in other payables) (see Note 19), which are not financial liabilities, are not included.
The Group has secured bank loans that contain loan covenants. A future breach of covenant may require the Group to repay the loan earlier than indicated in the above table. For more details on these covenants, please see "capital management" below.
The interest payments on variable interest rate loans in the table above reflect market forward interest rates at the reporting date and these amounts may change as market interest rates change. It is not expected that the cash flows included in the table above (the maturity analysis) could occur significantly earlier, or at significantly different amounts than stated above.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 20 - Financial instruments - Fair values and risk management (Continued)
Market risk
Managing interest rate benchmark reform and associated risks
Overview
A fundamental reform of major interest rate benchmarks is being undertaken globally, including the replacement of some interbank offered rates (IBORs) with alternative nearly risk-free rates (RFR) (referred to as ‘IBOR reform’). The Group has exposures to IBORs on its financial instruments that will be replaced or reformed as part of these market-wide initiatives. As at December 31, 2022 new financial instruments concluded during 2022 have an alternative reference rate for US dollar LIBOR which is the Secured Overnight Financing Rate (SOFR). In 2022, the Group did not undertake amendments to its existing financial instruments as at December 31, 2021 with contractual terms indexed to IBORs. As announced by the Financial Conduct Authority (FCA) in early 2022, the panel bank submissions for US dollar LIBOR will cease in mid-2023. The Group anticipates that IBOR reform will impact its risk management and hedge accounting. The Audit and Risk Committee monitors the Group’s transition to alternative rates.
A fundamental reform of major interest rate benchmarks is being undertaken globally, including the replacement of some interbank offered rates (IBORs) with alternative nearly risk-free rates (RFR) (referred to as ‘IBOR reform’). The Group has exposures to IBORs on its financial instruments that will be replaced or reformed as part of these market-wide initiatives. As at December 31, 2022 new financial instruments concluded during 2022 have an alternative reference rate for US dollar LIBOR which is the Secured Overnight Financing Rate (SOFR). In 2022, the Group did not undertake amendments to its existing financial instruments as at December 31, 2021 with contractual terms indexed to IBORs. As announced by the Financial Conduct Authority (FCA) in early 2022, the panel bank submissions for US dollar LIBOR will cease in mid-2023. The Group anticipates that IBOR reform will impact its risk management and hedge accounting. The Audit and Risk Committee monitors the Group’s transition to alternative rates.
Derivatives
The Group holds interest rate swaps for risk management purposes which are designated in cash flow hedging relationships. The interest rate swaps have floating legs that are indexed to USD LIBOR. New interest rate swaps concluded in 2022 have floating legs that are indexed to SOFR. The Group's derivative instruments are governed by contracts based on the International Swaps and Derivatives Association (ISDA)'s master agreements.
Hedge Accounting
As from 2022 onwards new transactions were based on the RFR approach. The Group evaluated the extent to which its legacy cash flow hedging relationships are subject to uncertainty driven by the IBOR reform as at December 31, 2022. The Group’s hedged items and hedging instruments continue to be indexed to USD LIBOR. These benchmark rates are quoted each day and the IBOR cash flows are exchanged with counterparties as usual still until June 2023 latest.
The Group applies the amendments to IFRS 9 issued in September 2019 to those hedging relationships directly affected by the IBOR reform. Hedging relationships impacted by the IBOR reform may experience ineffectiveness attributable to market participants’ expectations of when the shift from the existing IBOR benchmark rate to an alternative benchmark interest rate will occur. This transition may occur at different times for the hedged item and hedging instrument, which may lead to hedge ineffectiveness. The Group has measured its hedging instruments indexed to USD LIBOR using available quoted market rates for LIBOR-based instruments of the same tenor and similar maturity and has measured the cumulative change in the present value of hedged cash flows attributable to changes in USD LIBOR on a similar basis. However as time is passing, the Company believes that for its LIBOR portfolio principle of economic equivalence between RFR and LIBOR items, a Credit Adjustment Spread (CAS) will be required to compensate for the economic difference between RFR and LIBOR. Moreover the selection of the CAS follows ISDA guidance.
The Group's exposure to USD LIBOR designated in hedging relationships is $411.8 million nominal amount at December 31, 2022 (see Note 15), representing the nominal amount of the interest rate swaps maturing in 2025 and 2027.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 20 - Financial instruments - Fair values and risk management (Continued)
Total amounts of unreformed contracts, including those with an appropriate fallback clause
The Group monitors the progress of transition from IBORs to new benchmark rates by reviewing the total amounts of contracts that have yet to transition to an alternative benchmark rate and the amounts of such contracts that include an appropriate fallback clause. The Group considers that a contract is not yet transitioned to an alternative benchmark rate when interest under the contract is indexed to a benchmark rate that is still subject to the IBOR reform, even if it includes a fallback clause that deals with the cessation of the existing IBOR (referred to as an 'unreformed contract').
As at December 31, 2022, all existing financial instruments as from January 1, 2022 were still indexed to USD LIBOR.
Tanker market risk
The spot tanker freight market is a highly volatile global market and the Group cannot predict what the market will be without significant uncertainty. The Group has a strategy of operating the majority of its fleet on the spot market but tries to keep a certain part of the fleet under fixed time charter contracts. The proportion of vessels operated on the spot vary according to the many factors affecting both the spot and fixed time charter contract markets.
Every increase (decrease) of $1,000 on the spot tanker freight market (VLCC and Suezmax) per day would have increased (decreased) profit or loss by the amounts shown below:
(effect in thousands of USD) | 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||
Profit or loss | Profit or loss | Profit or loss | ||||||||||||||||||||||||||||||||||||
$1,000 | $1,000 | $1,000 | $1,000 | $1,000 | $1,000 | |||||||||||||||||||||||||||||||||
Increase | Decrease | Increase | Decrease | Increase | Decrease | |||||||||||||||||||||||||||||||||
21,348 | (21,348) | 21,270 | (21,270) | 19,638 | (19,638) |
Interest rate risk
Euronav interest rate management general policy is to borrow at floating interest rates based on LIBOR/SOFR plus a margin. The Euronav Corporate Treasury Department monitors the Group's interest rate exposure on a regular basis. From time to time and under the responsibility of the Chief Financial Officer, different strategies to reduce the risk associated with fluctuations in interest rates can be proposed to the Supervisory Board for their approval. The Group hedges part of its exposure to changes in interest rates on borrowings. All borrowings contracted for the financing of vessels are on the basis of a floating interest rate, increased by a margin. On a regular basis the Group may use interest rate related derivatives (interest rate swaps, caps and floors) to achieve an appropriate mix of fixed and floating rate exposure as defined by the Group. On December 31, 2022 and December 31, 2021, the Group had such instruments in place and approximately 46% of the floating interest rates have been hedged.
The Group determines the existence of an economic relationship between the hedging instrument and hedged item based on the reference interest rates, tenors, repricing dates and maturities and the notional or par amounts. If a hedging relationship is directly affected by uncertainty arising from the IBOR reform, then the Group assumes for this purpose that the benchmark interest rate is not altered as a result of interest rate benchmark reform.
Hedging relationships that are impacted by the IBOR reform may experience ineffectiveness because of timing mismatch between the hedged item and the hedging instrument regarding the IBOR transition. For further details, see 'Managing interest rate benchmark reform and associated risks' above.
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Note 20 - Financial instruments - Fair values and risk management (Continued)
At the reporting date the interest rate profile of the Group's interest-bearing financial instruments was:
(in thousands of USD) | 2022 | 2021 | ||||||||||||
FIXED RATE INSTRUMENTS | ||||||||||||||
Financial assets | 850 | 20,228 | ||||||||||||
Financial liabilities | 312,434 | 403,026 | ||||||||||||
313,284 | 423,255 | |||||||||||||
VARIABLE RATE INSTRUMENTS | ||||||||||||||
Financial liabilities | 1,383,847 | 1,309,154 | ||||||||||||
1,383,847 | 1,309,154 |
Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, and the Group does not designate derivatives (interest rate swaps) as hedging instruments under a fair value hedge accounting model. Therefore a change in interest rates at the reporting date would not affect profit or loss nor equity as of that date.
Cash flow sensitivity analysis for variable rate instruments
A change of 50 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.
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Note 20 - Financial instruments - Fair values and risk management (Continued)
Profit or Loss | Equity | |||||||||||||||||||||||||
50 BP | 50 BP | 50 BP | 50 BP | |||||||||||||||||||||||
(effect in thousands of USD) | Increase | Decrease | Increase | Decrease | ||||||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||||
Variable rate instruments | (3,819) | 2,484 | — | — | ||||||||||||||||||||||
Interest rate swaps | — | — | 5,542 | (5,343) | ||||||||||||||||||||||
Cash Flow Sensitivity (Net) | (3,819) | 2,484 | 5,542 | (5,343) | ||||||||||||||||||||||
December 31, 2021 | ||||||||||||||||||||||||||
Variable rate instruments | (6,606) | 2,133 | — | — | ||||||||||||||||||||||
Interest rate swaps | — | — | 4,594 | (4,222) | ||||||||||||||||||||||
Cash Flow Sensitivity (Net) | (6,606) | 2,133 | 4,594 | (4,222) | ||||||||||||||||||||||
December 31, 2022 | ||||||||||||||||||||||||||
Variable rate instruments | (7,784) | 6,466 | — | — | ||||||||||||||||||||||
Interest rate swaps | — | — | 4,710 | (6,839) | ||||||||||||||||||||||
Cash Flow Sensitivity (Net) | (7,784) | 6,466 | 4,710 | (6,839) | ||||||||||||||||||||||
Currency risk
The Group policy is to monitor its material non-functional currency transaction exposure so as to allow for natural coverage (revenues in the same currency than the expenses) whenever possible. When natural coverage is not deemed reasonably possible (for example for long term commitments), the Company manages its material non-functional currency transaction exposure on a case-by-case basis, either by entering into spot foreign currency transactions, foreign exchange forward, swap or option contracts.
The Group’s exposure to currency risk is related to its operating expenses expressed in Euros and to Treasury Notes denominated in Euros. In 2022 about 15.4% (2021: 13.9% and 2020: 14.4%) of the Group's total operating expenses were incurred in Euros. Revenue and borrowings are expressed in USD only, except for instruments issued under the Treasury Notes Program (Note 17).
(in thousands of USD) | December 31, 2022 | December 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||||
EUR | USD | EUR | USD | EUR | USD | |||||||||||||||||||||||||||||||||
Trade payables | (6,653) | (18,043) | (5,680) | (20,332) | (5,662) | (21,564) | ||||||||||||||||||||||||||||||||
Operating expenses | (103,339) | (568,357) | (101,039) | (625,627) | (97,082) | (611,777) | ||||||||||||||||||||||||||||||||
Treasury Notes | (50,664) | — | (104,006) | — | (38,654) | — |
For the average and closing rates applied during the year, we refer to Note 27.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 20 - Financial instruments - Fair values and risk management (Continued)
Sensitivity analysis
A 10 percent strengthening of the EUR against the USD at December 31, would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.
(in thousands of USD) | 2022 | 2021 | 2020 | |||||||||||||||||
Equity | 648 | 683 | 735 | |||||||||||||||||
Profit or loss | (10,994) | (9,573) | (10,412) |
A 10 percent weakening of the EUR against the USD at December 31, would have had the equal but opposite effect to the amounts shown above, on the basis that all the other variables remain constant.
Cash flow hedges
At December 31, 2022, the Group held the following instruments to hedge exposures to changes in interest rates:
Maturity | ||||||||||||||||||||
(in thousands of USD) | 1-6 months | 6-12 months | More than 1 year | |||||||||||||||||
Interest rate risk | ||||||||||||||||||||
Interest rate swaps | ||||||||||||||||||||
Net exposure | (41,048) | (38,879) | (167,966) | |||||||||||||||||
Average fixed interest rate | 1.42 | % | 1.41 | % | 1.40 | % | ||||||||||||||
At December 31, 2021, the Group held the following instruments to hedge exposures to changes in interest rates:
Maturity | ||||||||||||||||||||
(in thousands of USD) | 1-6 months | 6-12 months | More than 1 year | |||||||||||||||||
Interest rate risk | ||||||||||||||||||||
Interest rate swaps | ||||||||||||||||||||
Net exposure | (15,704) | (15,982) | (93,737) | |||||||||||||||||
Average fixed interest rate | 0.80 | % | 0.80 | % | 0.78 | % | ||||||||||||||
At December 31, 2021, the Group had 2 interest cap options with a notional amount of $200.0 million starting on October 1, 2020. These CAPs matured at October 3, 2022.
The Group entered on August 22, 2022 into four Fx Swaps to hedge 20% of the short position for 2023 at parity for a notional amount of 18 million Euro in total. These Fx Swaps are used to hedge the risk related to the fluctuation of EUR/USD.
The amounts at the reporting date relating to items designated as hedged items were as follows:
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Note 20 - Financial instruments - Fair values and risk management (Continued)
December 31, 2022 | December 31, 2021 | ||||||||||||||||||||||
(in thousands of USD) | Change in value used for calculating hedge ineffectiveness | Cash flow hedge reserve | Change in value used for calculating hedge ineffectiveness | Cash flow hedge reserve | |||||||||||||||||||
Interest rate risk | |||||||||||||||||||||||
Variable-rate instruments | (29,159) | 32,021 | (9,247) | 2,862 | |||||||||||||||||||
Cap option | (466) | — | (605) | (466) | |||||||||||||||||||
Fx rate risk | |||||||||||||||||||||||
Fx swaps | (1,032) | 1,032 | — | — | |||||||||||||||||||
The amounts relating to items designated as hedging instruments and hedge ineffectiveness were as follows:
2022 | During the period 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands of USD) | Nominal amount | Carrying amount - Assets | Carrying amount - Liabilities | Line item in the statement of financial position where the hedging instrument is included | Changes in the value of the hedging instrument recognized in OCI | Hedge ineffectiveness recognized in profit or loss | Line item in profit or loss that includes hedge ineffectiveness | |||||||||||||||||||||||||||||||||||||||||||
Interest rate risk | ||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate swaps | 518,133 | 32,929 | 404 | Non-current receivables, Trade and other current receivables, Non-current other payables | 29,159 | (507) | Finance expenses | |||||||||||||||||||||||||||||||||||||||||||
Cap options | — | — | — | — | 466 | — | Finance expenses | |||||||||||||||||||||||||||||||||||||||||||
Fx rate risk | ||||||||||||||||||||||||||||||||||||||||||||||||||
Fx swaps | 18,398 | 1,032 | — | Trade and other current receivables | 1,032 | — | Finance expenses | |||||||||||||||||||||||||||||||||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 20 - Financial instruments - Fair values and risk management (Continued)
2021 | During the period 2021 | |||||||||||||||||||||||||||||||||||||||||||
(in thousands of USD) | Nominal amount | Carrying amount - Assets | Carrying amount - Liabilities | Line item in the statement of financial position where the hedging instrument is included | Changes in the value of the hedging instrument recognized in OCI | Hedge ineffectiveness recognized in profit or loss | Line item in profit or loss that includes hedge ineffectiveness | |||||||||||||||||||||||||||||||||||||
Interest rate risk | ||||||||||||||||||||||||||||||||||||||||||||
Interest rate swaps | 367,530 | 6,392 | 2,987 | Non-current receivables, Trade and other current receivables, Trade and other current payables | 9,247 | (78) | Finance expenses | |||||||||||||||||||||||||||||||||||||
Cap options | 200,000 | 2 | — | Trade and other receivables | 605 | — | Finance expenses | |||||||||||||||||||||||||||||||||||||
During 2022 and 2021, no amounts were reclassified from hedging reserve to profit or loss.
The following table provides a reconciliation by risk category of components of equity and analysis of OCI items, net of tax, resulting from cash flow hedge accounting:
(in thousands of USD) | Hedging reserve | ||||||||||
Balance at January 1, 2022 | 2,396 | ||||||||||
Cash flow hedges | |||||||||||
Change in fair value interest rate risk | 29,625 | ||||||||||
Change in fair value fx risk | 1,032 | ||||||||||
Balance at December 31, 2022 | 33,053 | ||||||||||
Balance at January 1, 2021 | (7,456) | ||||||||||
Cash flow hedges | |||||||||||
Change in fair value interest rate risk | 9,852 | ||||||||||
Balance at December 31, 2021 | 2,396 | ||||||||||
Master netting or similar agreements
The Group enters into derivative transactions under International Swaps and Derivatives Association (ISDA) master netting agreements. In general, under such agreements the amounts owned by each counterparty on a single day in respect of all transactions outstanding in the same currency are aggregated into a single net amount that is payable by one party to the other.
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Note 20 - Financial instruments - Fair values and risk management (Continued)
Capital management
Euronav is continuously seeking to optimize its capital structure (mix between debt and equity). The main objective is to maximize shareholder value while keeping the desired financial flexibility to execute the strategic projects. Some of the Group's other key drivers when making capital structure decisions are pay-out restrictions and the maintenance of the strong financial health of the Group. Besides the statutory minimum equity funding requirements that apply to the Group's subsidiaries in the various countries, the Group is also subject to covenants in relation to some of its senior secured credit facilities:
•an amount of current assets that, on a consolidated basis, exceeds current liabilities. Current assets may include undrawn amounts of any committed revolving credit facilities and credit lines having a maturity of more than one year;
•an aggregate amount of cash, cash equivalents and available aggregate undrawn amounts of any committed loan of at least $50.0 million or 5% of the Group's total indebtedness (excluding guarantees), depending on the applicable loan facility, whichever is greater;
•an amount of cash of at least $30.0 million; and
•a ratio of Stockholders' Equity to Total Assets of at least 30%
In connection to the senior secured FSO loan of $150 million, the facility contains a specific covenant whereby each borrower need to ensure that its financial position shall at all times during the Security Period be such that the Debt Service Cover Ratio in respect of it shall be equal or higher than 1.1x.
Further, the Group's loan facilities generally include an asset protection clause whereby the fair market value of collateral vessels should be at least 125% of the aggregate principal amount outstanding under the respective loan.
All existing financing arrangements, including the bonds, contain a change of control clause (COC), which is triggered if a shareholder would acquire 50%+1 of the shares or voting rights in Euronav. In certain existing financing arrangements (e.g., the $713,000,000 facility agreement or the €80,000,000 facility agreement) the threshold would be 30%+1 of the shares or voting rights in Euronav.
Under the existing facility agreements, the occurrence of a CoC would, trigger a mandatory prepayment and cancellation event. Except for the €80,000,000 facility agreement, the existing facility agreements do not contain the option or right of lenders not to ask for prepayment. Under the bonds, the occurrence of a CoC would trigger a put option event, allowing each bondholder to require that Euronav Luxembourg SA (Euronav Luxembourg) purchases all or some of the bonds held by that bondholder at a price equal to 101 per cent of the nominal amount (i.e., at a premium of 1%).
Under most of the existing financing arrangements, including the bonds, Euronav undertook not to consolidate, amalgamate or merge with any other entity which may, in the reasonable opinion of the majority lenders, have a material adverse effect under the respective arrangement. The conclusion on whether the contemplated merger would have a material adverse effect, ultimately depends on the factual interpretation of the transaction by the majority lenders. The $173,550,300 facility agreement does not contain a material adverse effect qualifier, prohibiting any merger, irrespective of its (material adverse) effects. A breach of the "no merger undertaking" would trigger an event of default under the existing financing arrangements.
Under the facility agreements, Euronav could, in theory, request a waiver of the "no merger undertaking" together with a suspension of other relevant undertakings (e.g., "maintenance of status"), in order to execute the contemplated merger. The consent of all lenders would be required for the waiver to be effective, with the exemption of the €80,000,000 facility agreement, for which a consent from the majority lenders would suffice.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 20 - Financial instruments - Fair values and risk management (Continued)
The credit facilities discussed above also contain restrictions and undertakings which may limit the Group and the Group's subsidiaries' ability to, among other things:
•effect changes in management of the Group's vessels;
•transfer or sell or otherwise dispose of all or a substantial portion of the Group's assets;
•declare and pay dividends; and
•incur additional indebtedness.
A violation of any of these financial covenants or operating restrictions contained in the credit facilities may constitute an event of default under these credit facilities, which, unless cured within the grace period set forth under the applicable credit facility, if applicable, or waived or modified by the Group's lenders, provides them with the right to, among other things, require the Group to post additional collateral, enhance equity and liquidity, increase interest payments, pay down indebtedness to a level where the Group is in compliance with loan covenants, sell vessels in the fleet, reclassify indebtedness as current liabilities and accelerate indebtedness and foreclose liens on the vessels and the other assets securing the credit facilities, which would impair the Group's ability to continue to conduct business.
Furthermore, certain of our credit facilities contain a cross-default provision that may be triggered by a default under one of our other credit facilities. A cross-default provision means that a default on one loan would result in a default on certain other loans. Because of the presence of cross-default provisions in certain of our credit facilities, the refusal of any one lender under our credit facilities to grant or extend a waiver could result in certain of our indebtedness being accelerated, even if our other lenders under our credit facilities have waived covenant defaults under the respective credit facilities. If our secured indebtedness is accelerated in full or in part, it would be very difficult in the current financing environment for us to refinance our debt or obtain additional financing and we could lose our vessels and other assets securing our credit facilities if our lenders foreclose their liens, which would
adversely affect our ability to conduct our business.
As of December 31, 2022, December 31, 2021 and December 31, 2020, the Group was in compliance with all of the covenants contained in the debt agreements. With respect to the quantitative covenants as of December 31, 2022, as described above:
1.current assets on a consolidated basis (including available credit lines of $671.3 million) exceeded current liabilities by $1,024.0 million,
2.aggregated cash was $851.1 million,
3.cash was $179.9 million and
4.ratio of Stockholders' Equity to Total Assets was 54.8%.
The Company updated the guidance to its dividend policy and will target each quarter, applicable as of the first quarter 2020, to return 80% of the net income (including the fixed element of $3 cents per quarter) to shareholders. This return to shareholders will primarily be in the form of a cash dividend and the Company will always look at share buyback as an alternative if it believes more value can be created for shareholders.
The calculation does not include capital gains (reserved for fleet renewal) but include capital losses and the policy is at all times subject to freight market outlook, company balance sheet and cyclicality along with other factors and regulatory requirements.
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Note 20 - Financial instruments - Fair values and risk management (Continued)
As part of its capital allocation strategy, Euronav has the option of buying its own shares back should the Supervisory Board and Management Board believe that there is a substantial value disconnect between the share price and the real value of the Company. This return of capital is in addition to the fixed dividend of $0.12 per share paid each year. During 2022, Euronav transferred 105,551 shares to members of the Management Board in accordance with the Long Term Incentive Plan 2019. The Company owned 18,241,181 own shares (8.29% of the total outstanding shares) at year-end.
Commodity risk
The Group has been purchasing compliant bunker fuel for future consumption by its vessels. In order to fix the price of the fuel bought the Company has used swaps and futures to hedge the risk between decision of buying the fuel and receiving and paying the cargo. These swaps and futures were designated as cash flow hedges of the variability in the price of bunker between the order date and the fixing date. At year-end, all fuel was received. The Group remains exposed to the risk of decrease in bunker fuel on the spot market below the weighted average purchase price.
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Note 21 - Leases
Leases as lessee
For the four bareboat charters for the vessels Nautilus, Nucleus, Neptun and Navarin, the Group recognized a right-of-use asset and lease liability which was the present value at January 1, 2019 of the future lease payments. The right-of-use asset, on January 1, 2019, was measured based on the transition option to align the value of the right of use asset to that of the lease liability. The right-of-use asset was adjusted for the effect of a previously deferred gain on the sale and leaseback of these vessels and was depreciated over the remaining lease term till December 15, 2021.
Under these leaseback agreements there was a seller's credit of $4.5 million of the sale price that became immediately due and payable by the owners upon sale of the vessel during the charter period and shall be paid out of the sales proceeds. It also became due to the extent of 50% of the (positive) difference between the fair market value of the vessels at the end of the leaseback agreements and $17.5 million (for the oldest VLCC) or $19.5 million (for the other vessels). As the first vessel (Nautilus) was redelivered on December 15, 2021, $4.5 million was recognized in the fourth quarter of 2021 in profit or loss, whereas the remaining $13.5 million for the other three vessels were recognized in the first quarter of 2022 at the moment of redelivery.
Furthermore, the Group provided a residual guarantee to the owners in the aggregate amount of up to $20.0 million in total at the time of redelivery of the four vessels. The parties also agreed a profit split, if a vessel was sold at charter expiry they shall share the net proceeds of the sale, 75% for owners and 25% for charterers, between $26.5 million and $32.5 million (for the oldest VLCC) or between $28.5 million and $34.5 million (for the other vessels). This residual guarantee and profit split were not applicable at the moment of redelivery of the vessels.
On October 27, 2020 and November 6, 2020, the Company entered into a time charter agreement for two Suezmaxes. The two Suezmaxes are the Marlin Sardinia (2019 - 156,607) and the Marlin Somerset (2019 - 156,620). The time charter contracts have a duration of 24-months with an option for an additional 12 months, which should be declared no later than 20 months after delivery, at a rate of $25,000 per day per vessel for the firm 24-months period and $26,500 per day per vessel for the optional 12-months period. Owners have a right to sell the vessel during the firm and optional period of the charter and transfer the remaining charter to the new owners by way of novation agreement. In accordance with IFRS, the Group recognized a right-of-use asset and lease liability. On June 24, 2022, Euronav has declared the options to extend the time charter agreement for the two Suezmaxes with an additional 12 months. This resulted in the recognition of an additional right-of-use asset and lease liability (see Note 8 and 17).
On February 23, 2021, the Company entered into a sale and leaseback agreement for the VLCC Newton (2009 – 307,284) with Taiping & Sinopec Financial Leasing Ltd Co. The vessel was sold for a net sale price of $35.4 million. The Company has leased back the vessel under a 36-months bareboat contract at an average rate of $22,500 per day. At the end of the bareboat contract, the vessel will be redelivered to its owners. In accordance with IFRS, the Group recognized a right-of-use asset and lease liability (see Note 8 and Note 17).
The future lease payments for these leaseback agreements are as follows:
(in thousands of USD) | December 31, 2022 | December 31, 2021 | ||||||||||||
Less than 1 year | 25,955 | 24,828 | ||||||||||||
Between 1 and 5 years | 1,170 | 8,708 | ||||||||||||
Total future lease payments | 27,125 | 33,535 |
For the office leases in Belgium, France, Greece, Hong Kong, Singapore, UK and US, which have an average lease term till April 2025, the Group recognized a right-of-use asset and lease liability. The right-of-use asset was adjusted by the practical expedient impairment assessment based on the onerous contract analysis option. The right-of-use asset related to office leases was reduced by the lease receivable related to subleases that qualify as finance lease under IFRS 16.
The Group used the short-term lease exemption for all the lease contracts with a remaining lease term of less than one year. Accordingly, those lease payments were recognized as an expense.
Information about leases for which the Group is a lessee is presented below.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 21 - Leases (Continued)
Right-of-use assets
(in thousands of USD) | Bareboats | Time charters | Office rental | Company cars | Total | |||||||||||||||||||||||||||
Balance at January 1, 2021 | 27,047 | 22,795 | 2,438 | 675 | 52,955 | |||||||||||||||||||||||||||
Additions to right-of-use assets | 22,379 | — | 986 | 111 | 23,476 | |||||||||||||||||||||||||||
Depreciation charge for the year | (33,634) | (12,437) | (1,086) | (230) | (47,387) | |||||||||||||||||||||||||||
Translation differences | — | — | (32) | (11) | (43) | |||||||||||||||||||||||||||
Balance at December 31, 2021 | 15,792 | 10,358 | 2,306 | 545 | 29,001 |
(in thousands of USD) | Bareboats | Time charters | Office rental | Company cars | Total | |||||||||||||||||||||||||||
Balance at January 1, 2022 | 15,792 | 10,358 | 2,306 | 545 | 29,001 | |||||||||||||||||||||||||||
Additions to right-of-use assets | — | 13,597 | 408 | 55 | 14,060 | |||||||||||||||||||||||||||
Depreciation charge for the year | (7,371) | (12,874) | (1,022) | (242) | (21,509) | |||||||||||||||||||||||||||
Translation differences | — | — | (52) | (7) | (59) | |||||||||||||||||||||||||||
Balance at December 31, 2022 | 8,421 | 11,081 | 1,640 | 351 | 21,493 | |||||||||||||||||||||||||||
Amounts recognized in profit or loss
(in thousands of USD) | 2022 | 2021 | |||||||||
Interest on lease liabilities | (1,237) | (2,378) | |||||||||
Depreciation right-of-use assets | (21,509) | (47,387) | |||||||||
Low-value leases | (173) | (171) |
Amounts recognized in statement of cash flows
(in thousands of USD) | 2022 | 2021 | |||||||||
Total cash outflow for leases | (25,527) | (54,928) | |||||||||
Total cash inflow for leases | 2,036 | 1,987 |
Extension options
On June 24, 2022, Euronav declared the options to extend the time charter agreement for the two Suezmaxes Marlin Sardinia and Marlin Somerset with an additional 12 months. At December 31, 2022, there were no material extension options in the property leases which could be exercised by the Group.
Leases as lessor
As a lessor the Group leases out some of its vessels under long-term time charter agreements. For certain vessels employed under long-term time charter agreements, the adoption of IFRS 16 required the Group to separate the lease and non-lease component in the contract, with the lease component qualified as operating lease and the non-lease component accounted for under IFRS 15. This did not have a material impact for the Group.
The future undiscounted lease payments to be received for these lease agreements are as follows:
(in thousands of USD) | December 31, 2022 | December 31, 2021 | |||||||||
Less than one year | 121,978 | 100,524 | |||||||||
Between one and five years | 326,228 | 240,463 | |||||||||
More than five years | 306,505 | 185,441 | |||||||||
Total future lease receivables | 754,710 | 526,428 |
The amounts shown at December 31, 2021 in the table above include the Group's share of leases of joint ventures. On some of the above mentioned vessels the Group has granted the option to extend the charter period. These option periods have not been taken into account when calculating the future minimum lease receivables.
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Note 21 - Leases (Continued)
Vessels employed by the TI Pool do not meet the definition of a lease under IFRS 16 and accordingly revenue generated in the Pool is accounted for under IFRS 15 Revenue from Contracts with Customers.
Further the Group subleases office space to third parties in certain leased offices of Euronav UK and Euronav MI II Inc (formerly Gener8 Maritime Inc.). The Group recognized at January 1, 2019 $11.4 million lease receivables related to sublease agreements that qualify as finance lease.
The following table sets out a maturity analysis of the lease receivables related to the subleased office space, showing the undiscounted sublease payments to be received after the reporting date.
(in thousands of USD) | December 31, 2022 | December 31, 2021 | ||||||||||||
Less than 1 year | 1,869 | 2,350 | ||||||||||||
One to two years | 1,689 | 1,895 | ||||||||||||
Two to three years | 1,285 | 1,689 | ||||||||||||
Three to four years | — | 1,285 | ||||||||||||
Four to five years | — | — | ||||||||||||
Total undiscounted lease receivables | 4,843 | 7,219 |
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Note 22 - Provisions and contingencies
(in thousands of USD) | Onerous contract | Total | |||||||||
Balance at January 1, 2021 | 1,381 | 1,381 | |||||||||
Provisions used during the year | (227) | (227) | |||||||||
Balance at December 31, 2021 | 1,154 | 1,154 | |||||||||
Non-current | 892 | 892 | |||||||||
Current | 262 | 262 | |||||||||
Total | 1,154 | 1,154 | |||||||||
Balance at January 1, 2022 | 1,154 | 1,154 | |||||||||
Provisions used during the year | (261) | (261) | |||||||||
Balance at December 31, 2022 | 892 | 892 | |||||||||
Non-current | 597 | 597 | |||||||||
Current | 295 | 295 | |||||||||
Total | 892 | 892 |
In 2004, Gener8 Maritime Subsidiary II Inc. entered into a non-cancellable lease for office space. This lease started on December 1, 2004 and would have expired on September 30, 2020. On July 14, 2015 this lease was extended for an additional five years until September 30, 2025. The facilities have been sub-let starting on December 1, 2018 for the remaining lease term, but changes in market conditions have meant that the rental income is lower than the rental expense. The obligation for the future payments, net of expected rental income, has been provided for.
The Group is currently involved in a litigation. Provisions related to legal and arbitration proceedings are recorded in accordance with the accounting policy as described in Note 1.16. The claim has been submitted on January 15, 2021 by Unicredit Bank in London with the High Court of Justice of England and Wales. The claim relates to an alleged misdelivery of 101,809 metric tons of low sulfur fuel oil that was transported by the Suezmax vessel, Sienna. The charterer, Gulf Petrochem FZC, a company of GP Global, instructed the vessel to discharge the cargo at Sohar without presentation of the bill of lading but against a letter of indemnification issued by the charterer as is customary practice in the crude oil shipping industry. Unicredit bank, who had financed the cargo for an amount of $26,367,200 and allegedly had become the holder of the bill of lading, was not repaid in accordance with the financing arrangements agreed with Gulf Petrochem FZC. As alleged holder of the bill of lading, Unicredit Bank is now claiming that amount of $26,367,200 together with interest from Euronav NV. The case went to Trial in London in March 2022 and judgement was handed down in April 2022. Euronav were successful in defending the claims which were dismissed with costs awarded to Euronav. Unicredit however filed an application and received permission to appeal the decision of the Commercial Court judge, Mrs Justice Moulder. The Court of Appeal hearing took place on March 28 and 29, 2023. Management believes that it has followed well established standard working practices and that it has valid defense arguments. Based on an external legal advice, management believes that it has strong arguments that the risk of an outflow is less than probable and therefore no provision is recognized.
The Group is currently involved in a litigation. RMK Maritime (RMK) has commenced legal proceedings in the London High Court against Euronav seeking $12,993,720 in damages in relation to unpaid advisory services provided by RMK to Euronav concerning its merger with Gener8 in 2016 and 2017. RMK are trying to argue that they are entitled to additional compensation beyond the sums they agreed to accept in a written Advisory Agreement. RMK issued the legal proceedings on September 30, 2022, Euronav’s defense was served on December 29, 2022 and on May 5, 2023, a case management conference hearing is scheduled. Management believes that RMK faces a heavy burden to persuade a Court that they should be entitled to additional remuneration in view of the clear terms of the written Advisory Agreement. Based on an external legal advice, management believes that it has strong arguments that the risk of an outflow is less than probable and therefore no provision is recognized.
Furthermore, the Group is involved in a number of disputes in connection with its day-to-day activities, both as claimant and defendant. Such disputes and the associated expenses of legal representation are covered by insurance. Moreover, they are not of a magnitude that lies outside the ordinary, and their scope is not of such a nature that they could jeopardize the Group's financial position.
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Note 23 - Related parties
Identity of related parties
The Group has a related party relationship with its shareholders, subsidiaries (see Note 25) and equity-accounted investees (see Note 26) and with its directors and executive officers (see Note 24).
Shareholders
The shareholders in Euronav changed during the year 2022. At December 31, 2022, Euronav can identify two major shareholders CMB and Famatown/Frontline, owning each 22.9% of the equity with respectively 25.0% and 24.9% voting rights. Both parties are considered as related.
The Audit and Risk Committee has reviewed the transactions with both related parties and confirmed that all transactions were executed at arm’s length:
a.For CMB we refer to:
i.Fuel swap: Euronav has obtained a ruling to include bunker fuel stored by the company (Note 12) under the tonnage tax regime. This ruling also allows the execution of physical swaps, currently executed with CMB since 2019. The swap agreement was extended to CMB NV, Bocimar International NV and Bocimar Hong Kong Ltd. In the course of 2022, a total of 23,537 metric tons (2021: 44,451 metric tons and 2020: 51,000 metric tons) of compliant bunker fuel oil was swapped with these parties.
ii.The Group leases office space in Belgium from Reslea N.V., an entity jointly controlled by CMB. Under this lease, the Group paid an annual rent of $419,526 in 2022 (2021: $356,729 and 2020: $335,033). This lease expires on August 31, 2024.
b.For Famatown / Hemen / Frontline: Euronav has entered into a time charter agreement for two Suezmaxes in the fourth quarter of 2020 (see Note 21). The charter party is Trafigura whereas vessels have been bought in the meanwhile by the Fredriksen Group. Contract has been concluded at arm’s length and are continuing with the original charter party Trafigura.
Transactions with key management personnel
The total amount of the remuneration paid in local currency to all non-executive directors for their services as members of the board and committees (if applicable) is as follows:
(in thousands of EUR) | 2022 | 2021 | 2020 | |||||||||||||||||
Total remuneration | 977 | 977 | 1,048 |
The Nomination and Remuneration Committee annually reviews the remuneration of the members of the Management Board. The remuneration (excluding the CEO) consists of a fixed and a variable component and can be summarized as follows:
(in thousands of EUR) | 2022 | 2021 | 2020 | |||||||||||||||||
Total fixed remuneration | 2,724 | 2,068 | 2,165 | |||||||||||||||||
of which | ||||||||||||||||||||
Cost of pension | 28 | 28 | 18 | |||||||||||||||||
Other benefits | 810 | — | 143 | |||||||||||||||||
Total variable remuneration | 7,320 | 1,606 | 1,029 | |||||||||||||||||
of which | ||||||||||||||||||||
Share-based payments | 5,757 | 911 | 69 |
All amounts mentioned refer to the Management Board in its official composition throughout 2022.
The remuneration of the CEO can be summarized as follows:
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Note 23 - Related parties (Continued)
(in thousands of EUR) | 2022 | 2021 | 2020 | |||||||||||||||||
Total fixed remuneration | 624 | 624 | 624 | |||||||||||||||||
of which | ||||||||||||||||||||
Cost of pension | — | — | — | |||||||||||||||||
Other benefits | — | — | — | |||||||||||||||||
Total variable remuneration | 3,628 | 903 | 424 | |||||||||||||||||
of which | ||||||||||||||||||||
Share-based payments | 2,966 | 568 | 54 |
On February 12, 2015, the Board of Directors (as of February 2020 Supervisory Board) granted 236,590 options and 65,433 restricted stock units within the framework of a long term incentive plan. Vested stock options may be exercised until 13 years after the grant date. As of December 31, 2022, all stock options and all RSUs were exercised (see Note 15 and 24). On February 2, 2016, the Board of Directors (as of February 2020 Supervisory Board) granted 54,616 phantom stock units within the framework of an additional long term incentive plan. Each unit gives a conditional right to receive an amount of cash equal to the fair market value of one share of the Company on the settlement date. The phantom stock units will mature one-third each year on the second, third and fourth anniversary of the award. One-third was vested on the second anniversary, one-third was vested on the third anniversary and one-third was vested on the fourth anniversary (see Note 15 and 24). On February 9, 2017, the Board of Directors (as of February 2020 Supervisory Board) granted 66,449 phantom stock units within the framework of an additional long term incentive plan. Each unit gives a conditional right to receive an amount of cash equal to the fair market value of one share of the company on the settlement date. The phantom stock units will mature one-third each year on the second, third and fourth anniversary of the award. One-third was vested on the second anniversary, one-third was vested on the third anniversary and one-third was vested on the fourth anniversary (see Note 15 and 24). On February 16, 2018, the Board of Directors (as of February 2020 Supervisory Board) granted 154,432 phantom stock units within the framework of an additional long term incentive plan. Each unit gives a conditional right to receive an amount of cash equal to the fair market value of one share of the company on the settlement date. The phantom stock units will mature one-third each year on the second, third and fourth anniversary of the award. One-third was vested on the second anniversary, one-third was vested on the third anniversary and one-third was vested on the fourth anniversary (see Note 15 and 24). On January 8, 2019, the Board of Directors (as of February 2020 Supervisory Board) granted 1,200,000 phantom stock units within the framework of a transaction based incentive plan (TBIP). After the resignation of the former CEO, 400,000 phantom stock units were waived. The first tranche of 12% was vested in the first quarter of 2020. The second tranche of 19% was vested in the second quarter of 2022, the third and fourth tranche of 25% and 44% were vested in the third quarter of 2022. The contractual term of the TBIP offer is 5 years. A first tranche of 12% of the total number of phantom stock units vests on the date on which the Fair Market Value (FMV) reaches USD 12 (decreased with the amount of dividend paid since grant, if any). A second tranche (16%) vests on the date the FMV reaches USD 14 (decreased with the amount of dividend paid since grant, if any), a third tranche (25%) vests on the date the FMV reaches USD 16 (decreased with the amount of dividend paid since grant, if any) and the final tranche (44%) vests on the date the FMV reaches USD 18 (decreased with the amount of dividend paid since grant, if any) (see Note 15 and 24). The TBIP defines FMV as the volume weighted average price of the shares on the New York Stock Exchange over the thirty (30) Business Days preceding such date.
On April 1, 2019, the Board of Directors (as of February 2020 Supervisory Board) granted 152,346 restricted stock units within the framework of a long term incentive plan. The RSUs vest over three years in three equal annual installments at the three anniversary dates from the reference date (April 1, 2019) and will be settled in shares. As of December 31, 2022, 105,626 RSUs were vested which have been transferred to the beneficiaries out of treasury shares. On April 1, 2020, the Supervisory Board granted 144,392 restricted stock units within the framework of a long term incentive plan. The RSUs vest over three years in three equal annual installments at the three anniversary dates from the reference date (April 1, 2020) and will be settled in shares. As of December 31, 2022, 76,166 RSUs were vested however vested RSUs will not be delivered in shares until the first business day after April 1, 2023. On April 1, 2021, the Supervisory Board granted 193,387 RSUs within the framework of a long term incentive plan. The RSUs vest over three years in three equal annual installments at the three anniversary dates from the reference date (April 1, 2021) and will be settled in shares. As of December 31, 2022, 64,462 RSUs were vested however vested RSUs will not be delivered in shares until the first business day after April 1, 2024. On April 1, 2022, the Supervisory Board granted 163,022 RSUs within the framework of a long term incentive plan. The RSUs vest over three years in three equal annual installments at the three anniversary dates from the reference date (April 1, 2022) and will be settled in shares. As of December 31, 2022, no RSUs were vested
Properties
The Company subleases office space in its London, United Kingdom office, through its subsidiary Euronav (UK) Agencies Limited, pursuant to a sublease agreement, dated September 25, 2014, with Tankers (UK) Agencies Limited, a 50-50 joint
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 23 - Related parties (Continued)
venture with International Seaways. Under this sublease, the Company received in 2022 a rent of $216,040 (2021: $235,205 and 2020: $218,074). This sublease expires on April 27, 2023.
Transactions with subsidiaries and joint ventures
The Group has supplied funds in the form of shareholder's advances to some of its joint ventures at pre-agreed conditions (see below and Note 26).
On November 19, 2019, the Group entered into a joint venture together with affiliates of Ridgebury Tankers and clients of Tufton Oceanic. Each 50%-50% joint venture acquired one Suezmax vessel. The JVs, Bari Shipholding Ltd and Bastia Shipholding Ltd, entered into various agreements including a secured term loan for $36.7 million and revolving credit for $3.0 million with Euronav Hong Kong as lender, a commercial management service with Euronav NV and a technical management service with Ridgebury.
On September 15, 2020, the Suezmax Bastia was sold for $20.5 million. A capital gain on the sale of $0.4 million (Euronav's share) was recorded in the joint venture company. The vessel has been delivered to her new owners. Following this sale, the shareholders loan to Bastia Shipholding Ltd. was fully repaid.
On March 24, 2022, the Suezmax Bari was sold for $21.5 million. A capital gain on the sale of $3.3 million (Euronav's share) was recorded in the joint venture company. The vessel was delivered to her new owners during the second quarter. Following this sale, the shareholders loan to Bari Shipholding Ltd. was repaid and the remaining amount was written-off.
Balances and transactions between the Group and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. Details of outstanding balances and transactions between the Group and its joint ventures are disclosed below:
As of and for the year ended December 31, 2021 | ||||||||||||||||||||||||||||||||
(in thousands of USD) | Trade receivables | Trade payables | Shareholders Loan | Turnover | Dividend Income | |||||||||||||||||||||||||||
TI Africa Ltd | 567 | 61 | 11,465 | 397 | — | |||||||||||||||||||||||||||
TI Asia Ltd | 482 | — | — | 397 | 4,635 | |||||||||||||||||||||||||||
Bari Shipholding Ltd | 2,114 | 1,804 | 22,229 | — | — | |||||||||||||||||||||||||||
Bastia Shipholding Ltd | 7 | 1 | — | — | — | |||||||||||||||||||||||||||
Tankers Agencies (UK) Ltd | — | 134 | — | — | — | |||||||||||||||||||||||||||
Total | 3,170 | 2,000 | 33,694 | 794 | 4,635 | |||||||||||||||||||||||||||
As of and for the year ended December 31, 2022 | ||||||||||||||||||||||||||||||||
(in thousands of USD) | Trade receivables | Trade payables | Shareholders Loan | Turnover | Dividend Income | |||||||||||||||||||||||||||
TI Africa Ltd | — | 58 | — | 162 | — | |||||||||||||||||||||||||||
TI Asia Ltd | — | — | — | 162 | 1,000 | |||||||||||||||||||||||||||
Bari Shipholding Ltd | 14 | — | 850 | — | — | |||||||||||||||||||||||||||
Bastia Shipholding Ltd | — | — | — | — | 150 | |||||||||||||||||||||||||||
Tankers Agencies (UK) Ltd | — | 125 | — | — | 1,871 | |||||||||||||||||||||||||||
Total | 14 | 183 | 850 | 324 | 3,021 |
Guarantees
The Group provided guarantees to financial institutions that provided credit facilities to joint ventures of the Group. As of December 31, 2021, the total amount outstanding under these credit facilities was $39.5 million of which the Group guaranteed $19.8 million. As of December 31, 2022, there are no amounts outstanding due to the repayment of the credit facility as a consequence of the acquisition of the remaining 50% of TI Africa Ltd. and TI Asia Ltd (see Note 8 and 26).
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Note 24 - Share-based payment arrangements
Description of share-based payment arrangements:
At December 31, 2022, the Group had the following share-based payment arrangements:
Long term incentive plan 2015 (Equity-settled)
The Group's Board of Directors (as of February 2020 Supervisory Board) implemented in 2015 a long term incentive plan (LTIP) for key management personnel. Under the terms of this LTIP, the beneficiaries will obtain 40% of their respective LTIP in the form of Euronav stock options, with vesting over three years at anniversary date and 60% in the form of restricted stock units (RSUs) which will be paid out in cash, with cliff vesting on the third anniversary. In total 236,590 options and 65,433 RSUs were granted on February 12, 2015. Vested stock options may be exercised until 13 years after the grant date. The stock options have an exercise price of €10.0475 and are equity-settled. As of December 31, 2022, all stock options were settled in 2022, all RSUs were exercised in 2018. The total employee benefit expense recognized in the consolidated statement of profit or loss during 2022 with respect to the LTIP 2015 was $1.8 million (2021: $0 thousand and 2020: $0 thousand).
Long term incentive plan 2016 (Cash-settled)
The Group's Board of Directors (as of February 2020 Supervisory Board) implemented in 2016 an additional long term incentive plan for key management personnel. Under the terms of this LTIP, the beneficiaries will obtain their respective LTIP in cash, based on the volume weighted average price of the shares on Euronext Brussels over the 3 last business days of the relevant vesting period. The phantom stock units will mature one-third each year on the second, third and fourth anniversary of the award. In total a number of 54,616 phantom stocks were granted on February 2, 2016 and one-third was vested on the second anniversary, one-third on the third anniversary and one-third on the fourth anniversary. Following the resignation of our former CEO Paddy Rodgers, his phantom stocks were waived. As of December 31, 2022, no phantom stocks were outstanding. The LTIP 2016 qualifies as a cash-settled share-based payment transaction. The Company recognizes a liability in respect of its obligations under the LTIP 2016, measured based on the Company’s share price at the reporting date, and taking into account the extent to which the services have been rendered to date. The compensation income recognized in the consolidated statement of profit or loss during 2022 was $0 thousand (2021: $0 thousand and 2020: income of $0.3 million).
Long term incentive plan 2017 (Cash-settled)
The Group's Board of Directors (as of February 2020 Supervisory Board) implemented in 2017 an additional long term incentive plan for key management personnel. Under the terms of this LTIP, the beneficiaries will obtain their respective LTIP in cash, based on the volume weighted average price of the shares on Euronext Brussels over the 3 last business days of the relevant vesting period. The phantom stock units will mature one-third each year on the second, third and fourth anniversary of the award. In total a number of 66,449 phantom stock units were granted on February 9, 2017 and one-third was vested on the second anniversary and one-third on the third anniversary and one-third on the fourth anniversary. Following the resignation of our former CEO Paddy Rodgers, his phantom stocks were waived. As of December 31, 2022, no phantom stocks were outstanding. The LTIP 2017 qualifies as a cash-settled share-based payment transaction. The Company recognizes a liability in respect of its obligations under the LTIP 2017, measured based on the Company’s share price at the reporting date, and taking into account the extent to which the services have been rendered to date. The compensation income recognized in the consolidated statement of profit or loss during 2022 was $0 thousand (2021: income of $0.2 million and 2020: income of $0.3 million).
Long term incentive plan 2018 (Cash-settled)
The Group's Board of Directors (as of February 2020 Supervisory Board) implemented in 2018 an additional long term incentive plan for key management personnel. Under the terms of this LTIP, the beneficiaries will obtain their respective LTIP in cash, based on the volume weighted average price of the shares on Euronext Brussels over the 3 last business days of the relevant vesting period. The phantom stock units will mature one-third each year on the second, third and fourth anniversary of the award. In total a number of 154,432 phantom stock units were granted on February 16, 2018 and one-third was vested on the second anniversary and one-third on the third anniversary. Following the resignation of our former CEO Paddy Rodgers, his phantom stocks were waived. As of December 31, 2022, no phantom stocks were outstanding. The LTIP 2018 qualifies as a cash-settled share-based payment transaction. The Company recognizes a liability in respect of its obligations under the LTIP 2018, measured based on the Company’s share price at the reporting date, and taking into account the extent to which the services have been rendered to date. The compensation income recognized in the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 24 - Share-based payment arrangements (Continued)
consolidated statement of profit or loss during 2022 was $0.6 million (2021: income of $0.2 million and 2020: income of $0.4 million).
Transaction Based Incentive Plan 2019 (Cash-settled)
The Group's Board of Directors (as of February 2020 Supervisory Board) has implemented in 2019 a transaction-based incentive plan (TBIP) for key management personnel. Under the terms of this TBIP, key management personnel is eligible to receive phantom stock unit grants. Each phantom stock unit grants the holder a conditional right to receive an amount of cash equal to the Fair Market Value (FMV) of one share of the Company multiplied by the number of phantom stock units that have vested prior to the settlement date. The TBIP defines FMV as the volume weighted average price of the shares on the New York Stock Exchange over the thirty (30) Business Days preceding such date. The vesting and settlement of the TBIP is spread over a time frame of five years. The phantom stock awarded matures in four tranches: the first tranche of 12% vesting when the FMV reaches $12 (decreased with the amount of dividend paid since grant, if any), the second tranche of 19% vesting when the FMV reaches $14 (decreased with the amount of dividend paid since grant, if any), the third tranche of 25% vesting when the FMV reaches $16 (decreased with the amount of dividend paid since grant, if any) and the fourth tranche of 44% vesting when the FMV reaches $18 (decreased with the amount of dividend paid since grant, if any). In total a number of 1,200,000 phantom stock units were granted on January 8, 2019. The first tranche of 12% was vested in the first quarter of 2020. Following the resignation of our former CEO Paddy Rodgers, his phantom stocks were waived. The second tranche of 19% was vested in the second quarter of 2022, the third and fourth tranche of 25% and 44% were vested in the third quarter of 2022. As of December 31, 2022, no phantom stocks were outstanding. The TBIP 2019 qualifies as a cash-settled share-based payment transaction as the Company receives services from the participants and incur an obligation to settle the transaction in cash. The Company recognizes a liability at fair value in respect of its obligations under the TBIP 2019. The fair value of the plan is being determined using a binominal model with cost being spread of the expected vesting period over the various tranches. The compensation expense recognized in the consolidated statement of profit or loss during 2022 was $7.4 million (2021: expense of $1.0 million and 2020: income of $0.4 million).
Long term incentive plan 2019 (Equity-settled)
The Group's Board of Directors (as of February 2020 Supervisory Board) has implemented in 2019 an additional long term incentive plan (LTIP) for key management personnel. Under the terms of this LTIP, key management personnel will obtain 100% of their respective LTIP in the form of Euronav restricted stock units (RSUs). The RSUs vest over three years in three equal annual installments at the three anniversary dates from the reference date (April 1, 2019) and will be settled in shares. In total 152,346 RSUs were granted on April 1, 2019. As of December 31, 2022, 105,626 RSUs were vested which have been transferred to the beneficiaries out of treasury shares. The compensation income recognized in the consolidated statement of profit or loss during 2022 was $0.6 million (2021: expense of $0.4 million and 2020: expense of $0.1 million).
Long term incentive plan 2020 (Equity-settled)
The Group’s Supervisory Board has implemented in 2020 an additional long term incentive plan (LTIP) for key management personnel. Under the terms of this LTIP, key management personnel will obtain 100% of their respective LTIP in the form of Euronav restricted stock units (RSUs). The RSUs vest over three years in three equal annual installments at the three anniversary dates from the reference date (April 1, 2020) and will be settled in shares. In total 144,392 RSUs were granted on April 1, 2020. As of December 31, 2022, 76,166 RSUs were vested, however vested RSUs will not be delivered in shares until the first business day after April 1, 2023. The compensation expense recognized in the consolidated statement of profit or loss during 2022 was $0.4 million (2021: expense of $0.3 million).
Long term incentive plan 2021 (Equity-settled)
The Group’s Supervisory Board has implemented in 2021 an additional long term incentive plan (LTIP) for key management personnel. Under the terms of this LTIP, key management personnel will obtain 100% of their respective LTIP in the form of Euronav restricted stock units (RSUs). The RSUs vest over three years in three equal annual installments at the three anniversary dates from the reference date (April 1, 2021) and will be settled in shares. In total 193,387 RSUs were granted on April 1, 2021. As of December 31, 2022, 64,462 RSUs were vested, however vested RSUs will not be delivered in shares until the first business day after April 1, 2024. The compensation expense recognized in the consolidated statement of profit or loss during 2022 was $0.7 million.
Long term incentive plan 2022 (Equity-settled)
The Group’s Supervisory Board has implemented in 2022 an additional long term incentive plan (LTIP) for key management personnel. Under the terms of this LTIP, key management personnel will obtain 100% of their respective LTIP in the form of Euronav restricted stock units (RSUs). The RSUs vest over three years in three equal annual installments at
F-98
EURONAV NV |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 24 - Share-based payment arrangements (Continued)
the three anniversary dates from the reference date (April 1, 2022) and will be settled in shares. In total 163,022 RSUs were granted on April 1, 2022.
Measurement of Fair Value
The fair value of the employee share options under the 2015 LTIP has been measured using the Black-Scholes formula. Service and non-market performance conditions attached to the transactions were not taken into account in measuring fair value.
The inputs used in measurement of the fair values at grant date for the equity-settled share option programs were as follows:
LTIP 2015 | ||||||||||||||||||||||||||||||||||||||
(figures in EUR) | Tranche 1 | Tranche 2 | Tranche 3 | |||||||||||||||||||||||||||||||||||
Fair value at grant date | 1.853 | 1.853 | 1.853 | |||||||||||||||||||||||||||||||||||
Share price at grant date | 10.050 | 10.050 | 10.050 | |||||||||||||||||||||||||||||||||||
Exercise price | 10.0475 | 10.0475 | 10.0475 | |||||||||||||||||||||||||||||||||||
Expected volatility (weighted average) | 39.63 | % | 39.63 | % | 39.63 | % | ||||||||||||||||||||||||||||||||
Expected life (days) (weighted average) | 365 | 730 | 1,095 | |||||||||||||||||||||||||||||||||||
Expected dividends | 8 | % | 8 | % | 8 | % | ||||||||||||||||||||||||||||||||
Risk-free interest rate | 0.66 | % | 0.66 | % | 0.66 | % |
Expected volatility has been based on an evaluation of the historical volatility of the Company's share price, particularly over historical periods commensurate with the expected term. The expected term of the instruments has been based on historical experience and general option holder behavior using a Monte Carlo simulation.
The liability in respect of its obligations under the LTIP 2018 is measured based on the Company’s share price at the reporting date and taking into account the extent to which the services have been rendered to date. One-third of the phantom stocks granted on February 16, 2018 was vested on the second anniversary, one-third on the third anniversary and one-third on the fourth anniversary. As of December 31, 2022, no phantom stocks remained outstanding. The Company’s share price was EUR 7.237 at the grant date of the LTIP 2018 and EUR 15.69 as at December 31, 2022.
The Company recognizes a liability at fair value in respect of its obligations under the TBIP 2019. The fair value of the plan is being determined using a binominal model with cost being spread of the expected vesting period over the various tranches. The vesting and settlement of the TBIP is spread over a timeframe of five years. The phantom stock awarded matures in four tranches: the first tranche of 12% vesting when the Fair Market Value (FMV) reaches $12 (decreased with the amount of dividend paid since grant, if any), the second tranche of 19% vesting when the FMV reaches $14 (decreased with the amount of dividend paid since grant, if any), the third tranche of 25% vesting when the FMV reaches $16 (decreased with the amount of dividend paid since grant, if any) and the fourth tranche of 44% vesting when the FMV reaches $18 (decreased with the amount of dividend paid since grant, if any). The TBIP defines FMV as the volume weighted average price of the shares on the New York Stock Exchange over the thirty (30) Business Days preceding such date. In total a number of 1,200,000 phantom stock units were granted on January 8, 2019 and the first tranche of 12% was vested in the first quarter of 2020. Following the resignation of our former CEO Paddy Rodgers, his phantom stocks were waived. As of December 31, 2022, no phantom stocks were outstanding.
The inputs used in measurement of the fair value at grant date for the TBIP was as follows:
TBIP | |||||||||||||||||||||||||||||||||||||||||
Tranche 1 | Tranche 2 | Tranche 3 | Tranche 4 | ||||||||||||||||||||||||||||||||||||||
Risk-free interest rate | 1.69 | % | 1.69 | % | 1.69 | % | 1.69 | % | |||||||||||||||||||||||||||||||||
Annual volatility | 33.43 | % | 33.43 | % | 33.43 | % | 33.43 | % | |||||||||||||||||||||||||||||||||
Expected vesting period (years) | 3.05 | 3.38 | 3.69 | 3.98 |
The liability in respect of its obligations under the LTIP 2019, LTIP 2020 and LTIP 2021 is subject for 75% to a relative TSR (Total Shareholder Return) compared to a peer group over a three years period. Each yearly measurement to be worth 1/3rd of 75% of the award. And subject for 25% to an absolute TSR of the Company’s shares measured each year for 1/3 of 25% of the award. In total 152,346 RSUs were granted on April 1, 2019 in relation to the LTIP 2019, 144,392 RSUs were granted on April 1, 2020 in relation to the LTIP 2020 and 193,387 RSUs were granted on April 1, 2021 in relation to the LTIP 2021. As of December 31, 2022, 105,626 RSUs were vested in relation to the LTIP 2019, 76,166 RSUs were vested in
F-99
EURONAV NV |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 24 - Share-based payment arrangements (Continued)
relation to the LTIP 2020 and 64,462 RSUs were vested in relation to the LTIP 2021. However vested RSUs will not be delivered in shares until the first business day after April 1, 2023 related to LTIP 2020 and April 1, 2024 related to LTIP 2021.
Expenses recognized in profit or loss
For details on related employee benefits expense, see Note 5 and Note 18. The expenses related to the LTIP 2015, LTIP 2018, TBIP 2019, LTIP 2019, LTIP 2020 and LTIP 2021 (2022: expense of $9.2 million, 2021: expense of $1.3 million and 2020: income of $1.2 million) are included in employee benefits and administrative expenses.
Reconciliation of outstanding share options
The number and weighted-average exercise prices of options under the 2015 LTIP were as follows:
(figures in EUR) | Number of options 2022 | Weighted average exercise price 2022 | Number of options 2021 | Weighted average exercise price 2021 | ||||||||||||||||||||||
Outstanding at January 1 | 236,590 | 7.732 | 236,590 | 7.732 | ||||||||||||||||||||||
Forfeited during the year | — | — | — | — | ||||||||||||||||||||||
Settled during the year | (236,590) | 6.843 | — | — | ||||||||||||||||||||||
Granted during the year | — | — | — | — | ||||||||||||||||||||||
Outstanding at December 31 | — | — | 236,590 | 7.732 | ||||||||||||||||||||||
Vested at December 31 | — | — | 236,590 | — |
F-100
Note 25 - Group entities
Country of incorporation | Consolidation method | Ownership interest | ||||||||||||||||||||||||||||||
December 31, 2022 | December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||
Parent | ||||||||||||||||||||||||||||||||
Euronav NV | Belgium | full | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||
Euronav NV, Antwerp, Geneva (branch office) | ||||||||||||||||||||||||||||||||
Euronav NV, London (branch office) | ||||||||||||||||||||||||||||||||
Subsidiaries | ||||||||||||||||||||||||||||||||
Euronav Tankers NV | Belgium | full | NA | NA | 100.00 | % | ||||||||||||||||||||||||||
Euronav Shipping NV | Belgium | full | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||
Euronav (UK) Agencies Limited | UK | full | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||
Euronav Luxembourg SA | Luxembourg | full | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||
Euronav sas | France | full | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||
Euronav Ship Management sas | France | full | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||
Euronav Ship Management Antwerp (branch office) | ||||||||||||||||||||||||||||||||
Euronav Ship Management Ltd | Liberia | full | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||
Euronav Ship Management Hellas (branch office) | ||||||||||||||||||||||||||||||||
Euronav Hong Kong | Hong Kong | full | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||
Euro-Ocean Ship Management (Cyprus) Ltd | Cyprus | full | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||
Euronav Singapore | Singapore | full | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||
Euronav MI II Inc | Marshall Islands | full | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||
Gener8 Maritime Subsidiary II Inc. | Marshall Islands | full | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||
Gener8 Maritime Subsidiary New IV Inc. | Marshall Islands | full | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||
Gener8 Maritime Management LLC | Marshall Islands | full | 100.00 | % | 100.00 | % | 100.00 | % | ||||||||||||||||||||||||
TI Africa Ltd | Hong Kong | full | 100.00 | % | NA | NA | ||||||||||||||||||||||||||
TI Asia Ltd | Hong Kong | full | 100.00 | % | NA | NA | ||||||||||||||||||||||||||
Joint ventures | ||||||||||||||||||||||||||||||||
Kingswood Co. Ltd | Marshall Islands | equity | NA | NA | NA | |||||||||||||||||||||||||||
TI Africa Ltd | Hong Kong | equity | NA | 50.00 | % | 50.00 | % | |||||||||||||||||||||||||
TI Asia Ltd | Hong Kong | equity | NA | 50.00 | % | 50.00 | % | |||||||||||||||||||||||||
Tankers Agencies (UK) Ltd | UK | equity | 50.00 | % | 50.00 | % | 50.00 | % | ||||||||||||||||||||||||
Tankers International LLC | Marshall Islands | equity | 50.00 | % | 50.00 | % | 50.00 | % | ||||||||||||||||||||||||
Bari Shipholding Ltd | Hong Kong | equity | 50.00 | % | 50.00 | % | 50.00 | % | ||||||||||||||||||||||||
Bastia Shipholding Ltd | Hong Kong | equity | 50.00 | % | 50.00 | % | 50.00 | % |
At December 31, 2022, the Group held 50% of the voting rights in TUKA but held 61% of the outstanding shares that participate in the result of the entity.
At December 31, 2022, the Group held 50% of the voting rights in TI LLC but held 59% of the outstanding shares that participate in the result of the entity.
Due to the merger with Gener8 Maritime Inc. on June 12, 2018, the Group acquired new subsidiaries. Those subsidiaries were used by Gener8 mostly as SPV to own individual vessels. All of the vessels have been transferred to Euronav NV in 2018. The Group liquidated a majority of those subsidiaries in 2019 and 2020.
F-101
EURONAV NV |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 25 - Group entities (Continued)
In 2020 one joint venture, Kingswood Co. Ltd, was dissolved.
In 2020, Euronav NV, London (branch office), was established and incorporated in the third quarter of 2020.
On July 1, 2021, Euronav Shipping NV merged with Euronav Tankers NV which lead to the derecognition of Euronav Tankers NV as a subsidiary.
Euronav has acquired in 2022 the remaining 50% in TI Asia Ltd. and TI Africa Ltd. Euronav already had 50% in these 2 joint ventures which were then recorded as equity investees, and signed on June 7, 2022 a Share Sale and Purchase Agreement with the JV partner International Seaways, Inc. to take control over these 2 joint ventures by purchasing the remaining 50% of the shares. The 2 entities are fully consolidated as of June 7, 2022.
The Group holds 100% of the voting rights in all of its subsidiaries.
F-102
Note 26 - Equity-accounted investees
(in thousands of USD) | December 31, 2022 | December 31, 2021 | ||||||||||||
Assets | ||||||||||||||
Interest in joint ventures | 1,423 | 72,446 | ||||||||||||
Interest in associates | — | — | ||||||||||||
TOTAL ASSETS | 1,423 | 72,446 | ||||||||||||
Liabilities | ||||||||||||||
Interest in joint ventures | — | — | ||||||||||||
Interest in associates | — | — | ||||||||||||
TOTAL LIABILITIES | — | — |
Joint Ventures
The following table contains a roll forward of the balance sheet amounts with respect to the Group's joint ventures:
F-103
EURONAV NV |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 26 - Equity-accounted investees (Continued)
ASSET | ||||||||||||||||||||||||||
(in thousands of USD) | Investments in equity accounted investees | Shareholders loans | ||||||||||||||||||||||||
Gross balance | 50,322 | 60,379 | ||||||||||||||||||||||||
Offset investment with shareholders loan | — | — | ||||||||||||||||||||||||
Balance at January 1, 2020 | 50,322 | 60,379 | ||||||||||||||||||||||||
Group's share of profit (loss) for the period | 10,917 | — | ||||||||||||||||||||||||
Group's share of other comprehensive income | (2) | — | ||||||||||||||||||||||||
Dividends received from joint ventures | (7,534) | — | ||||||||||||||||||||||||
Movement shareholders loans to joint ventures | — | (26,443) | ||||||||||||||||||||||||
Repayment capital provided to joint ventures | (2,000) | — | ||||||||||||||||||||||||
Gross balance | 51,703 | 33,936 | ||||||||||||||||||||||||
Offset investment with shareholders loan | — | — | ||||||||||||||||||||||||
Balance at December 31, 2020 | 51,703 | 33,936 | ||||||||||||||||||||||||
Group's share of profit (loss) for the period | 22,976 | — | ||||||||||||||||||||||||
Group's share of other comprehensive income | 951 | — | ||||||||||||||||||||||||
Dividends received from joint ventures | (4,635) | — | ||||||||||||||||||||||||
Movement shareholders loans to joint ventures | — | (2,242) | ||||||||||||||||||||||||
Gross balance | 70,995 | 31,693 | ||||||||||||||||||||||||
Offset investment with shareholders loan | 1,451 | (1,451) | ||||||||||||||||||||||||
Balance at December 31, 2021 | 72,446 | 30,242 | ||||||||||||||||||||||||
F-104
EURONAV NV |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 26 - Equity-accounted investees (Continued)
ASSET | ||||||||||||||||||||||||||
(in thousands of USD) | Investments in equity accounted investees | Shareholders loans | ||||||||||||||||||||||||
Reversal prior year offset investment with shareholders loan | (1,451) | 1,451 | ||||||||||||||||||||||||
Group's share of profit (loss) for the period | 17,650 | — | ||||||||||||||||||||||||
Group's share of other comprehensive income | 159 | — | ||||||||||||||||||||||||
Dividends received from joint ventures | (3,021) | — | ||||||||||||||||||||||||
Movement equity to shareholders loans | (2,000) | 2,000 | ||||||||||||||||||||||||
Movement shareholders loans to joint ventures | — | (32,844) | ||||||||||||||||||||||||
FSO transaction | (83,186) | — | ||||||||||||||||||||||||
Gross balance | 597 | 850 | ||||||||||||||||||||||||
Offset investment with shareholders loan | 826 | (826) | ||||||||||||||||||||||||
Balance at December 31, 2022 | 1,423 | 24 |
The decrease in the balance of the shareholders' loan to joint ventures in 2020 is attributable to the repayment of the shareholders loans to TI Africa, Bari Shipholding Ltd. and Bastia Shipholding Ltd., the latter following the sale of the vessel in September 2020.
The increase in investments in equity accounted investees at December 31, 2021 is mainly due to a decrease in the depreciation and amortization cost for TI Asia and TI Africa and a decrease in income tax expenses for the two joint ventures compared to the period ended December 31, 2020.
The decrease in shareholders loans to joint ventures at December 31, 2022 is related to the full repayment of the shareholders loan to TI Africa Ltd following the acquisition of the remaining 50% shares in TI Africa Ltd as well as the sale of Suezmax Bari in March 2022. In consequence of the sale, the shareholders loan to Bari Shipholding Ltd. was repaid and the remaining amount was written-off. As a consequence of the acquisition in 2022 of the remaining 50% shares in TI Africa Ltd and TI Asia Ltd, the investments in equity accounted investees decreased.
Joint venture | Segment | Description | ||||||
Kingswood Co. Ltd | Tankers | Holding company; parent of Seven Seas Shipping Ltd. and liquidated in 2020 | ||||||
Seven Seas Shipping Ltd | Tankers | Formerly owner of 1 VLCC bought in 2016 by Euronav. Wholly owned subsidiary of Kingswood Co. Ltd. and liquidated in 2020 | ||||||
Tankers Agencies (UK) Ltd | Tankers | Parent company of Tankers International Ltd | ||||||
Tankers International LLC | Tankers | The manager of the Tankers International Pool who commercially manages the majority of the Group's VLCCs | ||||||
Bari Shipholding Ltd | Tankers | Formerly owner of 1 Suezmax, dormant company | ||||||
Bastia Shipholding Ltd | Tankers | Formerly owner of 1 Suezmax, dormant company | ||||||
TI Africa Ltd | FSO | Operator and owner of a single floating storage and offloading facility (FSO Africa), as from June 7, 2022 100% subsidiary * | ||||||
TI Asia Ltd | FSO | Operator and owner of a single floating storage and offloading facility (FSO Asia), as from June 7, 2022 100% subsidiary * |
* FSO Asia and FSO Africa are on a time charter contract to North Oil Company (NOC), the new operator of Al Shaheen field, until mid 2032.
F-105
EURONAV NV |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 26 - Equity-accounted investees (Continued)
The following table contains summarized financial information for all of the Group's joint ventures:
Asset | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands of USD) | Kingswood Co. Ltd | Seven Seas Shipping Ltd | TI Africa Ltd | TI Asia Ltd | Tankers Agencies (UK) Ltd (see Note 25) | TI LLC (see Note 25) | Bari Shipholding Ltd | Bastia Shipholding Ltd | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Percentage ownership interest | 50 | % | 50 | % | 50 | % | 50 | % | 50 | % | 50 | % | 50 | % | 50 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-Current assets | — | — | 118,337 | 112,160 | 720 | — | 20,079 | — | 251,296 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of which vessel | — | — | 118,337 | 112,160 | — | — | 20,079 | — | 250,576 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Current Assets | — | — | 10,187 | 10,176 | 232,865 | 243 | 2,609 | 514 | 256,595 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of which cash and cash equivalents | — | — | 1,138 | 1,109 | 3,124 | — | 1,573 | 193 | 7,137 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-Current Liabilities | — | — | 65,355 | 30,652 | 276 | — | 17,271 | — | 113,554 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of which bank loans | — | — | 19,929 | 19,215 | — | — | — | — | 39,144 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Current Liabilities | — | 29,277 | 30,547 | 228,851 | 61 | 2,856 | 345 | 291,937 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of which bank loans | — | — | 25,886 | 24,961 | 37,500 | — | — | — | 88,347 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net assets (100%) | — | — | 33,893 | 61,136 | 4,458 | 182 | 2,562 | 170 | 102,401 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Group's share of net assets | — | — | 16,946 | 30,568 | 2,715 | 107 | 1,281 | 85 | 51,701 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders loans to joint venture | — | — | 16,665 | — | — | — | 17,271 | — | 33,936 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Carrying amount of interest in joint venture | — | — | 16,946 | 30,568 | 2,715 | 107 | 1,281 | 85 | 51,701 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Remaining shareholders loan to joint venture | — | — | 16,665 | — | — | — | 17,271 | — | 33,936 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue | — | — | 49,922 | 49,976 | 1,478,909 | — | 12,288 | 14,131 | 1,605,227 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciations and amortization | — | — | (16,858) | (16,562) | (56) | — | (4,257) | (2,871) | (40,604) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest Expense | — | — | (3,358) | (3,233) | (1,651) | — | (1,834) | (1,251) | (11,327) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax expense | — | — | (10,397) | (10,135) | (232) | — | — | — | (20,764) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Profit (loss) for the period (100%) | (1) | (1) | 9,549 | 9,855 | 800 | (34) | (1,748) | 3,246 | 21,666 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (100%) | — | — | (1) | (3) | — | — | — | — | (4) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Group's share of profit (loss) for the period | — | (1) | 4,775 | 4,927 | 487 | (20) | (874) | 1,623 | 10,917 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Group's share of other comprehensive income | — | — | — | (1) | — | — | — | — | (2) |
F-106
EURONAV NV |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 26 - Equity-accounted investees (Continued)
Asset | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands of USD) | TI Africa Ltd | TI Asia Ltd | Tankers Agencies (UK) Ltd (see Note 25) | TI LLC (see Note 25) | Bari Shipholding Ltd | Bastia Shipholding Ltd | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Percentage ownership interest | 50 | % | 50 | % | 50 | % | 50 | % | 50 | % | 50 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-Current assets | 108,245 | 102,454 | 503 | — | 15,210 | — | 226,413 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of which vessel | 108,245 | 102,454 | — | — | 15,210 | — | 225,910 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Current Assets | 10,883 | 10,073 | 295,289 | 231 | 6,582 | 403 | 323,461 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of which cash and cash equivalents | 1,799 | 984 | 4,059 | — | 17 | 320 | 7,179 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-Current Liabilities | 33,755 | 10,245 | 66 | — | 20,228 | — | 64,295 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of which bank loans | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Current Liabilities | 25,153 | 24,305 | 290,626 | 68 | 4,466 | 112 | 344,731 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of which bank loans | 20,075 | 19,361 | 51,500 | — | — | — | 90,937 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net assets (100%) | 60,221 | 77,977 | 5,100 | 163 | (2,903) | 290 | 140,848 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Group's share of net assets | 30,110 | 38,988 | 3,106 | 96 | (1,451) | 145 | 70,995 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders loans to joint venture | 11,465 | — | — | — | 20,228 | — | 31,694 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Carrying amount of interest in joint venture | 30,110 | 38,988 | 3,106 | 96 | — | 145 | 72,446 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Remaining shareholders loan to joint venture | 11,465 | — | — | — | 18,777 | — | 30,242 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue | 50,105 | 50,160 | 649,665 | — | 11,872 | — | 761,801 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciations and amortization | (10,092) | (9,706) | (39) | — | (4,869) | — | (24,706) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense | (2,005) | (1,943) | (1,054) | — | (1,932) | (1) | (6,934) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax expense | (2,646) | (2,626) | (141) | — | — | — | (5,413) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Profit (loss) for the period (100%) | 25,357 | 25,180 | 642 | (19) | (5,464) | 121 | 45,816 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (100%) | 971 | 930 | — | — | — | — | 1,902 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Group's share of profit (loss) for the period | 12,678 | 12,590 | 391 | (11) | (2,732) | 60 | 22,976 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Group's share of other comprehensive income | 486 | 465 | — | — | — | — | 951 |
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EURONAV NV |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 26 - Equity-accounted investees (Continued)
Asset | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands of USD) | TI Africa Ltd | TI Asia Ltd | Tankers Agencies (UK) Ltd (see Note 25) | TI LLC (see Note 25) | Bari Shipholding Ltd | Bastia Shipholding Ltd | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Percentage ownership interest | 50 | % | 50 | % | 50 | % | 50 | % | 50 | % | 50 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-Current assets | — | — | 153 | — | — | — | 153 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of which vessel | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Current Assets | — | — | 504,397 | 206 | 131 | — | 504,734 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of which cash and cash equivalents | — | — | 2,453 | — | 101 | — | 2,554 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non Current Liabilities | — | — | 30 | — | 1,700 | — | 1,730 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of which bank loans | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Current Liabilities | — | — | 502,547 | 63 | 83 | — | 502,693 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
of which bank loans | — | — | 75,500 | — | — | — | 75,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net assets (100%) | — | — | 1,973 | 143 | (1,652) | — | 464 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Group's share of net assets | — | — | 1,202 | 84 | (826) | — | 460 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders loans to joint venture | — | — | — | — | 850 | — | 850 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Carrying amount of interest in joint venture | — | — | 1,202 | 84 | — | — | 1,286 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Remaining shareholders loan to joint venture | — | — | — | — | 24 | — | 24 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue | 20,729 | 20,729 | 1,172,698 | 2,139 | — | 1,216,295 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciations and amortization | (2,998) | (2,811) | (39) | (479) | — | (6,327) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense | (428) | (413) | (954) | 171 | — | (1,625) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax expense | 1,599 | 1,600 | (117) | — | — | 3,082 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Profit (loss) for the period (100%) | 14,997 | 14,858 | 185 | (36) | 5,250 | 10 | 35,265 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (100%) | 170 | 149 | — | — | — | — | 319 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Group's share of profit (loss) for the period | 7,499 | 7,429 | 113 | (21) | 2,625 | 5 | 17,650 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Group's share of other comprehensive income | 85 | 74 | — | — | — | — | 159 |
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EURONAV NV |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 26 - Equity-accounted investees (Continued)
Loans and borrowings
On March 29, 2018, TI Asia Ltd. and TI Africa Ltd. entered into a $220.0 million senior secured credit facility. The facility consists of a term loan of $110.0 million and a revolving loan of $110.0 million for the purpose of refinancing the two FSOs as well as for general corporate purposes. The Company provided a guarantee for the revolving credit facility tranche. The fair value of this guarantee is not significant given the long term contract both FSOs have with North Oil Company until mid 2032, which results in sufficient repayment capacity under these facilities. Transaction costs for a total amount of $2.2 million are amortized over the lifetime of the instrument using the effective interest rate method. In June, 2022 the Group acquired the remaining 50% of TI Africa Ltd. and TI Asia Ltd. In consequence of this transaction, the Company entered into a $150 million senior secured amortizing term loan facility (see Note 17). At the same time, the $220.0 million senior secured credit facility which were maturing in July 2022 and September 2022 have been repaid.
All bank loans in the joint ventures were secured by the underlying FSO and subject to specific covenants.
The following table summarizes the terms and debt repayment profile of the bank loans held by the joint ventures:
(in thousands of USD) | December 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Curr. | Nominal interest rate | Year of mat. | Facility size | Drawn | Carrying value | Facility size | Drawn | Carrying value | ||||||||||||||||||||||||||||||||||||||||||||||||
TI Asia Ltd revolving loan 54M* | USD | libor + 2.0% | 2022 | — | — | — | 9,699 | 9,699 | 9,681 | |||||||||||||||||||||||||||||||||||||||||||||||
TI Asia Ltd loan 54M* | USD | libor + 2.0% | 2022 | — | — | — | 9,699 | 9,699 | 9,681 | |||||||||||||||||||||||||||||||||||||||||||||||
TI Africa Ltd revolving loan 56M* | USD | libor + 2.0% | 2022 | — | — | — | 10,058 | 10,058 | 10,038 | |||||||||||||||||||||||||||||||||||||||||||||||
TI Africa Ltd loan 56M* | USD | libor + 2.0% | 2022 | — | — | — | 10,058 | 10,058 | 10,038 | |||||||||||||||||||||||||||||||||||||||||||||||
Total interest-bearing bank loans | — | — | — | 39,513 | 39,513 | 39,437 |
* The mentioned secured bank loans are subject to loan covenants.
Loan covenant
As of December 31, 2021, all joint ventures were in compliance with the covenants, as applicable, of their respective loans.
Interest rate swaps
In 2018, TI Asia and TI Africa entered in several Interest Rate Swap (IRSs) instruments for a combined notional value of $208.8 million (Euronav’s share amounts to 50%) in connection to the $220.0 million facility. These IRSs are used to hedge the risk related to the fluctuation of the Libor rate and qualify as hedging instruments in a cash flow hedge relationship under IFRS 9. These instruments are measured at their fair value; effective changes in fair value have been recognized in OCI and the ineffective portion has been recognized in profit or loss. These IRSs have been fully unwound upon the acquisition of the remaining 50% of TI Africa Ltd. and TI Asia Ltd. and repayment of the $220.0 million senior secured credit facility.
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EURONAV NV |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022
Note 26 - Equity-accounted investees (Continued)
Vessels
On November 19, 2019, the group entered into a joint venture together with affiliates of Ridgebury Tankers and clients of Tufton Oceanic. Each 50%-50% joint venture company has acquired one Suezmax vessel. The joint ventures have acquired two Suezmax tankers (Bari & Bastia) for a total consideration of $40.6 million. The vessel Bastia was sold on September 15, 2020 for a net sale price of $20.1 million. The Company recorded a capital gain of $0.8 million in the third quarter of 2020 upon delivery to its new owner on September 30, 2020. The vessel Bari was sold on March 24, 2022 for a net sale price of $21.3 million. A capital gain of $6.6 million was recorded in the second quarter of 2022.
There were no capital commitments as of December 31, 2022, December 31, 2021 and December 31, 2020.
Cash and cash equivalents
(in thousands of USD) | 2022 | 2021 | ||||||||||||
Cash and cash equivalents of the joint ventures | 2,554 | 7,179 | ||||||||||||
Group's share of cash and cash equivalents | 1,547 | 4,036 | ||||||||||||
Services
The Group entered into an agreement with its joint venture to manage commercially both vessels (Bari and Bastia) from the Group's chartering desk. Furthermore, the Group also entered into an agreement to render accounting, assistance and administrative services to these JVs. In 2022 the Group invoiced a total amount of $177,586 (2021: $285,476).
Furthermore, the joint venture entered into an agreement with the Group to invoice us management fees to do the supervision of the external shipmanagement. In 2022, the joint-venture Bari Shipholding Ltd. invoiced the Group $121,800 (2021: $163,000).
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Note 27 - Major exchange rates
The following major exchange rates have been used in preparing the consolidated financial statements:
closing rates | average rates | |||||||||||||||||||||||||||||||||||||
1 XXX = x,xxxx USD | December 31, 2022 | December 31, 2021 | December 31, 2020 | 2022 | 2021 | 2020 | ||||||||||||||||||||||||||||||||
EUR | 1.0666 | 1.1326 | 1.2271 | 1.0555 | 1.1894 | 1.1384 | ||||||||||||||||||||||||||||||||
GBP | 1.2026 | 1.3479 | 1.3649 | 1.2415 | 1.3778 | 1.2860 |
Note 28 - Subsequent events
On December 14, 2022, the Company sold the Suezmax Cap Charles (2006 - 158,881 DWT) for $40.5 million. This vessel was accounted for as a non-current asset held for sale as at December 31, 2022. The vessel was delivered to her new owner on February 16, 2023. A capital gain of $22.1 million has been recognized in the consolidated statement of profit or loss in the first quarter of 2023.
On January 11, 2023, Euronav took delivery of the VLCC newbuilding Cassius (2023 – 299,158 dwt) and on February 28, 2023 of the VLCC newbuilding Camus (2023 – 299,158 dwt), which have been purchased in April 2021.
The war between Russia and Ukraine has and will continue to impact our business in the following areas:
Freight rates – Structural ton mile enhancement from Russian dislocation has positively impacted the freight rates . The Company has suspended its operations with Russian customers which represented in the past an insignificant portion of the Company’s turnover.
Bunker Fuel Cost – due to the risk within the market, and the self-sanctioning of Russian oil flows, the price of marine fuels has increased and will continue to be high for the foreseeable future. This is due to Russia supplying bunker markets with 20% of the global fuel demand in HSFO, VLSFO and MGO markets. These price increases will negatively impact the cost structure of the vessels making it more expensive to ship freight on long haul voyages. The spread between HSFO and VLSFO was at a high level prior to Russia's invasion of Ukraine but has begun to decrease as the removal of Russian origin HSFO from the market has begun to tighten up supplies in Europe and in the Mediterranean.
The Company acknowledges that Cybersecurity risks have increased by taking appropriate mitigating actions.
Crew issues – the impact to our officers and crew that are from Russia and Ukraine remain limited.
On July 11, 2022, Euronav announced that Euronav and Frontline entered into a definitive agreement for a stock-for-stock combination based on an exchange ratio of 1.45 Frontline shares for every Euronav share (the “Combination Agreement”), which was unanimously approved by all the members of Frontline's Board of Directors and by all members of Euronav's Supervisory Board. On January 9, 2023, Frontline announced that it had unilaterally decided to terminate the Combination Agreement. Euronav determined that unilateral action pursuing the termination of the Combination Agreement has no basis under the terms of the Combination Agreement and that Frontline failed to provide a satisfactory reason for its decision to pursue termination. On January 18, 2023, Euronav announced that it had filed an application request for urgent interim and conservatory measures in relation to Frontline’s unilateral action in pursuing the termination of the Combination Agreement. Euronav requested to suspend such termination pending a determination on the merits pursuing primarily the specific performance of the Combination Agreement. On January 30, 2023 Euronav announced that it had filed an application request for arbitration on the merits in relation to Frontline’s unilateral action in pursuing the termination of the Combination Agreement. On February 7, 2023, the Company received an arbitration decision in the context of its application request for urgent interim and conservatory measures in relation to Frontline’s unilateral action in pursuing the termination of the Combination Agreement. The emergency arbitrator dismissed Euronav’s request for provisional and interim measures on the basis of the specific and procedural rules applicable to the emergency proceedings and in particular a lack of urgency for Euronav in obtaining the requested interim and provisional measures. Famatown Finance Limited (Famatown), a related-party to Frontline’s largest shareholder, has continued to accumulate shares of Euronav. The total of these transactions means that Famatown (together with Frontline), hold 50,426,748 shares in Euronav, or 24.99% of the shares outstanding (excluding treasury shares). The Supervisory Board of Euronav has reached out pro-actively to Famatown to understand its intentions and intends to maintain a constructive dialogue, as it pursues with all Euronav shareholders and stakeholders. CMB and affiliates CMB NV and its affiliates (“CMB”) jointly own 25% of the voting shares of Euronav (excluding treasury shares). On January 16, 2023, Euronav received a letter from CMB requesting that the Supervisory Board convenes a general meeting of Euronav to replace the entire current Supervisory Board. A Special General meeting (‘SGM’) of shareholders shall be convened in accordance with the Belgian Code of Companies and Associations. Euronav notes that the agenda items are intended to replace the entire current Supervisory Board, composed
F-111
solely of independent members, with members nominated by CMB. Considering the significant impact such change may have on Euronav, its business and all its shareholders and stakeholders, the Supervisory Board of Euronav has shared a proposal with its shareholders, endorsing a fair representation of both minority shareholders by CMB and Frontline / Famatown by proposing two additional dependent Supervisory Board members each.
On March 23, 2023, Euronav held a Special Meeting of Shareholders to vote on resolutions submitted by Famatown Finance Ltd. and CMB NV. Shareholders voted to maintain independent directors Grace Reksten Skaugen, Anita Odedra and Carl Trowell. They approved a resolution proposed by CMB to terminate the mandates of the other independent Board members Anne-Hélène Monsellato and Steven Smith. In line with the Supervisory Board’s recommendations, shareholders also approved the appointments of four new directors: John Fredriksen and Cato H. Stonex, representing Famatown; and Marc Saverys and Patrick De Brabandere, representing CMB.
On March 10, 2023, Euronav announced it signed an agreement with the United Nations (UN) to sell the Nautica, a VLCC, as part of a wider salvage operation for the FSO Safer located in Yemen. The vessel will replace the FSO Safer (1976 – 406,639 dwt) and will stay there. Euronav will help operate the vessel including after the transfer of the oil for several months afterwards.
On April 1, 2023, Euronav lifted the purchase option of the Nautica, and since then the vessel is again part of its owned fleet.
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