Quarterly Report • May 27, 2021
Quarterly Report
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27 May 2021
The longer you have to wait for something, the more you will appreciate it when it finally arrives. Looking at day rates today and three months ago it could seem as if not much has happened. However, a lot has happened, most of which we believe to be positive for the tanker market going forward. IMF has upgraded their global economic growth outlook for this year and consequently energy agencies are lifting their oil demand forecasts. IEA estimates oil demand to grow by 5.3mbpd for 2021 and with OECD inventories likely to be at pre-Covid 5 year average this summer, we may see an unprecedented oil supply growth of about 5mbpd, which is needed to maintain a balanced oil market. Additional demand growth is expected in 2022. An aging fleet, low orderbooks, uncertainty about future propulsion technology and high steel prices suggest that the tanker market could be an interesting place for owners with modern tonnage.
On that basis, our strategy going forward is to manage our fleet in a way that allows us to benefit from a stronger VLCC market, while keeping a close eye on our cash position.
| Charter coverage | Q1 '21 | Q2 '21 | Q3 '21 | Q4 '21 |
|---|---|---|---|---|
| Hunter Atla | Spot | Sold - delivered to new owners during April | ||
| Hunter Freya | Spot | |||
| Hunter Disen | TC | Spot | ||
| Hunter Idun | TC | Spot | ||
| Hunter Frigg | TC | |||
| % days covered | 100% | 91% | 26% | 25% |
| Avg dayrate covered (\$k/d) | 29,650 | 24,700 | 27,900 | 28,500 |
| Indicative investment returns | Hunter Atla | Hunter Saga | Hunter Laga |
|---|---|---|---|
| Asset sale and TCE revenue | 111.5 | 105.5 | 112.5 |
| All in construction cost | (86.5) | (86.5) | (86.5) |
| Opex, G&A and finance | (9.0) | (7.5) | (8.0) |
| Net equity cash flow | 16.0 | 11.5 | 18.0 |
| Equity invested | 35.0 | 35.0 | 35.0 |
| Return on equity | 46% | 33% | 51% |
In the first quarter of 2021 our vessels operating in the spot market averaged \$21,020 per day. Benchmark VLCC spot rates on the other hand averaged around \$9,0001 per day. Clear proof that demand for modern tonnage is achieving higher rates and are more sought-after amongst charterers. The low rates seen in Q1 reflect the continued tanker demand deficit caused by production cutbacks, inventory drawdowns and a net fleet growth of nine VLCCs (twelve delivered, and three scrapped). Deeper market fundamentals however, as implied by the continued increase in the oil price, continued to improve significantly.
Global oil demand decreased slightly during the quarter to 94.8mbd compared with a 95.6mbd average in the fourth quarter of 2020. The 0.6mbd decrease was due to seasonal patterns and a global increase in Covid-19 infections and increases in preventative measures during the first part of the year. Global demand decreased by 4.3mbd during January, before rapidly recovering to 96.5mbd during March. Global oil production, on the other hand, averaged 92.6mbd during the first quarter. Only around 0.6mbd more than the average production for the second half of 2020, largely thanks to the +/- 7mbd OPEC+ cuts. Compared with average oil demand, this implies a continued and significant quarterly inventory draw of 193.2 million barrels. The approx. 1,200 million barrels that were accumulated in global oil inventories during the first part of 2020 have been reduced by almost two thirds and stood at 474 million barrels at the end of April.
Most observers, including ourselves, expect a recovery in the tanker market during the second half of the year. The expectation is largely driven by an increasing share of the global population becoming vaccinated and a continued but gradual reopening of the world, which according to the IMF should lead to global GDP growth during 2021 and 2022 of 6% and 4.4%, respectively. An example of the ongoing economic recovery is the strong rebound in the price for steel, causing VLCC newbuild quotes to reach USD 100m. Demand for oil will thus most likely continue to increase. The Energy information Agency (EIA) expects global oil consumption to average 97.7mbd for 2021 as a whole, which means that the average for May-December would need to be 3.8mbd higher than the first four months of the year. EIA furthermore forecast global oil demand to surpass the 100mbd mark in November this year, and a new all time high to be set in December 2022 at 103.4mbd. To service this demand increase, global oil production would need to ramp up significantly from today's levels as inventories are rapidly reduced. This bodes well for oil tankers as around 25% of oil production is seaborne. OPEC+ alone is expected to reverse most of their 7mbd cuts throughout the remainder of the year. Assuming, for simplicity, that all 7mbd would be exported from the Middle East region, around 140 of additional VLCC equivalents would be required. This compares well with the 27 VLCCs and 13 Suezmaxes expected to be delivered during the remainder of the year. Even a potential return of the Iranian tanker fleet would be easily absorbed, although we view a lifting on the sanctions on Iran as a net positive. Older tankers (20+ years plus) which would otherwise have been scrapped have been utilized to circumvent the sanctions, leading to very little scrapping. Should sanctions be lifted, Iranian volumes would be lifted on younger vessels, causing a massive scrapping pressure.
| Quarters | Year | |||
|---|---|---|---|---|
| (Unaudited figures in USD 1 000) | 1Q 2021 | 1Q 2020 | Note | 31.12.2020 |
| Revenues | ||||
| Pool revenues | 3 132 | 19 930 | 48 567 | |
| Time charter revenues | 9 283 | 851 | 60 037 | |
| Other income | 73 | 0 | 0 | |
| Net gain on sale of assets | 0 | 0 | 5 | 2 492 |
| Total Revenues | 12 489 | 20 781 | 111 096 | |
| Operating expenses | ||||
| Vessel operating expenses | 2 603 | 1 920 | 12 404 | |
| Voyage expenses and commissions | 335 | 590 | 1 | 2 912 |
| Depreciation and amortisation expense | 4 018 | 2 535 | 6 | 16 325 |
| General and administrative expenses | 429 | 303 | 4 | 1 649 |
| Total operating expenses | 7 385 | 5 348 | 33 291 | |
| Operating profit (loss) | 5 103 | 15 434 | 77 806 | |
| Net financial income (loss) | -2 518 | -3 667 | -14 723 | |
| Profit (loss) before taxes | 2 585 | 11 767 | 63 083 | |
| Tax on ordinary result | 0 | 0 | 0 | |
| Net profit (loss) | 2 585 | 11 767 | 63 083 | |
| Earning per share | 0,00 | 0,02 | 0,11 | |
| Earnings per share diluted | 0,00 | 0,02 | 0,11 | |
| Quarters | ||||
| (Unaudited figures in USD 1 000) | 1Q 2021 | 1Q 2020 | 31.12.2020 | |
| Net profit (loss) | 2 585 | 11 767 | 63 083 | |
| Other comprehensive income, items to be reclassified to profit & loss | ||||
| Translation differences | 0 | 0 | 0 | |
| Comprehensive income for the period | 2 585 | 11 767 | 63 083 | |
| Total comprehensive income attributable to: | ||||
| Equity holders of the parent | 2 585 | 11 767 | 63 083 | |
| Total comprehensive income | 2 585 | 11 767 | 63 083 |
| (Unaudited figures in USD 1 000) | Note | 31.03.2021 | 31.03.2020 | 31.12.2020 |
|---|---|---|---|---|
| NON-CURRENT ASSETS | ||||
| VLCC vessels | 5, 6 | 423 257 | 339 255 | 427 249 |
| VLCC vessels under construction | 5, 6 | 0 | 70 777 | 0 |
| Other tangible assets | 6 | 192 | 198 | 210 |
| Total tangible assets | 423 449 | 410 230 | 427 459 | |
| TOTAL NON-CURRENT ASSETS | 423 449 | 410 230 | 427 459 | |
| CURRENT ASSETS | ||||
| Trade and other receivables | 7 208 | 13 088 | 5 416 | |
| Other short-term financial assets | 40 | 0 | 0 | |
| Other short-term assets | 1 864 | 2 780 | 1 539 | |
| Total current assets | 9 111 | 15 868 | 6 956 | |
| Cash and cash equivalents | 28 271 | 35 190 | 95 146 | |
| TOTAL CURRENT ASSETS | 37 383 | 51 058 | 102 101 | |
| TOTAL ASSETS | 460 831 | 461 288 | 529 560 | |
| Equity and Liabilities |
||||
| EQUITY | ||||
| Share capital (575 362 013 shares) | 2 | 82 625 | 82 625 | 82 625 |
| Own shares | 2 | -1 197 | 0 | -1 121 |
| Share premium | 2 | 47 318 | 114 946 | 113 364 |
| Other equity | 79 330 | 25 431 | 76 745 | |
| TOTAL EQUITY | 208 076 | 223 003 | 271 614 | |
| LIABILITIES | ||||
| Interest-bearing debt | 6 | 237 367 | 225 204 | 237 954 |
| Total non-current liabilities | 237 367 | 225 204 | 237 954 | |
| Trade payables | 810 | 4 665 | 2 124 | |
| Accrued public charges and indirect taxes | 30 | 3 | 68 | |
| Current portion of interest-bearing debt | 13 463 | 7 934 | 16 605 | |
| Other current liabilities | 1 085 | 478 | 1 195 | |
| Total current liabilities | 15 388 | 13 081 | 19 992 | |
| TOTAL LIABILITIES | 252 754 | 238 284 | 257 946 | |
| TOTAL EQUITY AND LIABILITIES | 460 831 | 461 288 | 529 560 |
| Quarters | ||||
|---|---|---|---|---|
| (Unaudited figures in USD 1 000) | 1Q 2021 | 1Q 2020 | Note | 31.12.2020 |
| Profit (loss) before tax | 2 585 | 11 767 | 63 083 | |
| Depreciation | 4 018 | 2 535 | 6 | 16 325 |
| Gain on sale of VLCC | 0 | 0 | 5 | -2 492 |
| Financial income | 0 | -102 | -270 | |
| Financial expenses | 2 383 | 3 576 | 6 | 15 074 |
| Change in working capital items | -3 547 | -5 711 | -876 | |
| Net cash flow from operating activities | 5 438 | 12 066 | 90 844 | |
| Investments in VLCC newbuilds and PP & E | -8 | -78 651 | 5, 6 | -273 805 |
| Sale of VLCC | 0 | 0 | 5 | 168 400 |
| Investments in other financial investments | -40 | 0 | 0 | |
| Net cash flow to investment activities | -47 | -78 651 | -105 405 | |
| Interest received | 0 | 102 | 270 | |
| Interest paid | -2 383 | -3 576 | 6 | -14 050 |
| New interest-bearing debt | 0 | 52 813 | 6 | 254 348 |
| Installment interest-bearing debt | -3 705 | 0 | 6 | -180 214 |
| Installment leasing-debt (IFRS 16) | -25 | -19 | -93 | |
| Capital contribution | 0 | 0 | 2 | 0 |
| Purchase of own shares | -153 | 0 | 2 | -3 010 |
| Dividend paid | -65 999 | 0 | 2 | 0 |
| Net cash flow from financing activities | -72 264 | 49 319 | 57 252 | |
| Total net changes in cash flow | -66 873 | -17 266 | 42 690 | |
| Currency effect on cash | 0 | 0 | 0 | |
| Cash and cash equivalents beginning of period | 95 145 | 52 455 | 52 455 | |
| Cash and cash equivalents end of period | 28 272 | 35 189 | 95 145 |
| Share | Own | Share | Currency | Retained | Total | ||
|---|---|---|---|---|---|---|---|
| (Unaudited figures in USD 1 000) | Note | Capital | Shares | premium | translation | earnings | equity |
| Equity as of 01.01.2020 | 82 625 | 0 | 114 914 | -2 289 | 15 953 | 211 204 | |
| Net profit 1Q 2020 | 0 | 0 | 11 767 | 11 767 | |||
| Other comprehensive income | 0 | 0 | 0 | 0 | |||
| Total comprehensive income 1Q 2020 | 0 | 0 | 11 767 | 11 767 | |||
| Option plan payment | 32 | 0 | 0 | 32 | |||
| Equity as of 31.03.2020 | 82 625 | 0 | 114 946 | -2 289 | 27 720 | 223 003 | |
| Net profit 2Q-4Q 2020 | 0 | 51 316 | 51 316 | ||||
| Other comprehensive income | 0 | 0 | 0 | ||||
| Total comprehensive 2Q-4Q 2020 | 0 | 0 | 51 316 | 51 316 | |||
| Purchase of own shares | -1 121 | -1 889 | 0 | 0 | -3 010 | ||
| Option plan payment | 307 | 0 | 0 | 307 | |||
| Equity as of 31.12.2020 | 82 625 | -1 121 | 113 364 | -2 289 | 79 033 | 271 613 | |
| Net profit 1Q 2021 | 0 | 0 | 2 585 | 2 585 | |||
| Other comprehensive income | 0 | 0 | 0 | 0 | |||
| Total comprehensive income 1Q 2021 | 0 | 0 | 2 585 | 2 585 | |||
| Dividend paid | -65 999 | 0 | 0 | -65 999 | |||
| Purchase of own shares | -76 | -77 | 0 | 0 | -153 | ||
| Option plan payment | 29 | 0 | 0 | 29 | |||
| Equity as of 31.03.2021 | 82 625 | -1 197 | 47 317 | -2 289 | 81 618 | 208 076 |
These condensed interim financial statements of Hunter Group where authorized for issue by the Board of Directors on 26 May 2021.
The interim condensed consolidated financial statements for the three months ending 31 March 2021 have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual consolidated financial statements as at 31 December 2020.
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2020.
The net cost of the VLCCs (less estimated residual value) is the basis for a straight-line depreciation over the estimated remaining economic useful lives (25 years). Other equipment (excluding vessel upgrades) are depreciated over its estimated remaining useful life (5 years). The estimated residual value for the VLCCs is calculated by multiplying the lightweight tonnage with the market price of scrap per ton. Residual values are reviewed annually.
Voyage expenses relates to fuel and other costs incurred before the vessel joins the Tankers International pool.
On 15 December 2020, Hunter Group ASA purchased 7,691,404 of its own shares at NOK 3.35 per share.
The management monitors the operating results in 1 segment which develops and operates the VLCCs.
The following table provides the total amount of transactions with related parties controlled by the members of the executive management of Hunter Group for 2021. All related party transactions have been entered into on an arm's length basis.
| Transactions with related parties | 31.03.2021 | 31.12.2020 |
|---|---|---|
| Purchased services in USD 1 000 | 18 | 38 |
The Group has used the services of the law firm Ro Sommernes DA for legal advice in 2020 and 2021; USD 38t in 2020 and USD 18t as per 31.03.2021. The Company's chairman Henrik Christensen is a partner in Ro Sommernes DA.
From 1 November 2018 the Company rents office space from Dronningen Eiendom AS. The rental agreement is for 36 months. One of the Company's shareholder is also a shareholder of Dronningen Eiendom AS.
All VLCC were completed and delivered by 2020, and the acquisition cost of the delivered VLCCs were transferred from VLCC under construction to VLCC vessels.
| ( Unaudited figures in USD 1 000) | IFRS 16 | Other tan | ||
|---|---|---|---|---|
| Per 31 March 2021 | PP&E | gible assets VLCC vessels | Total | |
| Cost at 1 January 2021 | 273 | 10 | 439 102 | 439 462 |
| Additions in the period | 0 | 8 | 0 | 8 |
| Cost at 31 March 2021 | 273 | 17 | 439 102 | 439 393 |
| Accumulated depreciations at 31 March 2021 | -90 | -8 | -15 845 | -15 943 |
| Book value at 31 March 2021 | 183 | 9 | 423 257 | 423 449 |
| This period's depreciation | 24 | 2 | 3 992 | 4 018 |
Completed the sale of Hunter Atla, securing a ~46% ROI and a significantly strengthened balance sheet
Initiated share buy back and purchased a total of 3,034,702 of own shares at NOK 2.9998 per share. Following the share buy back, the Company owns 11,243,196 of its own shares
As of the date of this report, 91% of days in the second quarter of 2021 have been booked at an average est. dayrate of USD 24,700
Hunter Group ASA Org. nr. 985 955 107
Address: Dronningen 1, 0287 OSLO E-mail: Erik A. S. Frydendal CEO [email protected] Lars M. Brynildsrud CFO [email protected]
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