Earnings Release • May 28, 2020
Earnings Release
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28 May 2020
2) Assumes current LIBOR of 36.9 bps
The tanker market in 2020 has so far been defined by extraordinary volatility. Lofty rates combined with a significant increase in the Company's vessel days led to charter revenues increasing from approx. \$12m in Q4 '19 to \$20m in Q1'20, and the Company being able to secure a TC backlog of \$60m for the year. With three newbuilds yet to be delivered during the summer, we expect revenues and profits to continue to increase in the coming quarters.
When we acquired the first shipbuilding contracts, we stated that the main objective was to maximize shareholder value. The Company has in the last two years gone through a period with substantial capital investments and has so far successfully taken delivery of four VLCCs on budget and ahead of schedule. Our actions during this period, i.e. the \$98m sale of H.No. 5457, the \$180m sale-and-leaseback transaction and the most recently added TC coverage, clearly shows our commitment to shareholders by focusing on covering capital requirements while avoiding shareholder dilution at unfavorable share price levels.
As the construction of the remaining three vessels is nearing completion, and capital requirements are met, the Company will move into a new phase where focus increasingly will shift towards optimizing our capital structure and returning capital to shareholders. All the while ensuring the Company is in a sound financial state. We are currently in a process with a syndicate of banks to refinance Hunter Atla, Hunter Saga and Hunter Laga, which were financed through the abovementioned sale-and-leaseback in September 2019. We expect to significantly reduce our cost of capital and cash breakeven for these vessels, albeit with a lower loan amount. The Company is cautiously optimistic for the outlook of the tanker market going forward and expects to be able to increasingly return capital to shareholders as the investment phase draws to a close, either through dividends, share buybacks or a combination of the two.
VLCC spot rates were especially volatile in Q1 2020, with a benchmark high-low range of \$15k/d-\$200k/d and an average around \$68k.
The beginning of the year started on a high note with spot rates hovering around \$100k/d, before quickly dropping below industry average cash breakeven levels. Some older vessels even experienced dayrates close to zero. The primary drivers behind the drop in rates in the first half of the quarter were adverse developments in both supply and demand for crude oil tankers, i.e. i) the reversal of the COSCO sanctions in Q4, causing 26 VLCCs to gradually re-enter the market in Q1, combined with 12 VLCC newbuilds delivered during the first two months, and ii) the outbreak of Covid-19 in February, reducing crude oil imports. E.g. Chinese crude oil imports dropped by approx. 3mbd from January to February.
Although the virus outbreak initially led to reduced oil imports and tanker demand, spot and time charter rates spiked in the latter part of the quarter. An increasing oil price contango (higher forward oil price compared to oil with near term delivery) following the failure of OPEC+ to reach agreement on production cut extensions in early march and the subsequent oil price war. More specifically, post the OPEC+ failure to extend production cuts, Saudi Arabia instead increased production by 3mbd while simultaneously offering the biggest price discounts seen in 20 years. Combined with the severe and acute negative demand shock from the virus outbreak and worldwide lockdowns, this led to a plunging oil price and Brent spot ending the quarter at around \$23/bbl. Some importers began to take advantage of the unsustainably low oil price, leading to increasing seaborne crude oil volumes and questions of if/when the world might run out of land based storage capacity. At the same time traders were taking advantage of the increasing oil price contango by chartering ships for floating storage (effectively pulling them out of the spot market) and profiting on arbitrage opportunities by buying crude oil with near term delivery while simultaneously selling the same oil forward at a higher price. Illustratively, the quarter end 6-month Brent contango was \$13/bbl, which theoretically could support 6-month TC rates of \$120k/d.
The contango driven boom in tanker rates continued into the second quarter, and past the 12 April OPEC+ meeting where agreement was reached on a 9.7mbd production cut (from October 2018 baseline). As the cuts came into force from 1 May, and the Saudi announcement of an additional voluntary cut of 1mbd, VLCC spot rates naturally began their descent from the April \$200k+/day levels. Spot rates are still healthy at around \$50k/day, however, supported by an estimated 100 VLCC equivalents currently used as floating storage. As the contango trade and floating storage unwinds over the coming months, there could be some further short-term downward pressure on tanker rates, unless land-based storage capacity is tested. Global inventories in April were close to 900m barrels higher than in February, and are by some estimates expected to reach maximum capacity in May-June, forcing a second round of floating storage builds.
Short term developments are naturally highly dependent on the pace of the rebound in global oil demand. Estimates are still clogged in uncertainty, as e.g. illustrated by a 1mbd difference between EIA and IEA's Q2 global demand estimates. The common denominator is however positive revisions to short term forecasts following strong demand fundamentals, particularly in US and China. Chinese demand staged a V-shaped rebound with 13mbd of imports in April compared to 10.5mbd in February, while US demand are in the earlier stages of what looks like a similar shape.
Despite some short-term uncertainty and potential headwinds, we continue to be fundamentally positive to the tanker market, and take comfort in the lowest orderbook for VLCCs since 1997 combined with approx. 15% of the fleet nearing 20 years of age (hist. avg. scrapping age) during the next two years.
| (Unaudited figures in USD 1 000) Q1 2020 Q1 2019 Note 31.12.2019 Revenues Pool revenues 19 930 0 12 026 |
|
|---|---|
| Time charter revenues 851 0 |
0 |
| Other income 0 63 |
378 |
| Net gain on sale of assets 0 0 5 12 308 |
|
| Total Revenues 20 781 6 3 24 712 |
|
| Operating expenses | |
| Vessel operating expenses 1 920 0 |
1 442 |
| Voyage expenses and commissions 590 0 1 |
1 968 |
| Depreciation and amortisation expense 2 535 8 7 |
1 915 |
| General and administrative expenses 303 280 4 |
1 113 |
| Total operating expenses 5 348 288 6 438 |
|
| Operating profit (loss) 15 434 -225 18 274 |
|
| Net financial income (loss) -3 667 556 -2 321 |
|
| Profit (loss) before taxes 11 767 331 15 953 |
|
| Tax on ordinary result 0 0 |
0 |
| Net profit (loss) 11 767 331 15 953 |
|
| Earning per share 0,02 0,00 |
0,03 |
| Earnings per share diluted 0,02 0,00 |
0,03 |
| (Unaudited figures in USD 1 000) Q1 2020 Q1 2019 31.12.2019 |
|
| Net profit (loss) 11 767 331 15 953 |
|
| Other comprehensive income, items to be reclassified to profit & loss | |
| Translation differences 0 -1 |
0 |
| Comprehensive income for the period 11 767 330 15 953 |
|
| Total comprehensive income attributable to: | |
| Equity holders of the parent 11 767 330 15 953 |
|
| Total comprehensive income 11 767 330 15 953 |
Assets
| (Unaudited figures in USD 1 000) | Note | 31.03.2020 | 31.03.2019 | 31.12.2019 |
|---|---|---|---|---|
| NON-CURRENT ASSETS | ||||
| VLCC vessels | 5, 7 | 339 255 | 0 | 254 234 |
| VLCC vessels under construction | 5, 7 | 70 777 | 108 454 | 79 663 |
| Other tangible assets | 7 | 198 | 94 | 217 |
| Total tangible assets | 410 230 | 108 548 | 334 114 | |
| TOTAL NON-CURRENT ASSETS | 410 230 | 108 548 | 334 114 | |
| CURRENT ASSETS | ||||
| Trade and other receivables | 13 088 | 0 | 7 351 | |
| Other short-term receivables | 2 780 | 170 | 851 | |
| Total current receivables | 15 868 | 170 | 8 202 | |
| Cash and cash equivalents | 6 | 35 190 | 8 379 | 52 455 |
| TOTAL CURRENT ASSETS | 51 058 | 8 549 | 60 657 | |
| TOTAL ASSETS | 461 288 | 117 096 | 394 771 | |
| Equity and Liabilities |
||||
| EQUITY | ||||
| Share capital (575 362 013 shares) | 2 | 82 625 | 55 376 | 82 625 |
| Share premium | 2 | 114 946 | 61 123 | 114 914 |
| Other equity | 25 431 | 331 | 13 665 | |
| TOTAL EQUITY | 223 003 | 116 830 | 211 204 | |
| LIABILITIES | ||||
| Other interest-bearing debt | 7 | 225 204 | 85 | 174 494 |
| Total non-current liabilities | 225 204 | 8 5 | 174 494 | |
| Trade payables | 4 665 | 127 | 3 077 | |
| Accrued public charges and indirect taxes | 3 | 0 | 15 | |
| Current portion of interest-bearing debt | 7 934 | 0 | 5 932 | |
| Other current liabilities | 478 | 53 | 49 | |
| Total current liabilities | 13 081 | 181 | 9 073 | |
| TOTAL LIABILITIES | 238 284 | 265 | 183 567 | |
| TOTAL EQUITY AND LIABILITIES | 461 288 | 117 096 | 394 771 |
| Quarters | Year to date | ||||
|---|---|---|---|---|---|
| (Unaudited figures in USD 1 000) | Q1 2020 | Q1 2019 | Note | 31.12.2019 | |
| 11 767 | 331 | 15 953 | |||
| Profit (loss) before tax | |||||
| Depreciation | 2 535 | 0 | 7 | 1 915 | |
| Gain on sale of VLCC | 0 | 0 | 5 | -12 308 | |
| Financial income | -102 | 0 | -509 | ||
| Financial expenses | 3 576 | 1 | 7 | 2 974 | |
| Change in working capital items | -5 711 | 152 | -4 818 | ||
| Net cash flow from operating activities | 12 066 | 484 | 3 208 | ||
| Investments in VLCC newbuilds and PP & E | -78 651 | -51 856 | 5, 7 | -312 840 | |
| Sale of VLCC | 0 | 0 | 5 | 46 136 | |
| Sale of other financial investments | 0 | 24 758 | 24 758 | ||
| Net cash flow to investment activities | -78 651 | -27 098 | -241 946 | ||
| Interest received | 102 | 0 | 509 | ||
| Interest paid | -3 576 | -1 | 7 | -2 974 | |
| Proceeds from borrowings financial institution | 52 813 | 0 | 7 | 180 184 | |
| Installment leasing-debt (IFRS 16) | -19 | -8 | -48 | ||
| Capital contribution | 0 | 0 | 2 | 79 168 | |
| Transaction cost capital contribution | 0 | 0 | 2 | -647 | |
| Net cash flow from financing activities | 49 319 | -9 | 256 192 | ||
| Total net changes in cash flow | -17 266 | -26 623 | 17 454 | ||
| Currency effect on cash | 0 | 0 | 0 | ||
| Cash and cash equivalents beginning of period | 52 455 | 35 001 | 35 001 | ||
| Cash and cash equivalents end of period | 35 189 | 8 379 | 52 455 |
| (Unaudited figures in USD 1 000) | Note | Share Capital |
Share premium |
Currency translation |
Retained earnings |
Total equity |
|---|---|---|---|---|---|---|
| Equity as of 01.01.2019 | 55 376 | 63 412 | -2 289 | 0 | 116 499 | |
| Net profit Q1 2019 | 0 | 0 | 331 | 331 | ||
| Other comprehensive income | 0 | 0 | -1 | -1 | ||
| Total comprehensive Q1 2019 | 0 | 0 | 330 | 330 | ||
| Equity as of 31.03.2019 | 55 376 | 63 412 | -2 289 | 330 | 116 829 | |
| Net profit Q2-Q4 2019 | 0 | 0 | 15 622 | 15 622 | ||
| Other comprehensive income | 0 | 0 | 1 | 1 | ||
| Total comprehensive Q2-Q4 2019 | 0 | 0 | 15 623 | 15 623 | ||
| Private placement 22 May 2019 | 2 | 27 249 | 51 919 | 0 | 0 | 79 168 |
| Option plan payment | 230 | 0 | 0 | 230 | ||
| Transactions costs | -647 | 0 | 0 | -647 | ||
| Equity as of 31.12.2019 | 82 625 | 114 914 | -2 289 | 15 953 | 211 204 | |
| Net profit Q1 2019 | 11 767 | 11 767 | ||||
| Other comprehensive income | 0 | 0 | ||||
| Total comprehensive Q1 2020 | 0 | 0 | 11 767 | 11 767 | ||
| Option plan payment | 32 | 0 | 0 | 32 | ||
| Equity as of 31.03.2020 | 82 625 | 114 946 | -2 289 | 27 720 | 223 002 |
These condensed interim financial statements of Hunter Group where authorized for issue by the Board of Directors on 27 May 2020.
The interim condensed consolidated financial statements for the three months ending 31 March 2020 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 2019.
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 2019.
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 equipments (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 tonne. Residual values are reviewed annually.
Voyage expenses relates to fuel and other costs incurred before the vessel joins the Tankers International pool.
On 22 May 2019, HUNT has issued 190,454,000 new ordinary shares for gross proceeds of NOK 695 million (USD 79m) with a subscription price of NOK 3.65, and registered it in The Register of Business Enterprises.
As the Dwellop-segment was discontinued in 2018, and the Indicator-segment has not had any activity during the last couple of years, 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 2019. All related party transactions have been entered into on an arm's length basis.
| Transactions with related parties | 31.03.2020 | 31.12.2019 |
|---|---|---|
| Purchased services in USD 1 000 | 21 | 160 |
The Group has used the services of the law firm Ro Sommernes DA for legal advice in 2019 and 2020. Ro Sommernes DA has invoiced the Company USD 110t in 2019 and USD 7t in Q1 2020. 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.
The Company entered into at total of eight shipbuilding contracts of which Hunter Atla, Saga and Laga were delivered in 2019 and Hunter Freya were delivered on 6 March 2020. In addition, one were already sold and redelivered her to her new owner with a gain of USD 12.5m in 2019.
Due to minimum cash requirements in the bareboat-agreements with SFL, USD 2 million per vessel yet to be delivered are placed in separate bank accounts.
| VLCC vessels | |||||
|---|---|---|---|---|---|
| ( Unaudited figures in USD 1 000) | IFRS 16 | Other tangible | under | ||
| Per 31 December 2019 | PP&E | assets | construction VLCC vessels | Total | |
| Cost at 1 January 2020 | 259 | 10 | 79 664 | 256 098 | 336 030 |
| Additions in the period | 0 | 0 | 77 555 | 1 096 | 78 651 |
| Transfer to VLCC in operation | 0 | 0 | -86 441 | 86 441 | 0 |
| Cost at 31 March 2020 | 259 | 10 | 70 777 | 343 636 | 414 681 |
| Accumulated depreciations at 31 March 2020 | -67 | -3 | 0 | -4 380 | -4 450 |
| Book value at 31 March 2020 | 192 | 7 | 70 777 | 339 255 | 410 230 |
| This quarter's depreciation | 19 | 0 | 0 | 2 516 | 2 535 |
The Group took delivery of "Hunter Freya" (NB No. 5465) on 6 March 2020. In 2019 NB No. 5457 were sold and redelivered her to her new owner with a gain of USD 12.5m.
Hunter Tankers AS entered in 2019 into a USD 180 million sale-and-leaseback transaction with Ship Finance International Limited ("SFL"), for the three delivered VLCCs. The Group received net proceeds of USD 60 million per vessel, and subsequently bareboat chartered the vessels back for 5 years. The Group have purchase options for all three vessels, ensuring maximum flexibility in regards to potential future vessel sales.
The acquisition cost of the delivered VLCCs has as such been transferred from VLCC under construction to VLCC vessels.
The Company and the Syndicate has agreed on indicative terms relating to a loan facility for Hunter Atla, Hunter Saga and Hunter Laga, which are currently financed through a sale-and-leaseback with SFL Corporation Ltd. Upon completion, will Hunter Tankers AS will become the registered owner of all seven vessels. The facility is an accordion feature of the USD 220m loan facility, and is subject to the Syndicate members' respective credit approvals
− On a fully delivered basis following the refinancing, we expect run rate cash breakeven to come in at USD approx. 20,5002 per day
As of the date of this report, 89% of days in the second quarter have been booked at an average est. dayrate of USD 85,850
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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