Euronav NV
Q4 2016 Earnings Call Transcript

Published: 26 Jan 2017

[Operator:]

Good morning, and welcome to the Euronav's Fourth Quarter 2016 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note today's event is being recorded. I would now like to turn the conference call over to Paddy Rodgers. Please go ahead.

[Paddy Rodgers:]

Thank you. Good morning and afternoon to everyone and thanks for joining Euronav's Q4 2016 earnings call. Before I start, I would like to say a few words. The information discussed on this call is based on information as of today, Thursday, January 26, 2017 and may contain forward-looking statements that involve risks and uncertainties. Forward-looking statements reflect current views with respect to future events and financial performance and may include statements concerning plans, objectives, goals, strategies, future events, performance, underlying assumptions and other statements which are not statements of historical fact. All forward-looking statements attributable to the Company or to persons acting on its behalf are expressly qualified in their entirety by reference to the risks, uncertainties and other factors discussed in the Company's filings with the SEC which are available free of charge on the SEC's website at www.sec.gov and on our own Company's website at www.euronav.com. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement and the Company undertakes no obligation to publicly update or revise any forward-looking statements. Actual results may differ materially from these forward-looking statements. Please take a moment to read our Safe Harbor statement on Page 2 of the slide presentation. I will now pass you on to Euronav's CFO, Hugo De Stoop, to run you through the first part of the presentation.

[Hugo De Stoop:]

Thank you, Paddy and good morning or afternoon wherever you are, and thanks for joining our fourth quarter 2016 earnings call. Turning to the agenda slide, I would like to take you through the highlights of our fourth quarter followed by a full review of our key financial figures, before handing over to Paddy to take you through the latest market themes. We will then turn over to the Operator for our Q&A session. Moving on to Slide 4, we would like to make the following highlights. Q4 was weaker than one could expect from the fourth quarter. The seasonal weakness in freight rates the effected the third quarter was pronounced into Q4 and the recovery started only in late October. By then we had already booked over half of our available spot [ph]. On a more positive note, our joint venture with International Seaways XIC [ph] was pleased to announce ahead of agreement to extend the contract for five years for our floating storage and offloading platform deployed on the outer infield of the Coast of Qatar. Once we finalized the contract we will report back to the market but we are obviously very pleased with the commercial terms that we have agreed. We were very active during the quarter with some refinancing activity where we refinanced the term loan with a margin of 275 basis points over LIBOR and replaced it with a more flexible revolving credit facility with a lower margin of 225 basis points. In addition, we executed sales and leaseback for four of our middle-aged VLCCs which has given our balance sheet further flexibility and improved our liquidity position. I will cover this in more details on the next slide. Looking forward to the first quarter of 2017, strong freight rate performance has continued and we have so far booked 48% of our VLCC spot days at $48,000 a day and around 41% of our Suezmax spot at over $24,000 per day. I would now like to move on to the income statement on Slide 5. As always, all figures have been prepared under IFRS as adopted by EU and have not yet being audited. The biggest impact on the P&L was the $36.5 million capital gains from the sale and leaseback transaction. Stripping out this gain would give underlying earnings of $13.5 million or $0.087 of earnings per share. The net finance expense line at $16 million was higher than usual as this includes a one-off $5.5 million additional non-cash costs related to do remaining unamortized transaction cost linked to the financing facility we have refinanced as explained earlier. In 2016, we have tried to simplify our structure and have eliminated all the shipping joint ventures we had which covered one VLCC and four Suezmax. Therefore the equity accounted investees line now only covers our FSO joint venture. Management is free to announce that it intends to recommend to the Board of Directors subject to final audited results being identical to the preliminary ones and absent material that the circumstances that the board propose at the general assembly of our shareholders to set the final and full year dividend at $0.77 per share. Taking into account the interim dividend of $0.55 per share related to the first half of the year and paid in September, the expected dividend is $0.22 per share. It must be first approved by our shareholders at the Annual General Meeting which will take place on the May 11, 2017 and will be paid shortly thereafter. This total dividend for the year of $0.77 per share complies with our return to shareholders policy which sets the target of returning 80% of net income over the full financial year after stripping out our capital gains. Indeed our earnings per share for the full year 2017 are $0.96 per share after the diction [ph] of our capital gains. Now moving on to the Euronav balance sheet at the end of December on Slide 6. This remains a critical slide in all our presentation and all figures presented are at December 31, 2016. Euronav has expanded its access to high levels of liquidity and continues to retain a strong balance sheet. As explained earlier we have further boosted our liquidity with some refinancing activity in a sale and leaseback on four VLCCs during Q4 to allow us access to close to $600 million of liquidity at year-end. This compares to around $410 million at the end of September. We retain a disciplined approach to our capital structure with a limit on leverage at this point in the cycle. At the end of December our leverage was 38% in book value terms compared to 45% in mark-to-market value terms. Please note that these figures do not include any financing with regard to the two Suezmax vessels backed by 7-year time charter we announced in September, nor does it include the fact that we have recently taken delivery of two VLCC that we brought last year as a resale of contract. That concludes the financial section of the presentation and I will now hand over to our CEO, Paddy Rodgers, to give you an update on current market themes and outlook. Paddy, over to you.

[Paddy Rodgers:]

I would like to start by outlining our current thoughts on the delivery schedule and its potential impact. Then move on to our view on incoming regulation before summarizing our current thoughts on the tanker market for 2017. Slide 7 shows the monthly schedule of delivered VLCCs over the past two years and the schedule for the first half of 2017 compared with the average VLCC time charter equivalent rate. This chart clearly shows the delivery schedule is going to accelerate in 2017 compared to the past two years. Our experience highlighted in our press release today suggests a cautious outlook as owner sentiment and behavior has as of time since June been weak in the face of new buildings delivering into the global fleet. Production cuts from OPEC expected to vital [ph] for this quarter, usual seasonal patterns anticipated around Chinese New Year, and over 40 VLCC equivalents expected to be delivered in the first half of 2017 all add up from our perspective to a challenging set of factors to be addressed. Slide 8, an increasing area of investor interest has been the impact of incoming regulations, most specifically the ballast water management convention due to be applied from September this year. A number of commentators have expressed the view that this will potentially accelerate scrapping. Whilst we believe this development is a positive one for the tanker market in the medium term we do not anticipate an immediate impact given the uncertainty surrounding the new regulations. With no agreement on a preferred operational system from the U.S. Coast Guard, and uncertainty over the timetable from the IMO, most owners will be incentivized to defer decision making beyond their vessel next scheduled dry-docking by amending certificate base. More clarity is expected from the IMO during the year and this will be needed before this regulation can really begin to buy it. But in the medium term we believe this will have a very positive impact on the tanker market. I will now sum up our current outlook on Slide 9. We are changing our traffic-like outlook for 2017 with three amber [ph] lights or yellow lights now from two at the time of the Q3 call. Demand for crude oil remains in good shape; indeed last week the IEA upgraded their demand number for 2016 and reiterated 1.3 barrels per day of growth for 2017. Availability of financing continues to be limited leading to restricted contracting activity and more discipline being applied to all facets of the market. We retain a cautious view on top miles and vessel supply from our Q3 call, reduced production and increased vessel supply, especially in the first half of 2017 will provide a headwind for tanker operators. But reduction of crude volumes out of the Arabian Gulf, if it is replaced with Atlantic supply may well be positive for Ton Miles. Where we have changed from a green light to an amber is on supply of oil which given the proposed OPEC and wider associated production cuts for the first half of 2017 mean we believe it is appropriate to change our traffic light on this variable from greens to amber. However, it is important to stress the view remains constructive in the medium-term, these headwinds have increased supply, production cuts and weak owner sentiment focused largely in calendar 2017. At Euronav we have taken the opportunity to bolster our balance sheet with a number of initiatives that Hugo talked through earlier. With the lowest leverage in the tanker sector, an access to over $500 million of liquidity, Euronav is ideally positioned to navigate the coming cycle to be strategically opportunistic wants to retain the exposure to any potential upside from an improving freight environment. That concludes the formal part of the presentation. Thank you for listening. And I will now pass you back to the operator.

[Operator:]

Thank you. Before we go to the question-and-answer session, I'd like to turn the conference back over to Mr. De Stoop, if he would like to make some additional remarks regarding the balance sheet.

[Hugo De Stoop:]

Yes, I just wanted to make one additional remark which is on Slide 6 and which is about our remaining CapEx which is $212 million split between $100 million for the VLCCs which we have now taken delivery off and $112 million for the Suezmax that we have ordered last year and will be delivered in '18 and we expect to draw about $100 million, $190 million of debt against the full CapEx that I just mentioned. Thank you.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Jon Chappell of Evercore ISI. Please go ahead.

[Jon Chappell:]

Thank you. Good afternoon guys. Paddy, my question to you is if everything plays out the way that you've kind of laid it out and you've been consistent with your views as well, this year choppy to weak, medium term outlook still strong; twelve months from today when we were doing this conference call on 4Q '17 what would you hope that you have accomplished balance sheet-wise, fleet-wise; is it going to be a year of offence or a year of defense?

[Paddy Rodgers:]

I think it's very obvious; it's a very good question. Obviously, we're setting ourselves up recognizing that the future is always very difficult to predict but we setting ourselves up to be ready for the worst and prepare for the best and I think that we've seen this frustrating slide in values over the course of the last couple of years and I think that we correctly nailed that early on as being about withdrawal of finance. I think that if we see some movement now on freight rates as well, then I believe that we will begin to see what we would start to feel was bottoming out and at that point then it would obviously behoove us to think very seriously about fleet expansion or growth. And really trying to balance out over the course of the year is going to be critical but I would hope that anybody who was looking at us in a years' time would be looking at us and saying there is a company that's used what we might call increased availability of funds very well and yet remains extremely robust, liquid and with a long-term future. So keeping everything balanced, you know, we've always said growth at reasonable price and a balanced outlook, resilient, strong and exposed to the upside. So if we can say we still have all of those things in the years' time I'll be well happy. And by the way, before we say goodbye, I just wanted to say congratulations, I hope all is going well with the family at home and all the best for the New Year.

[Jon Chappell:]

Thanks so much Paddy.

[Operator:]

And our next question comes from Noah Parquette of JPMorgan Securities. Please go ahead.

[Noah Parquette:]

Thanks. I just wanted to follow-up on the ballast water treatment. For your own fleet, how much of your vessels still need to be refitted? And can you give us some sort of guidance on that schedule over the next few years?

[Paddy Rodgers:]

And I think we've got a couple of different systems in operation because there are two regimes; one is the IMO regime and the other one is the U.S. Coast Guard, and they hang on different things. But the U.S. Coast Guard is asking for an implementation on a fixed timeline around dry docking and -- but at the same time is still writing waiver [ph] letters at the moment because there has been an incomplete process of identifying the appropriate system for each type of ship. And I think that is really, really important understand that; you have very, very different problems for ballast water treatment for a ship that's tiny compared to a ship like ours which has an absolutely huge capacity of water onboard when it's in balance condition. So the U.S. Coast Guard is still cautious and being assisting by offering to write letters of waiver, and on the IMO side the linkages to the IOPP Certificate and so people are looking at it and saying, well, disharmonies them; we'll get the IOPP Certificate renewed and then we'll see where we go when that needs to be re-renewed in five years' time. Now all of this might sound like it's a little bit evasive but I really want to get this over. It's very, very important for everybody to understand there are plenty of systems out there that would be completely inappropriate for VLCC until we have seen or for Suezmax until we have seen that the right systems are available and the regime is in place to properly test them, neither of which work was has been done effectively by the IMO or the U.S. Coast Guard yet, it's very important for us to differ decision making.

[Noah Parquette:]

Okay. So I mean we have seen ranges on the price of a system from $0.5 million to $1.5 million and obviously it seems like nobody knows for certain yet which is understandable but for VLCC can you give any sort of guidance considering the size of the ship and the requirements that need specifically for VLCC?

[Paddy Rodgers:]

Well, there is a big bracket of pricing and the reason is really whether you're going to end up going for a system that is treating the water inbound with ionization or with clarification or whether or not you're treating it in voyage with an inert gas system. One requires considerably more infrastructure spending than the other but both of them have their own challenges but I think you could be at -- I think you're probably on the low side with $0.5 million but I would have thought that it could be considerably more expensive. I think the low side would be at least $1 million and then upwards at $2.5 million.

[Noah Parquette:]

Okay, all right. That's very good color. Thank you.

[Operator:]

And our next question comes from Spiro Dounis of UBS. Please go ahead.

[Spiro Dounis:]

Good morning, gentleman. Thanks for taking the question. Paddy, just wanted to ask about Suezmax rates, it seems like the spread between Suezmax rates and VLCC rates has been widening, throughout almost the last year and I guess a lot of that has probably something to do with supply. Just wondering if you're seeing anything else that's driving those rates lower and as we head into next year when more supply comes online would you expect -- you know, I guess VLCC and Suezmax to widen as we basically stay along this same trajectory?

[Paddy Rodgers:]

Okay. So I mean I think that was -- there was a time when the Suezmax was an Atlantic trader and where there was a booming trade in VLCCs on the Atlantic. When between those two ships on the similar routes there was an almost fixed differential which could be expressed in scale [ph] points because at a certain point if the gap widened too much then you would split up the VLCC into two Suezmax cargos or VLCC cargo to Suezmax cargo and if the gap narrowed too much you double up the Suezmax onto a VLCC. So that was always a kind of rule of thumb as to how the thing works. It changed dramatically since the U.S. Shale has arisen because there is no longer that TD5 routes in such volume that we used to see which was West Africa, Nigeria to the U.S. Atlantic Coast. Now the ships are trading worldwide, I'm afraid that a lot -- the supply of Suezmax business come on at a faster right and it's also come on in many hands. So a lot of people who weren’t tanker owners decided to infuse themselves into tanker ownership through buying Suezmax's. Many people who have previously been in VLCCs decided to move down into the Suezmax sector and what we have at the moment is a relatively speaking larger percentage of Suezmax's compared to the V-fleet that we've had in the past; so there are more of them than they used to be in absolute numbers but also in relative proportion to the V-fleet, and it's in many more hands so very desperate [ph] ownership group and it has no hallmarks trade, there is no price setting for the market trade. So the whole thing has become altogether a much more diverse and a little bit more difficult to understand and predict. For the big movements of crude into the major consumers, the critical thing has been port congestion so they've wanted to use the larger ships possible to ensure that for one turnaround in port, you've got as much oil into the system as you could. So I think that we've seen this widening, it looks like it's here to stay at least for a while; Suezmax has looked like they have more supply in '17 in these so we would expect to see Suezmax's softening. Being a bit flatter VLCCs may soften this year but we think it will stay volatile because it will be a fight between good demand for tom miles against increased supply.

[Spiro Dounis:]

Appreciate the color, thank you.

[Operator:]

And our next question comes from Gregory Lewis of Credit Suisse. Please go ahead.

[Gregory Lewis:]

Yes, thank you and good afternoon gentleman. I just wanted to follow-up on the decisions to that -- that the sale and leaseback transaction in the fourth quarter. I mean clearly you were able to monetize those assets. I guess several of contract when they are in their mid to late teens [ph]. Is that -- I guess is there a demand for additional types of those opportunities and is that it's -- and is that something that Euronav will continue to explore or is that sort of a one-off?

[Hugo De Stoop:]

Greg, this is Hugo speaking. It's a one-off. I think that you're right at pointing out that those ships were around ten years of age which means that we will pause the second survey as we took them back on that route but we will redeliver them ahead of their third survey which was also a little bit strategic and as you have seen, there is no production which is normally the case in a more classical sale and leaseback transaction. That's also the reason why it has been classified as an operating lease and the reason why those ships are no longer on the balance sheet. So it was a combination of factors and I think as always we try to be as opportunistic as we can and try to find -- to maximize the value for our shareholders wherever we can.

[Gregory Lewis:]

Okay, great. Thank you very much.

[Operator:]

And our next question comes from Amit Mehrotra of Deutsche Bank. Please go ahead.

[Amit Mehrotra:]

Thanks, good afternoon everybody. Just had a question on the economics of the FSRE charter, just trying to understand what type of earnings cash flow headwind there will be in 2018. I mean we're estimating it's about $15 million of headwind to EBITDA and $18 million on a year-over-year basis, is that in the ballpark? And then what type of incremental debt capacity do you think you can accrue for your share of the joint venture given the leverage or the lack of leverage on that vessel? Thank you.

[Hugo De Stoop:]

Well, let me first start with the latter part of your question I think as far as net capacity is concerned, it will entirely depend on the cost of debt and if that cost of debt is lower than our current average cost of debt then we may indeed take a little bit more based on that contract and then park it again on our current lines and our cost of capital just by doing that. Otherwise on the numbers you're -- I'm not sure I understand where you are coming from because we said it was $360 million of EBITDA, you have to split that in two because we are in joint venture with International Seaways XOSG [ph], and then you have divided into five years, so it's small or something like $35 million to $36 million per year of EBITDA.

[Amit Mehrotra:]

I know but I'm talking about the year-on-year change; so I think that's a $15 million reduction on annual basis, is that correct?

[Hugo De Stoop:]

Yes, that's correct, that's absolutely correct. It used to be $51.5 million EBITDA but of course on cash flow it was completely different because depending on whether we take additional debt or not let's not forget that those ships will have almost no debt by the end of their current contract which is July and September of this year.

[Amit Mehrotra:]

Great. Okay, I'll stick it -- I'll leave it to one. Thank you guys for taking my question.

[Operator:]

And our next question comes from Chris Wetherbee with Citi. Please go ahead.

[Chris Wetherbee:]

Great, thanks. Good afternoon guys. I wanted to touch a little bit on crude demand and sensitizing that a little bit to sort of economic growth to the extent that the U.S. certainly has a potential pick up from an economic standpoint; curious how you think that that could impact the other variables in your red light or amber and green light charts that you have there? And I think the second question to that would also be from a tax policy perspective -- you know border adjustments are complex dynamics but how do you think about that impacting the trade? I mean obviously this is speculative but as we go down the road, it's something we could be talking more about.

[Paddy Rodgers:]

Okay. So well, first of all, if you -- and you're referring to -- I think it was Slide 9 where we have the various lights on. You'll notice that the ton miles was both green and amber as we like to have our cake and eat it and we called it changeable. And the reason for that is just that really in the last two months since the OPEC decision was made, at least formally announced, we've seen a real pickup in U.S. exports to the Far East. So whether it's from storage facilities in the Caribbean or whether it's Venezuela, Brazil or now from the U.S. Gulf -- the U.S. Shale, these have been going to China and it's great ton miles. So that ton mile picture looks extraordinary positive and the OPEC can't itself may well be a production cut that doesn't have quite as much impact on cargos as people think. So I think that -- we think that if the U.S. is going to have an environment that strongly supports increased production of Shale then we could see some very significant cargo growth. And I don't think -- I know a lot of people might be nervous about pipelines. First of all, pipelines will take some time to come in but even when they do come in, as long as there is that tap of shale oil that's going out of the U.S. Gulf to China then that has the big shipping impact. The fact that you might take some heavy Canadian grades [ph] which means that ships don't go from the AG to the Gulf of Mexico, won't be that important simply because ships will have to balance them for the Gulf of Mexico in order to lift the U.S. shale to go to China. So all in all, I think that looks quite rosy. As far as your other comment which I suppose was and I may not fully understood it but I think what you mean is that there could be an imposition of essentially import barriers through taxation. And again it really just comes back -- that's an idea that somebody might have but normally it sparks to retaliate tax. So I'm not sure what will happen but if you shut-off the flow of Arabian grades in through the U.S. and you don't shut-off the flow of U.S. grades out for the Far East impact on shipping may not be that significant. But of course if you have a world will shut down, effectively a trade war with everybody saying I'm not taking your products then that will generally be pretty poor for shipping I think.

[Chris Wetherbee:]

Okay, that's helpful. And just in terms of economic sensitivity, obviously, I mean that's a fairly basic dynamic if we get accelerated GDP, clearly good for the trade; just generally speaking, we will see with a ton mile shake out?

[Paddy Rodgers:]

Yes, exactly.

[Chris Wetherbee:]

Thanks for the time guys, appreciate it.

[Operator:]

And our next question comes from Magnus Fyhr of Seaport Global. Please go ahead.

[Magnus Fyhr:]

Good afternoon. Just one question on -- a lot of focus on the OPEC cuts here, I know it's still early but can you give us some color if you've seen any reduction in exports out of the Middle East so far on the V-market?

[Paddy Rodgers:]

No, but you know, the cuts were based off a number which was September and there was a big push-up in production in October and December. So that's why I said to all of it small smoking mirrors than you would think. We have yet to see it impact but of course let's not forget there is a big event next week which is Chinese New Year and we'll see what happens after that.

[Magnus Fyhr:]

All right, thank you.

[Operator:]

And our next question comes from [indiscernible]. Please go ahead.

[Unidentified Analyst:]

Good afternoon, Paddy and Hugo. Hugo mentioned $0.5 million for liquidity and just -- could you remind us on your buyback policy and how you think about buybacks versus fleet growth?

[Hugo De Stoop:]

Well, I think it's not only buyback versus fleet growth, it's also versus dividend even though we have so far been very, very generous on dividend and focus on dividend because we believe that gives the best value to our shareholders but that's how we look at things. So it's growth, it's dividends and buyback. We've done limited buybacks in 2016 as we didn't think that it was really -- you know having the impact that we wanted to on the share price and I think that we will continue with that philosophy going forward. As a matter of fact today the share price is trading at a lesser discount to NAV than what it was last year when we did those buybacks. So I think I will continue to monitor that very closely but we're not at the moment thinking about buybacks as the share price is not trading as badly as it did last year.

[Unidentified Analyst:]

Okay, thank you.

[Operator:]

[Operator Instructions] Our next question comes from Ben Nolan of Stifel. Please go ahead.

[Ben Nolan:]

Thanks. I have a few but I will leave it to one and get back. So the first or well, the only -- there has been over the last number of years a lot of speculation and maybe wishful thinking that there might be some M&A in this space. Given sort of this current environment and the lack of M&A that's happened over the last few years, do you think we're any closer to proper corporate mergers happening or is it still going to be individual asset buying is kind of the course of growth, not just for you guys but also for the industry more broadly speaking?

[Paddy Rodgers:]

I mean it's one of those things that -- I mean I don't think that we have any particular view on that any more than you do, it's always one of those questions where anybody who is going to be looking at it will be looking at the transactional cost, the complexity, whether there is any real added value in buying a company rather than buying a fleet. Is it because it gives you some size, I mean we've been able to be big transactions without buying a company and if you buy a company what are you buying. So I think it's that analysis in shipping is always the tricky bit and it will just be a question of doing the sort of juggling act of saying, you know, what's the price of this and what's the price of that?

[Hugo De Stoop:]

It is a very different exercise, EBITDA on paper and then the real world, and unfortunately or fortunately it depends where you sit. In shipping -- most of the shipping companies poised on bill so you can only do friendly mergers which tend to be more difficult than from time to time if you look at going off-time because of a big discount. So I think that the speculation is always there all or it comes from back from time to time but what you realize is that there are very little activity -- any in chipping because of what I said, I mean poise [ph] and only friend this can be done.

[Ben Nolan:]

Okay, that's great. I'll get back in for my next one. Thanks.

[Operator:]

And our next question comes from David [ph] of KBC Securities. Please go ahead.

[Unidentified Analyst:]

Yes, good afternoon everybody. So one question from my side. Is it possible to know by how long the application of new regulation is going to be deferred? And could you kind of quantify what could be the impact on scrapping in 2017? Thank you.

[Paddy Rodgers:]

Yes, I mean I think the decisions to scrap in 2017 will be made on the basis of economics of just simply what's the price of the scrapyard, what's the value of the ship, and what's the carried cost. At the moment as long as ships are cash flow positive then people aren't going to scrap and I think that's the situation at the moment. During the course of '17 -- well, we'll have to see, I think will be moments when we will have some very low rates and there will be some moments when you have higher rates; so it will very much depend on individual basis for the ship owner concerned. I don't see regulation forcing ships out this year and I think that if we gave a scenario at the start of the Q&A on what might happen with ballast water treatment but I would have thought a two to two and a half year phasing effect as people choose different options of how they deal with it will probably mean that most of the spending will be done around year two, year two which finally enough will coincide with a profile that would probably encourage a lot more scrapping anyway, just because of the age of the ships.

[Unidentified Analyst:]

Thanks very much, very clear. Thank you.

[Operator:]

And our next question comes from Mike Webber of Wells Fargo. Please go ahead.

[Michael Webber:]

Paddy, I wanted to talk about asset values for a second; new equity has been more correlated with my asset prices and then rates over the past two years, broker prints; say I seem to be a little bit sticky like $83 million for resales but it seems like the clearing price would be a bit below that. So I'm just curious from your perspective how you see the year playing out? How close to a bottom are we? Are we starting to see more of a diversified kind of set of bids sniffing around these assets? And maybe at what level do you think we would see that? And then finally, with regards to the ballast water treatment and software acquirements, when do you think we'll actually start seeing that incremental CapEx start getting discounted into second half values because it doesn't seem like it's happened yet?

[Paddy Rodgers:]

No, I think the -- the big shadow over the over the issue of values was -- is not really -- I mean maybe we have hit some sort of floor illiquidity points around a number of ships that you're probably well aware of that have been in the market to sell for some time, actually not resells, not finding a buyer, and yet neither side prepared to close the gap in trade to let us really know what the effective price is. I think the trouble is that whilst you would think that somebody would say, you know, what that price will do, I'll take it. What's holding people back and making the most certain on the buy side is just the capacity at the shipyard which is yet to be result in Korea. And I think that when we get more clarity about the Korean Government's actions amongst the shipyards to work out exactly how much capacity there is, then we'll probably get a clearer picture on what people think that value is. I think there may be some further downward movement but I think most of us would say that bearing in mind that it really is a cash cost business, building a ship, you know, these guys and do really have a floor which is almost better not to build than to build at a loss. So I think we're getting close to that if we're not there and that will begin to support pricing and maybe encourage buyers to come back in and start to buy now.

[Michael Webber:]

Fair enough. And just -- I guess it's a follow-up to that. You know, it seems like we're still in the early innings of rates adjusting their capacity heading this year and probably easing but just curious where you think we are from an asset cycle perspective; if we're in the early innings from rates rolling over it seems like asset value has been moving well ahead of rates for quite a while here. So if you can use I guess the baseball reference; I don't understand cricket or also you could use that but [indiscernible].

[Paddy Rodgers:]

Well, we certainly want to discuss the strike scoring ratio of Olivier Giroud, all right. But what I would say is that -- I suppose the way to do it would be to take a year by year approach. And if you said where do you think we're going to be on supply and scrapping in 2020. Well, you know, by the time you get to 2020 you could easily have an order of 30 or 40 VLCCs and there would be no concern whatsoever because you would naturally have so many ships that were in the 20 to 25 year bracket but you know they're going to go out. So I don't think that the order book of VLCCs today is particularly worrying and we've been saying this for some considerable time. The issue is that there are no natural scrappers because relatively speaking the fleet is quite young. So when do we begin to bite into that or I suppose if somebody knew that they have a ship that's probably going to scrapped in 2020, they are going to be anxious about having to spend money on in '19 and '18. So then they might be thinking, you know what I would rather scrap and take it right away through to 2020 because I've got some investments to make which I have very little time to -- two week from trading. So I think what we're going to see is that the regulations won't have a [indiscernible] and they won't have an impact that is all of a sudden everything has changed but they will be beginning to coloring and bringing forward the decision to scrap that might have naturally been made a few years later and that's what I would expect to see. During '17, I think that if you want to see people move economically to scarp, immediately, then we're going to have some brutal numbers and particularly numbers that take us through an expected good quarter badly. If we went through nine months now including Q4 that was below cash breakevens then that might encourage some scrapping of all the units, people might just throw the towel and -- because all of a sudden there was a carried cost. But I don't think we're going to see that actually, I think we're going to see a soft market, volatile and we'll see where it goes. So at the moment the issue is supply versus time miles.

[Michael Webber:]

Got you. Okay, that's helpful. And I will I'll do my best to forget that -- your comment. Thank you.

[Operator:]

Our next question is a follow-up from Amit Mehrotra from Deutsche Bank. Please go ahead.

[Amit Mehrotra:]

Thanks for taking the follow-up question. Now Paddy, you and the team have been pretty aggressive in the past in terms of utilizing debt and equity financing to make some big in-block purchases at a time in the cycle that you guys thought or think is advantageous. And I'm thinking back to like '13 and '14 ahead of the 2015 upturn. And it seems like you guys are kind of setting the table up for something big in terms of getting the firepower vis-à-vis the sale leaseback and now maybe the FSO visibility has improved, so I'm just trying to understand if that's a correct read in terms of what you guys are kind of setting the table for. And could we see the company ways outside capital specifically, you know, equity to maybe increase to firepower that you already have on the debt side to make a bigger move or is it still kind of wait and see. I'm just trying to compare where we are today whereas where we were maybe in earlier mid-2014. Thanks.

[Paddy Rodgers:]

Yes, I don't see it's issuing stock and just -- at the moment it would be crazy for us to be issuing stock when we're carrying such good liquidity. I think that very sensibly because it's a cyclical business, we've seen the potential for softening market for a while and so we took -- you know, we've made sure that we're close to cargo and have plenty of cash. I mean it's not -- you know, as we've said many times it's a pretty simple business; it maximizes optionality, it will give us the ability to think freely and clearly and not be driven by short-term requirements but be able to be a bit more strategic in our thinking. So I think we're happy where we are and we'll just be waiting for you to call the market firmly out before we make any decisions.

[Amit Mehrotra:]

Okay, all right. I thought I'd try to ask that question, but thanks a lot Paddy.

[Operator:]

And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the management team from any closing remarks.

[Paddy Rodgers:]

Good. Well, thank you all very much for attending the call and very interesting and thoughtful questions. And we look forward to meeting you no doubt during the course of the year and speaking to you again in the quarter. Thank you very much.

[Operator:]

Thank you, sir. Today's conference has now concluded. And we thank you all for attending today's presentation. You may now disconnect your lines. And have a wonderful day.