Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Q4 2019 Frontline Limited earnings Conference call. At this time, all participants are in listen only mode.
After the speaker presentation, there will be a question answer session.
Good question doing this section you will need to press star one on your telephone I must advise you that this conference is being recorded today and I would like to hand conference over to your first speaker today, Rob Mcleod. Thank you. Please go ahead.
Great. Thank you very much.
Hi, everyone and good all right.
Thank you very much starting to frontline <unk> fourth quarter earnings cool.
What about solid performance in the quarter was driven by increased conquered them on due to growing Atlantic Taheesha trade.
It's a available free capacity on the IMO Twentytwenty implementation.
Just a few short weeks into Twentytwenty the market strikes start to revising reversing sorry us issues were experienced and Libya and.
I'm not sure area on the rule so attacks in the Middle East.
Dundee sanctions were listed on the Costco fleets.
To my each month as much was the growth of our stupid immediately impacting on well to trade well demand on the fights markets.
To be able to see segment it's weak.
In most of them on has decreased well sell suezmaxes and Aframaxes two segments swept up front on how significant exposure or enjoying better earnings on a relative basis.
The start up to this year has been extraordinary.
Actually felt the backlog horror movie at times to be honest, but importantly, we are making money in two days freight environment.
Having a modern and well run fleets is key.
Please let's move to slide three I look at the highlights from Q4.
Net income was $108.8 million, Oh 55 cents per share.
Suddenly a solid cozza <unk>.
8.7 million profits related to the Trafigura deal is not included a net income.
We declared a 40 cents dividend the lost dividends was 10 cents I was paid for Q3 up 19.
Cease made 58000 cute cool and we have booked 83% 90000 for Q1.
Suezmaxes made study I think Q4, and we are booked 75% around seven to 2000 pool Q1.
I love to Smile at around 5000, Q School, and we have booked 72% a 36000 for Q1.
The 54 or 554 million I should be cell site lease back. It's in the final prices being signed and will facilitate the closing of the 10 Suezmaxes we are acquiring from Trafigura.
Before getting into more detail about the tanker markets I would like to handle on the call overseeing our leasing I can you take us through the financials.
Yeah. Thanks Victor.
Everyone.
Then turn to slide four and look at income statement.
On slide.
Total operating revenues the voyage expenses.
And then $24 million.
And it did that justice for certain noncash items a 160.
In the fourth quarter 2019.
Reported net income of 108.8 billion covenants to 50 50 cents per share.
Anything going on just a certain non cash items, a 106.9 million equivalent to support since the share in the fourth quarter.
The net income in the fourth quarter exclude the 8.7 million on net cash proceeds and accrued profit share in relation to the five jump in that charter out agreements, which I figure that have been treated instead of three thats something that decision comes for the vessel.
Non cash items. This quarter consisted of zero point Eightmillion unrealized gain on marketable securities and 1.1 million losses related to our interest in it in my side and also 2.2 million gain on derivative.
The fourth quarter shows an increase of 120 million against adjusted EBITDA of 40 million and an increase of 169 million again adjusted net loss was 10 million in the third quarter 2019.
The increase in net income in the fourth quarter.
Explained by an increase in this cellcom Tom's activated due to the higher the TV.
In the fourth quarter compared to this exports.
Let's say.
At the balance sheet.
Hi.
The main changes to the balances as of the until December 2019.
Compared with September.
And that is in 2019 relate to.
Okay, and increasing aster Jessica.
60 million dollar.
Within the next effect of Capex payments, Japan for that.
Net cash from operations.
Let me transition.
Program.
And increase the Canada 162 million explained by increasing Wilson inventory.
And credence to welcome partners some debt.
10 million related to Turkey, or the 500.1 million facility.
But 2020, we expect.
Okay.
An increase in equity one of the 30 million.
Mainly due to the net income for the quarter issuance in relation to that Dan program.
Hi, good.
After December 31st.
Our plan has ended up 47 million in cash and Jessica.
Including Undrawn.
Secured facility.
Securities and that cash requirements.
Our remaining Newbuilding capex.
As of December 31st.
Did you see on that in 2 million related to one suezmax tanker.
Hi.
Mitchell executive delivered in May 2020.
For two tankers, which are expected to be delivered in foundry My question, a little over 2021 and generate 22.
Yes.
We estimate of approximately 234 million index capacity.
After Robert said, the identifying the proceeds of signing this hundred 64 million sale and leaseback agreements with occupancy.
Finally, the cash amount payable upon closing of the 10 Suezmax tankers unlock 16 Jonathan.
Please have a tender for seven years carries an interest rate of LIBOR, plus a margin of 230 basis points.
The station.
In 0.8 years Nekoosa purchase options for some time throughout the period with the purchase obligation.
Sure.
In November 2019, the company's Brian as senior secured term competency with credit Suisse.
For an amount of up to 42.9 million Park finances, Suezmax tankers, we stayed under construction.
Hi, this facility Mcewen, Bobby after delivery.
It is an interest rate of another person Martino 490 basis points or come from them.
Final 18 years.
Now in February 2020 be obtained commitments from credit on the call for senior secured terminal facilities and 62.5 million.
The partners cities and TV Sane.
The facility, which is subject to fund documentation with Mr. five years after labor day.
Yes, and anticipate the bladder cancer market.
Thank you basis.
I would happen amortization profile.
The average margin of bank debt.
Yes.
Robert.
185 basis point at the end of the year.
The December and will be larger crossed 195 basis points.
Moving to new morning, all 659.4 million, which I mentioned.
Let's take a closer look at cash breakeven base and Opex on nine.
Nick.
And we estimate this cash breakeven rates for 2020 of approximately $22700 per day for the cities.
$19700 per day for the Suezmax tankers.
$15600 per day for the election tanker.
Fleet that recent event is about $19400 per day.
These are the all in daily rates with average vessel must earn covered adjusted operating cost. Some drydock estimated interest expenses DCM BAML tire installment loans and DNA expenses.
For every $1000 per day in the keys basic system on the cash breakeven translates to approximately 22.8 million in incremental cash flow.
Service per year or 11 cents per share.
Shows the high importance on maintaining below cash breakeven rate.
The graph FSP has shown on the right hand side of the site.
We have shown the incremental Castro after debt service per year per share assuming 10000 plenty sounds good results.
Results today in a TV excess cash breakeven respectively.
As an example within fleet that is cash cost breakeven rate of approximately 19400 per day and average fee.
49, 400 per day downtime with Dendreon and cash flow per share after debt service.
39 cents.
Police Ali the Red Robin again.
Thank you very much thing, it's great to see the earnings potential we have and the recent financing just shows chose to position the front and center. So service or this is very encouraging.
Let's move to slide seven please.
I will display.
Long term view of the market is unchanged. So let's talk about the virus first.
The negative market effect created by the current Volaris is certainly strong on its head oil demand head on.
The impact on demand will play out over time on for costs very varies.
We believe that demand will return on increase in twentytwenty year over year, how should we see the current situation last time cray rather than permanent.
We are obviously not in a position to great predict when things will turn the we closely cautiously optimistic about the borrowers will be contained sooner rather than later.
Once this happens we're hopeful that we will return to a markets where oil demand is healthy.
Let's go to Asia volumes continue to increase.
Our ammo twentytwenty patient important role.
Fleet growth continues to slow.
Sentiment as we all know is a strong tool is extremely negative now.
I will turn.
Next.
Please global fleet capacity growth is slowing.
Fleet growth is an important driver of long term earnings in the sector.
Investors have repeatedly being disappointed in the past us over ordering quickly destroys upcycle.
There are currently virtually no tank orders being placed and while this can be can discuss quickly change. The last time, we saw the order book at present levels.
1997.
We expect vessel of higher Java material impact on fleet capacity this year as it did in 2019.
There are 105 to seven deals lessees or 17% of the fleets to for dry dock in Twentytwenty.
For Suezmaxes, the number is 109, well more than 20% of the fleets.
Importantly, any of Fiat relate to discover installations is not included in this number.
Drydockings cannot be postponed and global shipyards and twentytwenty with the busiest schedule scenes seen since 2007.
The shipyards, even more stretch now due to the Corona virus.
In workers on supplies.
This is found to have a very positive effect on supply throughout twentytwenty and probably also into 2021.
Let me get next on slide nine and believe it or not RMR twentytwenty actually did happen.
Throughout last year the shipping in investment communities, we're focused on IMO twentytwenty and rightly so.
In our opinion the impact of volume or Twentytwenty has been overshadowed by other events recently, but the effects are real.
We will remain a factor for quite some time.
Our 2020 has created a huge spread in owners fuel related costs.
As an example, a model we'll see what a scrubber, we'll be spending for $2000 today at the same time as a large portion of the VLCC fleets, we learned that daily operating expenses.
Actually no has a very modern fleet with an average age of full years, giving us a tremendous advantage in the current fuel price environments and as I mentioned earlier on in the call in the introduction we are at current rates still running at a profit.
In conclusion.
Slide 10 days.
The company's potential in strong markets has been demonstrated in the fourth quarter results through first quarter guidance.
<unk> position in the market is questionable and the fleet is the best we've Uh huh.
Breakeven levels are also historically low levels.
Bye for now the market headwinds remain strong and we do not to see any significant improvements until the borrowers has been contained.
However, when the bars is contained and the negative.
Lots of subside the tanker market could well reenter the strong earnings environments, we entered in the fall of 2019.
With that so for us out two terms question space.
Thanks.
Ladies and gentlemen, who will now begin the question and answer session.
Asking a question you will need to press star one your telephone and wait for your name to announce to consider request. Please press the harsh key once again.
That's just part in one if you wish to ask a question.
New we have questions coming in the first question comes from the line of Jon Chappell from Evercore. Your line is now open.
Thank you good afternoon Robert.
Okay.
Good afternoon.
Robert First question you mentioned both in the presentation in the earnings release to just given the uncertainty today and despite the long term favorable outlook you being cautious.
So I assume cautious means not buying any new ships, even though the market may bring asset values back a little bit, but how does that translate that into the dividend policy.
So about a 75% payout ratio for Fourq you.
Once you to date rates or even stronger understanding that there's going to be a tail off for the remainder.
You think that the board becomes much more conservative with the payout just until there is a little bit more clarity on the demand side or would you expect to similar type payout off the first quarter results.
Okay, and just being cautious.
First.
Of course. This also means that we're extremely prudent and what we do on the chartering side, we're extremely focused on the on the running running the company as best we can.
So what we do on this on the day to day fixing is extremely important. So this is this we are laser focused when it comes slide you can see how we started twentytwenty and.
Fortunately with the very high quality fleet, we are still running in the black.
In terms of dividends you did see that we pay the the 10 cents in Q3, despite the loss in the quarter and we followed up with a 40 cents for Q4 today. So the second half of 29 team. If you look at the payout ratio is looking.
This is looking very very good of course, so coming into Q1, we have too much better start having Q on the than what we made in in Q4, So I think.
So we'll see how the well develops between now and.
The Q2, one release at our board meeting here in in May So I think it all depends on how things Pan parts. If this this crisis.
In terms of or is this continues throughout.
For the board will.
We will have a very good thing, but if this is temporary and under world is going through better place and getting back to commodity then I think the payout will be decent blend.
Q1, so far this is looking very good okay great.
Just my follow up question for Inger, it's like the short term debt moved up pretty significantly in.
The December 31st balance sheet, I think there was a bullet point that wasn't addressed in the presentation, saying thats part of the bigger facility in new expected to be refinanced how soon can you refinance.
So we tend to see that has that debt level move down from the current liabilities back to the long term.
Although we deliberately havent really looked into that.
We don't have any concerns about that at all in a way so but I think we would plan to.
Begin to that.
And now and the next quarter in a way I guess.
So next next time, we sit and talk I guess.
Something evening.
Okay, great. Thanks, Inger Thanks, Robert.
Okay.
Your next question comes from the line.
Randy Givens from Jefferies. Your line is now open.
Robin and good how are you.
Finally with you.
Great.
Two questions for me.
First on looking at your your share count in share issuances, obviously in Threeq and Fourq you. When he shares are trading at large premiums to NAV that made sense in one Q with the I guess traffic your acquisition shares still outstanding but going forward now that your shares are back below NAV and premium.
Meaningfully in our view.
How do you view share repurchases at this point either in kind of a complement to the dividend or instead of the dividend.
Sorry, if we didnt complete the Catholic question, I'm talking about participants or issuances.
Yes, the the ladder now that the stocks well below NAV going to share repurchases.
In addition to the dividend or in lieu of the dividends.
It's something that we were.
Watching very carefully how things are developing of course, because that is the real alternative.
Okay, and then can you give some updates on your scrubber installations, how many have completed how many are coming and then if you have any kind of plans for further scrubber additions now that we're seeing kind of the spread tightened a little bit.
But kind of below more stable.
So at the moment, we have 26 vessels sailing with.
Scrubbers in operation, we have a further six juice for installation over the next the most is next quarter, but partly Q3 at probably as well given our view on on the on various delighted yachts it might might be Q3.
We'll bring us to 50% of the fleets and to be clear on on the 50 centers overweight on Suezmaxes and Vlccs.
Underway, it's another too so we get.
Recall simple the bigger the ship the more that make sense.
We have not made any decisions on doing.
Scrubbers on ships outside of that docking schedule. It is something that we consider we're monitoring given our ownership in clean marine we have a superior access.
In both in timing on price for scrubbers, but.
The answer is 26 at the moment six scheduled and monitoring further.
Perfect and then one quick question.
My second answers all they need LR twos any of those switching to dirty.
I have switched to dirty in recent months or two with the large differentials between the crude tanker rates in the products.
11, clean 731 conductivity lost eight weeks.
Excellent. Thank you so much.
And your next question comes from the line of Greg will release from media.
Let's now open.
Yes, Thank you and good afternoon.
Yes.
Rob could you talk a little bit about.
What you're seeing in the rate market for visa I mean, clearly it was you know it's been a tough month, but it looks like over the last week, you've seen some stabilization in a little bit uptick in the v. market kind of just any kind of color. You can provide around that was that just the shift in sentiment pickup and volumes any kind of color would be helpful. Thank.
Yes.
So the market industrial so Craig was completely shut to pieces lessened.
And then slowly started picking up.
Two weeks scoffing at least have already bought some around the wells go forward C, which was the high twentys fairly fast and for our best ships and the Opex for two first so the of the World Fleet. This week, we seem quite a lot of under the radar activity. The first ships to be taken.
Now in the weak market or the weaker links and the older ships. So they've been picking off and then suddenly we're seeing actually today yesterday that delivers isn't looking that pad in the middle East.
Now the modern ships.
Starting to sniff, but well Scott 50.
And then you're getting.
Two questions, Mike probably starts with a four but I'm not saying as to sort of it's so vulnerable out that it could well be postponed by the time, we've done the we've done the cool.
Oh, I see that the market as finding its feeds and slowly getting a little bit better we're seeing quite a few lightering jokes, which takes up some capacity in the far east.
But overall the on the Aframaxes and Suezmaxes that caught kept up a lot better. So as the reason why why our numbers are still if we fix all our ships today, we would still be or be in profit. This is because of our suezmaxes and aframaxes standalone. The these are not.
Right, but hopefully we've seen the worst and we start improving from where the appetite or the futures market is also indicating that but only time will show assumes that the throughout its getting one shock off to another but surely there must be some good news soon.
Okay, Great and then just one one more for me one of your competitors that added a couple vlccs in the new build market.
I know frontline always tries to be.
With that of when it can.
I guess two things one is I mean, clearly the turmoil that we've seen over the last month or I guess early since early mid January.
Has that dampen the the appetite for buyers and sellers to come together for sales and really what I'm trying to understand is are there still.
Anchors, whether its suezmaxes or visa or even I guess LR LR twos that frontline is actively looking at in terms of potential potential acquisitions or to your points about taking a cautious tone at say, we're entering margin and really don't expect us to be out in the market looking to acquire.
Tonnage.
Until we see maybe some more stability later this year.
We're always monitoring and then as I said earlier short term were very cautious so it would probably more in the side are now than we were we are more on the side on the we were a month or two ago, but if the deal is that and then then we're still there I think our long term view is very clear we think this is.
But if it is a permanent.
It's a temporary situation and the deal that you referred to the three ships too so.
I think that now those are the terrible do I think that you still stands ground as a decent deal.
Score delivery and now we are we're still that way, we certainly not turn off the lights for further deals.
Okay perfect. Thank you very much.
And your next question comes from the line of Michael Webber from Weber Research.
Please go ahead.
Hey, good morning, guys I'm sorry.
The final budgets.
[music].
Well there is one thats a loop back to.
The conversation around around demand in this environment.
There is obviously not a lot digital or right now but in terms of.
Thank you about coming out of this and eventual demand recovery or will you bound.
How do you think about positioning your fleet for that.
It might be too early but I'm just curious in terms of where you're choosing to whether they are floating storage opportunities that could develop as productions kind of.
Ramping beer kind of running beyond actual consumption levels here, just how do you think about positioning your fleet.
Best to capture and eventual demand are done.
In terms of there's actually for the various.
Segments that split one first the Aframaxes and Suezmaxes, we normally have.
Strong presence in in the Atlantic Basin, and and that is Fortunately the case now.
Landsafe.
On the Mediterranean Black Sea in the Baltic has been hit a lot less so we are the right position that we're not seeing we're not seeing how much inquiries regarding sewage sticking around so we're in right place I think where we are.
For the lease they are spread Aspen normal.
Caldwell fixing out of the middle East and today's levels. If I should have the choice between four to day voice on eight today voyage I will go for the short voyage, giving our market view as soon as we start seeing.
Seeing real real.
Hi inches seven that contain virus and so forth, we will be taking more ships balancing to the west on on speculation to start will then.
Side with.
Chinese demand coming back and giving the the U.S. China deal. We then believed that the us Gulf exports on the east will will pick up tremendously. So we want to be in position for that.
And.
Now that's.
Sure question.
So yes, my own to contango two three weeks ago, then strengthens backwardation hour backend.
Hey.
Contango, which also small contango again, but I think it doesn't.
Stores it doesn't it doesnt defend the economics, but this could suddenly happen of course, given given how low the oil price.
Secondly, we are monitoring at the same Tom.
Less of a floating storage player now than we were going back a few years, we've sold 19 old ships over the last three years Fortunately with our fleet now we are much more focused on trading but if we have short term stuff, we can been doing that.
At better rates than than what the market gives us on an AG East then we'll good.
Yes, Thats kind of my follow up question, just given that kind of the website are we seeing that curve over the past month I would just curious what are the relationship with crappy and give you a bit of a leg up what kind of approach look if someone were to move quickly on onboarding. So we're just given how many of my only we've seen that curve shifts recently, whether whether that's something you'd be up.
Whether that be whether you've seen any kind of incremental interest there.
Yes, there is more incident and then looking away from from frontline slate then it's a fact that.
Large majority the fleet on the Opex level. So so we didn't comment to that sort of catch a great. Then there will be certain cyclists and what we will happen. Then is that you strain the supply on on the type of ship and that will help the rest of us some of course, very hopeful that that assets and it could well be given how depressed market.
Fair enough alright, guys. Thanks for that.
Thanks.
And no further questions at this time you may continue.
Okay. Thanks very much.
According and everyone else I would also like to touch upturns and thank everyone at frontline so.
Okay and great efforts.
We're going to come out of this strong and hopefully it's not going to be too long. Thank you very much Iran.
Okay.
And this concludes your conference for today. Thanks for participating you may all disconnect.
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