Q2 2020 Frontline Ltd Earnings Call
Ladies gentlemen, thank you first standing by welcome to the varies quarter to 2020 front line.
Limited earnings Conference call I know you over to your first Speaker word Macleod. Please go ahead. Thank you.
Thank you watch.
Good morning, good afternoon, everyone.
Thank you.
Second quarter school.
I would like to express gratitude to all show stuff and crew members for the extraordinary outside dedication, which clearly defining factors to our strong results.
Oh, I feel very volatile, but devoted to the Tcten last 12 months an extreme so that's a reminder, oh, that's what it takes for the time cannot get cirrhotic.
Floodlights performance in the first off 20 to 20 was the strongest since you last night and we've also made solid bookings for the third quarter.
Despite the recent falling right 2020, <unk> will be a very good yeah for fun.
[noise] so.
Slide three and a quick look at the highlights from the second quarter.
A couple of $200 million just over a dollar at the show suddenly a solid quota.
Adjusted for noncash items, the net income was to a shakes.
We didn't go right 50 cents dividends the lost dividend was 70 cents for Q1 Twentytwenty.
We opted to repay 60 million on I haven't facility in the quarter, which is the main reason for the reduced dividend.
[noise] English classes.
Fine I'm, saying she will take us through that later on the cool.
Sure.
Things were delivered in the quarter.
One suezmax and one VLCC.
Leaving us with only four I saw I don't twos on order and they deliver next year.
She's made 75800 in Q2, we have good 76% of Q3 at around 61000.
Suezmaxes made 51100 Q2.
77% of Q3, 20 Uh huh.
Hello to my did just shy of 47.
We have booked true phage over Q3 14 itself.
These Q3, right do not seem to the long time charters.
And then before we go onto the market Oh, well on the call everything else to take us through the financials.
[laughter] I'm not getting funding and [noise].
[laughter] side for.
And just getting something done some of the huh.
Total operating revenues, that's the way and that's all seem to want to me.
And then just at the top 59 million and the second quarter 2000 <unk>.
And they get so nothing from a woman transmitted through the back end, one and one cents share and it just didn't happen.
On the Nineth werent $1.47 a share.
As you enter.
Well there wasn't telcos.
For me then that.
And they consistent.
And yeah five.
Okay.
Okay Fair point Ninemillion.
Okay.
A 2.7, they didn't say Oh, no [laughter] component.
And it works on Fannie Mae then amortization.
Hi soccer.
They're just significant.
Increased by 27 manner.
And this quarter anymore main to give them an increase in our time something that's given Tony.
Due to the higher reported PC right.
And I'd like to thank you.
And the second quarter, along with a game.
Well that 12.4 million.
Yourself or the same I'm wondering if he.
It is slated for him.
<unk>.
And finally.
Take a look at the Patterson.
Hi night.
And they are happening in the second quarter.
Which affects the balance sheet.
[laughter] delivery of the says that you might get some cruiser.
And also we took delivery of some dynamics.
Anthony through that somebody sample.
We are set up an answer to be paid other senior unsecured facility.
Eminent domain.
The two new loan facility to refinance two facilities when coupled with an incentive.
Yeah, then $49 million.
Thank you in December 2020, and in March 2021.
Terms in line, but sometimes they don't [laughter].
With that also paid 138 million and given.
And the.
The net income.
Anything come along and then.
On slide $7 million.
Oh.
The quarter.
Sometimes has 162 million intestine classic Eminem.
Including and amounts I'm, having a senior unsecured notes facilities.
A couple securities and my question why not.
[laughter] portion of long term debt includes 214 million debt maturity of the 40 51.
Okay.
In April 2021, and 80.3 million dispenser <unk> of the 1009 0.2 minutes affinity.
In June 2021, which are both expected to be center.
Other remaining you've been in Capex apart.
We ended the quarter.
What's the 161.1 million dollar relate to the sporting events through tankers.
There are two of them are expected to begin in January 2021.
2020 Uh huh.
It's too are expected to be didn't even in August 2000.
Good morning.
And this collection from that have complained about financing.
[laughter].
I'm out of up to $133.7 million.
I'm sorry.
Talk this financing for actually sector.
And then it would have attended our 12 years.
No that's just the margin environment.
No specific.
Thanks will have an amortization profile 17 years.
And the facility is that something.
Okay.
Less than.
Thank you so for them.
[music].
Speaking of invade Nick.
Nick.
We.
Estimated average cash cost breakeven dates for the remainder of 2020.
Oh, the 22600 square buttons for me please.
$2900. Okay. So this is back to tankers.
As it turns out for $700 per day organic your tender.
And the fleet average and that is about nine.
The dollars per day.
Yes Saturday.
It will all your daily they sent over vessel.
So thats kind of break in constant price.
Estimated interest expense T C and bareboat hire installments unknown DNA expense.
In the graph.
Uh huh.
Good.
So in the future incremental cash so after debt service per year per share.
Selling and any 30 or $40000 per day chief.
In excess cash breakeven rate.
And the number thank you mr., sometimes dr. out we understand the period.
Good day.
Okay sounds [laughter] Nelson to any.
For example.
The average classical breakeven rate of $90100 per day and assuming nothing.
$100 on top of the average.
I would be band 49.
Okay.
Sometime within general attached to a share after debt service.
For Tonight.
But it's I mean diverted over together.
[noise], thanks very much at all.
The Q2.
Slide seven.
The first six months was 2020 brought a dramatic crude oil demand correction.
The likes of which we've never seen Marshall brought on by Cobot 19 was so large I'm, sorry that global commercial inventories quickly such to record levels actively utilizing all available and based capacity.
At the same time, the crude oil market went into contango encouraging traders to sorl on time, because I'm driving demand for short term charters of our ships. This entire resulted in exceptionally strong conquer rights, which are reflected in results for the second quarter 20 to 20.
The freight market seems decline to lower levels.
We'll go to sort of recovery all evidence economies continue to reopen the recovery in demand is unlikely to be linear R&D expense and duration of the impact of code 19 is difficult to predict.
Go 19 related challenges have been extensive throughout industry. These include logistics around crude changes delayed this charge I diminished shipyards for dry docks and saw a nice.
These factors stuff goes to the impact effective fleet supply.
There is significant month to month volatility and the demand forecast as shown on the charts at the bottom of the sorry.
Let's move to slide eight days and how I look at the global fleet capacity growth, which is slow.
The vessel supply side of the accretion continues to improve which is very positive.
The order book as a percent of the turning to fleet is at the lowest level since 1997.
At this time time average age of the VLCC.
Oh, the tend to the second quarter over Twentytwenty is at the highest level since September 2002.
But im next year, there won't be 65 vessels older than 20 years and an additional 85 colder than 17 at all.
The effect of slowing street supply growth will be pushed out to twentytwenty, one or 20 to 22, but it should be material on lead to sustained period highlights.
We do like the current situation, where new vessels for the market out of control pace. The order book continues to shrink and retirement of vessels and noticeable.
Breast market.
A bit about.
Did the math shock is largely behind us, but volatility can be expected.
The press with freight market remains under pressure crude production is down almost 10% since January and lost volume reduces the volume that is normally ships, meaning to the card accounts are down by as much as 20% to 25%.
On the books aside inventories are being drawn a.
Short term pain, but possibly long term gain.
Forecast suggests that a significant portion of the OPUC cod could return in the coming months on combined with the northern hemisphere moving toward winter. This gives grounds to believe and a stronger freight markets.
So in conclusion, the long Bruce and tanker rates during the last 12 months illustrates the balance in the market and the fact that it does not take more sort of banking markets.
Looking ahead through 20 to 21 on beyond recovering demand for crude oil transportation will coincide with rapidly declining seat growth, which supports our long term two highly constructive market outlook.
So we enjoy the youngest fleet and lowest breakeven levels in the history of our company.
Frontline's earnings pressure substantial 23 million Arnie loss for every $1000 above 18 seven.
We are very well positioned.
With that.
Let's turn over two questions. Please.
Thank you ladies gentlemen, I will now begin the question and answer session.
Hi, there if you wish to ask your question. Please press star one in your telephone and wait for you need to be announce please stand by while we compile the Q when they choose and take a few moments if you wish to cancel your request. Please press the hashi once again for questions. Please press star one.
And now for your first question, it's come from it's coming from the line Randy given.
From Jefferies. Please go ahead. Your line is now open.
No I'd Robert anger How're you.
Thanks.
Great well, Yeah, I guess first question is around the dividend right. So in the fourth quarter of 19. The first quarter of 20, you pay dividends above I guess, 70% of net income after the second quarter you reduces the 50% I think you mentioned part it's because at the $60 million.
Hey down back in April on that having facility. So I guess is that the entire reason for it or you kind of bridging to a weaker dividend next quarter and then should we expect at least 50% of net income going forward.
Please stand.
Right.
Topical I guess you begin today.
Dividends I guess is probably once you as you.
If you include the Henin 60 million thoughts here. Thank you.
So that's.
For the dividend.
Yes.
Okay, and then going forward is 50% or net income a fair assumption.
Going forward.
Standalone normal that'd be having the right.
It's the.
That all in Atlanta, we just the this quarter.
Good.
Hey, this facility with a 30 minute machine demand I mean, it was seven cents per share.
This quarter.
Okay and about the haven't facility I believe that was done back in April right.
We expect repaid the remainder of that here in the third quarter.
No. We don't know yet so we haven't decided to do in that remaining.
And partnering in Italy.
Hi.
That we can extend the facilities.
Hey, David.
Okay and then it gets last question around your scrubbers, you know what's the status of those governments. So they seem to know you postponed a few things for.
Any expectations on when those will be installed or kind of your your plans going forward on remaining scrubbers.
So on the way, we don't know we've got a couple of being installed as we speak but before that we postponed we've we've not done anything further with so what will do is that when these ships that were supposed to all the scrubbers installed when one day drydock over next coming quarters, then we will prepare the ships.
On the water work will be done which is a small cost and then the actual scrubbers can be fit to retrofits. It.
And they are now stood at all.
Production facilities in Indonesia, So, we'll see added the spread is improving a little bit, but we have the optionality and for the time being they will remain in storage.
Got it.
Well I'll turn it over thanks again.
Thank you.
Thank you. Your next question comes from the line of John Chapelle from Evercore. Please go ahead. Your line is now open.
Thank you good afternoon anger and Robert.
Couple of quick clarification questions first yeah, I think we're always here, where the quarter to date bookings look very elevated basically because of the load to discharge accounting.
Hey, guys really try to flush out the differences here, so maybe a way to ask it is.
As you look at the rest of the quarter. The other 24%, let's say for the Vlccs is there any extreme or out of out of the ordinary uncontracted or contracted vessels were let's call that stub part of the rest of the quarter would be higher or lower than the market averages.
And so it all depends whether we fixed the loading dice doesn't end of September or audio tied with us what's going to determine sets, but there's nothing to Johnson's second part of your question at this specific there's nothing special.
What I would say about the idea earnings it's important had too.
To look at earnings over the over several quarters. So it's almost just wondering.
If you asked me how is front and on VLCC said so far. This year. Then my take is that we had a very good Q1, we we outperformed our peers, we were giving a we're giving some of them back in a in Q2 that you see from the numbers and my guess is that we're on the we're on the owner or pretty.
Pretty good I'm getting rate level on a good percentish AFFO for Q3, So I would say outperform what Q1, we know slightly below a below in Q2 and I don't think where we're looking quite good for Q3.
And then just another clarification Robert I think you said that the long term contracts are not included in the quarter to date rates in the press release. It says the short term charters are included in the and the forecast. So what's the difference between the long term in the and the short term I guess, you have to that or nine and a half months and want to 12 months and then you have for that or.
Just below six months, so just to be clear that the ones that are just below six months that is included in the in the quarter to date and then the longer ones are not.
Yes, correct. So so basically the six months charters, which are basically six six month plus one as one cents a minimum period of five months. So Doug dose deals that we consider spot in the numbers on the anything above which then starts and eight months deal. So that we have a couple of one year deals and we got the default suezmaxes on the three deals so so.
Thing about six months.
I think considered longer longer term and are not included.
Got it and then also I noticed in the disclosures that you have seven ships chartered to affiliates hem and I'm assuming those are the seven that you did in the second quarter. Just curious is there any options associated with those are those kind of strict on the on the timing.
No options.
Okay final question Robert is I think you've laid out a very balanced second after the year outlook for the market.
Clearly given the start to third quarter, you will be cash flow positive in English kind of laid out the dividend strategy. When you think about the the cash going forward and do you think this period of let's call. It choppiness or uncertainty provides you with an opportunity to add tonnage or do you think that you spend this next six months continuing.
To de lever the balance sheet, the positioning yourself for the favorable 20 21.2 outlet that you know you spoke of.
We're pretty happy with with the suffice we're very happy with the age as a side into India intro with the companies in a very good shape, but so.
We need to do anything it's a if opportunities come up.
For example, like something like the Trafigura deal, we did which which we quite like.
And then maybe but base case is two to enjoy what were up and then harvest from that's true or through having a a few what is the best operation.
Great. Thanks, so much Robert.
Thanks.
Thank you. Your next question comes from the line of Chris Chung.
From Weber Research. Please go ahead. Your line is now open.
Hi, good afternoon, Robert in anger How're you.
Good afternoon, everyone.
Yes.
Good thanks.
I don't want it to just touch on the cash breakeven levels again.
On slide six I know I know John asked this earlier too, but I guess I'm asking April slightly different.
Angle to on slide six the cash breakeven levels like 19000.
On a fleet average.
In the press release, it says that.
The charter coverage are not included in the breakeven level. So I was wondering.
What would that mean the breakeven levels.
Looting that time charters would show a slightly higher breakeven for the sweet.
No I mean that the cash breakeven rates that we yeah.
No.
Our.
Total cost.
Uh huh divided by.
And number of days segments and then.
So none of those spaces, if you have content congrats.
About the breakeven.
And that's it overseen hey, Doug.
The cash breakeven rate for this purpose.
Let me do not increase that.
Right right right until they get the charter contract coverage takes it down if we were to exclude it would would that bring it up and you're saying at the answer is no.
And even.
Yeah.
Okay, all right I, just wanted to clarify thanks and kind of wanted to.
Asked about your investment in clean Marine I guess when the investment was made back in October 19th I guess.
It seemed like it would be a smart hedge for IMO 2020, and scrubbers in general and fast for me 10, 11 months now Colgate OPEC and Mark involved what are your plans for this investment going forward.
We will see how they know how this rather soon we like where are we on about 17% and the company the company.
A production facility, which is those in Indonesia is going to stocks and insights orphaned and we have we only our investment is now we're now be very small loans to the company. So we don't really have any risks that we we don't see the needs, but any money into the company and I.
I think that there will be some positive news.
At some point going going down the road, it's it's not it's not turning out to be.
To be us a lucrative is what what we were hoping of course, but.
The downside will show the risk and so it's always a controlled and limited.
Right I see okay makes sense and just last question.
You know just given the news about the voluntary cuts from several key OPEC members the congestion that's happening around Chinese ports and.
Hurricane Laura in the U.S. Gulf I'm, just curious in terms of how you guys choosing a position your fleet in the near term.
What we're doing now is that this is an extremely difficult market to predict that Dallas, Dallas DC obvious things as I had because that's the other Dennis will feature a few years and a modest sort of gut feel if that we are guiding towards a more normal markets.
Well well count on volumes as we know it looks from the last stops. The we're saying then the the well production is three to 4 million barrels lower than the than the consumption, which is always hurting freight but it could do to build a bear case.
As we move towards winter and ER and Q4 is normally a strong quarter. So Mike on the other sort of would know no sort of high conviction.
Going to feel that things will that we'll get back to us we we move towards the end of the air and what we're doing with the street. This that we are trying to reposition the suezmaxes and did not say basin.
If we have the choice between the language at current rates were short to one we opt for the the shorter one there are some potential triggers that so we watch it all very closely and we're going to feel that things things might or might get better at the same time. The the volumes remain low so it all depends on the on the call.
That's what we've seen in the middle East over the summer, where basically one out of free cargos has disappeared.
I will say density.
The earnings, but but hopefully something demand will steadily come back and I'd like to be some better times ahead, but.
I'm very cautious about I'm not going to put on the the the bullish not just yet.
Okay makes sense. Thanks, guys. That's it for me.
Thank you. Your next question comes from the line of Greg Lewis from BTG. Please go ahead. Your line is now open.
Hi, Greg.
When holiday season, So Greg Lewis. Your line is now open. Please check your line if you're on new thank you.
Okay and then let's just take the next question, it's coming from the line of gene minutes Meyer from value investors. Please go ahead. Your line is now open.
Thanks for taking my questions.
Hi, Jay how you doing.
I do an excellent. Thanks, So first of all congrats on a on a good quarter on as we're looking towards the shifting interest rate environment I know you've done a few swaps hedges in the past on some of your debt profiles. I know you also have a new debt profile coming up with the Newbuilds.
Is there any plans to expand or extend those interest rate swaps is any of that into works are you going to maintain some some floating exposure.
Although we do have the incident.
Hi.
Huh.
Now recently, so I guess.
At the moment, we have no there right.
So there.
Uh huh.
Hi, Adam.
Hi, this is the million dollar.
Oh, the hedges knocking Mona.
And also as short as Ed.
Portion of about 100 million, we're seeing from says they can go into next year.
At that so at the moment I think we are happy with.
Okay makes sense, yeah. That's tracking you had about one third or so hedged I was wondering if that with those plans have changed.
John asked earlier about kind of your cash plans and if you look that maybe expanding or newbuilds are second hands or anything like that sort of a related question frontline carries a nice premium to some of your tanker peers I think frontline is probably the only one of the only tanker companies that carries would.
You could say, it's like a respectable valuation in today's market or is there any opportunity out there for frontline to become a equity consolidator I know, there's some peers and an or Norwegian market. For example, we won't name names today, but they're trading at a significant discount. The Navy is is there some opportunity for consolidation there or is that sort of off the table.
No there are opportunities so not to say.
We are the pricing, we were well well below the printing we normally all rights in the.
Premium is that for the obvious reasons. We we do do have a main show those remains futures is thought to that and that will will remain so but in terms of consolidation. Yes. We are we are a potential consolidation, but we are comfortable we have now.
We will keep keep tracking opportunity. So so let's see what comes off and what makes sense, but with the SaaS. We already have then earning potential is already there and in which you can clearly see from the Q2 numbers.
Excellent excellent Dr. forgive me for this one Robert pardon question here, but we talked back in April and you had kind of a fund that gamble about if rates would come back down you know unsurprisingly that you'd be a walking across Norway. So I just wanted to check in on that and see when the trips planned and maybe it's after Kobe and we can get a group together.
Yeah.
Good morning enjoy the walk got interviewed for walk is going to stop coming from the side and then move to towards my hometown and has the right you're going the right way then Jay will.
Settle the bad so ended up being a big Indiana, and but site with the call comes out it was was high and.
And do they Kb didnt come very very close, but so fortunate enough I go away with it [laughter] axle at the here. Thanks again, Robert have a good luck.
Yeah.
Thank you. Your next question comes from the line of Louis much given a private investor. Please go ahead. Your line is now open.
Hello, Robert Linger the.
I'm, calling from Pittsburgh, which is the home of the steel industry that.
The good Scotsman they may Andrew Carnegie had made famous and I was curious what effect as scrap steel rates have on the retirement of vessels.
Scott So as you say.
Steel price.
Well you did the decision to retire vessels I know it has to do with the five year intervals, and so forth and the market of.
But the do higher or lower scrap prices affect your decisions in the industry to retire ships I just wondered if the rate of scrap steel would go up if that would result in more retirements, which would be beneficial for your.
Your industry.
Good question.
If I understood. Yes, yes. It does tend to give an example is our largest ships so by the way our older ship.
Nine so we don't have really any any kind of this but if you look at market as I mentioned in the introduction there are a growing number of older ships and looking at the last 18 months. Then the you still value has fluctuated between $11 million, an $18 million. So I know it's at the.
At the low low ended up scale. So it's it's part of the part of the decision, making headway well discuss not associated funding for this price good and if it is a good portion of the over the value of the contracts.
Well, maybe you could talk 70 shipbuilders into offering bonuses to the scrappers to tie in to sell the new vessel to scrapping a ship.
Yeah that you've been doing.
Yeah. So all combined had making a total of all that all shapes and.
I get the get-together balance back quicker that way.
Okay well thanks.
Oh, we have no further questions coming from the phone lines. Just a reminder, everyone. If you wish to ask your question. Please press star one.
Please continue.
Okay.
Okay No bank.
Well I think we'll move on and off.
So just like to thank everyone for calling in.
Also to my colleagues.
And everyone its.
Thank you very much will you assets.
It's gentlemen that this into her conference calls for the bank. Thank you for participating you may all disconnect.
[music].