Q4 2020 Frontline Ltd Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the fourth.
Four to 'twenty 'twenty Frontline Ltd earnings Conference call.
At this time all participants are in a listen only mode. After the speaker presentation that would be a question and answer session to ask a question. During the session you will need to press star one on your telephone keypad.
I must advise you that this conference is being recorded today.
Both GAAP and I'd like to end the conference over to your Speaker today, Mr lost that day. Please go ahead Sir.
Thank you very much on good morning, and good afternoon.
Welcome to this from clients fourth quarter on full year earnings call.
It's been a very volatile year on the Blackstone.
Today.
From a common feature in our market landscape.
The COVID-19 pandemic has affected our business on many levels, but most importantly, our seafarers have been safe on our organization have been spared serious human closer classes.
Talking about kids have been challenging but the year on the whole.
Actual solid business wise and we recorded our best full year result in 2020 since 2008.
Let's move to slide three on have a look at the highlights.
Frontline came into the fourth quarter of.
How 'twenty on assessment expecting some degree of normal seasonal outage to kick him a simple.
Northern hemisphere, usually stock up for winter.
But this time around the fourth quarter proved to be softer than Q3.
Actually for the first time in 10 years.
On the load to discharge.
20 days, we made 17 caused from $200 per day on our Vlccs $9800 today on our Suezmax is on 12 and half from dollars per day from higher lapses.
So far on the court in the fourth.
So from the third quarter, we had 78.
To sum up on available VLCC days $22600.
68% of available Suezmax days of $17800 on 65% of our luxury shopping on my space at $12200 per day.
I think it's safe to say our markets in Q4 were challenging.
But I'll come to that later on this presentation.
I don't know, let's just take you through from clients' financial highlights.
Thanks, John.
Hey, John.
Yes.
And it's done turn to slide four and look at the income statement.
We achieved total operating revenues net.
The voyage expense the 100 on the $1 million.
The others are in the fourth quarter at an adjusted EBITDA of 31 million.
Just on this.
Yeah.
Reported net loss from nine 3 million.
Uh huh.
And adjusted.
You may now on.
10 cents per share in the fourth quarter.
Uh huh.
Sure.
Which were the gain on the sale of frontline.
9 million.
Also a $2 5 million gain on derivatives.
At $1 9 million unrealized gain on marketable securities.
At 1.3 million amortization on acquired time charters.
And at 1.6 minutes channel and also.
Oh, it's so simple.
Yes.
Yeah, just to get income.
On the quarter.
And Kris.
From a stockholder.
By $76 million.
And that was primarily driven by assets.
Soccer on made in decreasing our time charter Kevin's earnings.
Due to the lower reported TCE rates in the fourth quarter, which starts with true.
Frontline that reports to full year 2020 net income.
$413 million.
Or $2 and nonsense, especially.
And then just a net income of $42 million or true.
Dollars or 13 cents a share.
So since 2000, it's funny.
Yeah.
That's correct.
The balance sheet on slide five.
Sure.
The end of December 31, 2020, frontline has $413 million in cashing pass equivalent.
Clothing, the on my Mom's under our senior unsecured loan facility the marketable securities on minimum cash requirements.
In November 2020.
The answer into two challenges on the citizens.
On a total amount of younger interest of one $1 million to $5 million.
To refinance existing German on the 17th which matured in the second quarter of 2021.
Which had total volume and payments of 300 on.
$24 4 million and strength.
But on facility in an amount of one.
100, and so does any one 7 million to partially finance the capex requirements from Dan on.
Also in 'twenty $142 4 million for the fourth of two tankers that we have under construction.
Further in February 2000.
On the expenditure side of our senior unsecured revolving credit facility I'll have to throw at a $75 million by 12 months to May 2022.
From an all day just extend this uncertainty has been recorded as long term debt on December 31st 2020.
True.
<unk>, 20th 15 million demands on the remains available and Undrawn on this facility.
And so loving the concluded refinancing and financing we have no material debt maturities until 2023 and the new building program is fully funded.
Then let's.
Take a closer look at the cash breakeven rates.
Next on slide six.
Yes.
We estimate average cash cost breakeven rates for 2021, although contract of 21 six on a dollars per day from the Vcs.
$19800 per day from the Suezmax tankers.
<unk> thousand $600 per day for day, two tankers in the fleet average estimate it's about $18200 per day.
These rates are the all in daily rates that our vessels must earn to cover the budgeted operating cost on Drydock the estimated interest expenses.
D C and bareboat hire installments on loans and G&A expenses.
I'll give you quoted opex expenses in the fourth quarter net yourself from them.
27, $800 per day from any fees.
<unk> $9700 per day from the Suezmax and 8000 paying on their doors per day by day that protect us.
You'll like expenses were impacted by.
Dry docking of force respect factors involved and extra tanker in the fourth quarter.
We will drive up the volume Suezmax tanker in the first quarter of 2021.
In the graph on the right hand side on the side, we have shown incremental cash flow after debt service per year, a share assuming pins on 20000.
30000, or 40000 per day in that she invest in excess of on a cash breakeven basis.
Activity.
And then I'm sorry, the numbers included net time charter out.
They are adjusted from your building their list and they are looking at a peer don't see on that on 65 days from January one 2021.
As an example, with a fleet average cash cost breakeven.
Based on $18200 per day, and assuming $30000 on talking about talked the average fleet TCE rate would be $48200 per day, and frontline would generate the cash flow per share after debt service.
And 46.
Debt.
With this on either virtual Doctor again.
[noise]. Thank you inger.
So oh.
Let's move on to two.
Seven.
The recap.
Fourth quarter tanker markets.
So during Q4 oil inventories drove the record pace to the tune of $2 6 million barrels per day.
According to EIA.
Global demand continued to rise to levels from their 10 million barrels above.
With two levels of oil prices.
<unk> strengthened further on the structure of the oil market incentivized players to empty tanks.
Floating on the line.
Of the future profit growth increasingly lower.
On the price, making it.
And the economics to hold stoked.
Q a significant number of tankers were employed in storage in the second half of last year, particularly outside China.
Inventory of drill cycle added pressure to an already oversupplied market of these vessels might return to compete in this book of business.
Hey, Sean.
Particular channel has.
What's been the key drivers on the recovery so far.
This support to the VLCC market for a while.
They source their.
Returning a total demand from the Atlantic Basin in the latter part of.
Last year, we saw John wholesale withdraw on inventories musing their demand for tankers.
At December 2000.
On 'twenty Chinese oil consumption reached all time high of $16 6 million barrels according to the EIA.
Let's move to slide eight under GAAP, the crude fleet from photographs.
The document that ships older 20th struggled to trade in the conventional oil markets is undisputed oil.
Oil majors traders on national oil companies all presses.
Note that 2000 years.
This means that on the very limited amount of options once the debt has gone through.
The 20 day classes.
And with franchise that zero to negative from non eco tonnage, we struggled to see the prospects for this portion of the fleet for alternative use the convention markets, where <unk> is not very hot at the moment there is a limited demand for storage.
Total cups are in steep backwardation.
We also believe the upcoming regulatory changes.
With regards to G. G emissions will challenge the fleet going forward.
This indicates a limited lifespan even for vessels of 17 half years of age.
Ordering.
Moving activities muted I'm just not much the current age profile of the fleet.
We did see some orders towards the end of last year.
Okay.
Lifted the order books slightly.
30% of the overall tanker.
Fleet is about 15 years on.
On the regulations on energy efficiency or the famous now E X.
Kicks in.
In 2023, the potential for carbon tax regime.
On the potential for carbon tax received kicks off this.
On this whole portion of the fleet will.
We need to invest heavily or retire.
Let's move to <unk>.
Slide nine.
John.
On to talk about our key product tankers.
We normally don't mention our team trading capabilities in these presentations.
But we do have 18, modern ela to some for more to come which makes us a significant owner in this space.
The reduction in jet fuel demand of travel both restricted in 2020 hit refinery margin survey refer.
On our margins in Europe.
Have been under pressure for years and due to bleed.
Either expect literally investments have been done in improving on modernizing these plants.
Last year's depressed margin accelerated the decision to permanently close or convert refiners refinery to storage plant or in some few examples biofuel plants.
<unk> in general.
And in particularly Middle East and China have over the last three years expanded refining capacity significantly.
Modern refineries process, a wider range of crews more efficiently.
And I can give you an entire presentation on the topic.
But the key is that they outcompete local refinery.
<unk> price in especially Europe, but also to some degree on the U S.
We can see on the slide here that the refining capacity that is permanently closed.
In Europe.
It is to the tune of 500000 barrels per day and U S close to 700000 barrels per day.
Refinery has been some closures in Asia of centered on 5000 barrels today, but the new additions are one 4 million barrels per day.
In that we see that or we expect the trade flows to be affected by this.
As product demand normalizes post.
COVID-19 pandemic in Europe, and the U S and we have to assume return to some level of momentum over the coming years jet fuel and other.
Products are far more likely to be sourced by Asia on this will incur longer ton miles.
Our <unk> offer great economics economies of scale.
Call the expected developments in the product trade flows.
Let's move on to slide 10 on discuss the market.
<unk>.
I'm focusing on the short term drivers in this presentation.
Hopefully the interesting part considering where the markets are.
So the array of assets.
On a signal the reversal of their voluntary one Midland barrels per day cuts.
To come in April 'twenty one.
In addition to whatever they release.
It's unusual.
Cold weather in the northern hemisphere, the source useful demand.
Gas LNG in Asia non capabilities.
Two.
Sorry.
The GAAP LNG Spike in Asia on the.
Unknown capabilities too.
Oil for heating.
Dynamics work as we haven't really seen oil for heating in 10 years.
Great.
A lot of uncertainty around how much oil have been incremental oil that's been consumed during this period.
Despite the on LNG prices implied.
Price oil prices up $250 per day, making.
Making great incentive to burn oil for heating.
We have episodes or so situations, where skiing suddenly became popular in Madrid, and most recently in Texas, we've seen.
The cold weather that affected production.
Goldman Sachs estimates that this production loss to be close to 700000 barrels per day for February.
Oil demand continues to recover despite extended lockdowns oil prices indicate tightening markets.
The floating storage.
No.
No longer a significant factor weighing on the tanker market as we see it.
On an April alone oil supply is expected to increase by 3 million barrels according to EIA.
So let's move to slide 11 on some of these things up.
Yeah.
So the global tanker markets have corrected sharply during second half 'twenty after significant retraction in world growth.
All the leading commodity markets are pricing a strong recovery in 2021.
On the global GDP is expected to grow by five 5%.
During this year.
Oil demand is recovering and what pace.
A little bit on now we all know that the day rate.
John.
The analyst agencies are slow to react both on the downside when demand disappears, but also to the upside.
Modest recovery.
With global oil production is expected to increase by $5 3 million balance during 2021.
When this recovery starts for tankers is simple but.
But we are very low on the cycle at the shops on the bottom right side indicates.
On the OPEC process is expected to east cuts from Q2, 'twenty one onwards.
And with all the above we believe frontline is very well positioned for a recovery and tanker markets with our model Opex posts.
With that.
And to open up for questions from the audience.
Thank you.
And gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question. Please press star one on your telephone keypad and wait for your name to be announced please standby, while we compile the Q&A Julie.
I would like take a few moments.
Okay great.
Once again.
If you wish to ask a question. Thank you.
And our first question comes from the line of John Chappell from Evercore. Please ask your question. Your line is open.
Yeah. Thank you good afternoon.
As I was reading your press release on your presentation. It struck me that.
Frontline has a history of being nimble and acquisitive when others can't and now that you've been very prudent with your dividend anger has done a great job of pushing out the maturities it seems like your.
On a position of financial strength.
At a time when the market is really still kind of struggling so how do you think about these next six months and frontline's willingness and ability to.
To acquire ships before there's a you know the the optimistic upturn starts maybe later in the year early next year.
Or do you sit back and wait to see the whites of the eyes on a recovery.
Before you get more aggressive.
Well, it's a good question on Hudson expected one.
I think I would like to emphasis on our capabilities.
<unk> mentioned that.
Whether you know whether it sits back or whether it's really looking at something right now whether it will do something in Q2 or later on.
Comment on to the cloud on his thoughts on.
On it also I believe it's we're always looking on.
Our financial show.
So ready to move.
When we see the opportunity.
Yes.
Okay and then.
Second question more of an industry one, but the one I have also been thinking about it I think scrapping is kind of important on the margin. It's not the most important part of a recovery in this market that's going to be demand driven.
It seems like a lot of companies have been talking about the new mission.
Emission standards and the terrible market environment and older ships being discriminated against on why that's going to drive scrapping and you had a whole slide on that yourselves.
It just seems like there hasnt been much in the form of scrapping in the last 12 months, where rates were pretty much as bad as they could be.
But it's the nine months and now there's this kind of consensus optimism that OPEC starts producing again and the world's recovering and everything is going to get better. So why would we see scrapping accelerate when the view is that you know things can only get better from here, where there really wasn't much to be done at the absolute trough.
And so on.
I must admit I'm on.
I think I mentioned or at least indicated in my presentation.
Keeping in this market.
A bit of a mystery to me.
I pointed out.
For all economic reasons.
On the.
We shouldnt be scrapping on loans.
During this month or the last months.
And we haven't seen that yet I think trapping will accelerate.
Throughout the year.
Regards to.
The challenging.
On the somewhat pace.
With regards to regulatory.
Total retention and so forth.
It's going to be a very important too.
Our market going forward.
I wouldn't be I won't joined likes to do say predictors, saying that every day.
Above the 10 year's needs to scrap and all that stuff.
There is a lots of bids on.
On the Tac is to actually improve that.
<unk> emissions with the existing kits.
But for sure it will affect our market going forward.
I think from has to be a little bit kind of critical of all the various.
On a family.
John.
Predictions on the outlook for the time.
Yeah that makes sense, okay. Thank you Lars.
Thank you. Our next question comes from the line of Chris <unk> from Webber Research. Please.
A question on any.
Good afternoon, how are you logging day.
Good afternoon.
So I guess I just wanted to say true up.
Following up on what John was talking about regarding on balance sheet on.
You guys.
Net debt.
He says instead of platform.
What about <unk>.
Is there any appetite to kind of increase your operational profit.
Chinese at.
What could be the trough with this market on them.
No.
Yeah.
So certainly we can hear.
You too well.
Sorry for that.
Can you is it better.
Yes. This is beth.
So I guess I was just following up on what John was saying and commenting on noticing that you guys have incredibly strong balance sheet Ingrid.
Congrats on a great job pushing out the debt maturity debt to 2023.
Instead of day. Thank you.
They need from us.
John.
What about your appetite to increase your operational leverage coming in new charters of any sort of duration.
Yeah.
So if I got you correctly.
Basically to increase our.
To try to increase our operational leverage.
On the thing is.
Let me answer the question in a different line so.
So we.
Right now, we're really happy with the situation we're in because we have a fleet.
Split to exposed to two two very large degree.
Our debt from the five suezmax since we have on long term.
Charter out.
We are nearly 100% spot exposed.
So basically we are in a position where we want to reap the benefits, whether if we want to increase.
Our ability to make.
We have harmony.
I think that's potentially.
Few months.
On a back to the back to two two.
The previous comments.
We are looking but.
From a country confirm anything.
Yes.
I guess.
Make more looking.
Sure sort of color on.
Yeah.
Hmm.
Yes.
Specific propulsion TEG or maybe.
Mhm.
On Tuesday.
On the trade.
It doesn't seem to debt.
Sure.
Sorry.
Really struggling to hear you, but did you mentioned propulsion.
Is it alright.
Yes.
Breaking up.
Uh huh.
Whether its we are looking at various propulsion types yet.
But we're not.
Ready to invest on yes.
Thank the jewelry to some degree out as I mentioned in our Q3 differentiation with our modern fleet.
Actually on a pretty good shape at least when it comes to emissions towards 2030.
Obviously.
For us to make an investment in in propulsion.
I mean retrofitting or ordering.
I'm kind of.
Ships with a different propulsion now from them.
On the traditional loan we actually need to see a little bit I can discover discussion.
No.
On the obvious priority investing scrubbers when it was on.
The economical case for it.
On propulsion, it's not yet we don't know.
Well, we're pretty sure there will be a carbon tax we don't know how much it's going to be.
We don't know, how it's going to be volume.
But.
So basically the propulsion discussion, it's still something we have.
I could easily say that both LPG on LNG on them eventually of mobile networks.
Alex.
Yes.
Really the way.
To go.
Or one other way to go I think we will end up in a situation where there are barriers.
Propulsion types, depending on what country you're doing.
But I think it's very important to keep in mind.
Ship owners, we coffee painful for the stockpile.
Basically the market needs.
What is willing to pay for.
Okay Alright.
Yeah part of it but I mean, I'm going to just try to reconnect to jump back in queue. So sorry about that.
Right.
Thank you.
And gentlemen, as a reminder.
If you wish to ask a question. Please press star one thank you.
And our next question comes from the line of Randy gave them from Jefferies. Please ask your question.
Uh Huh Zynga How're you.
Oh got it.
Very good.
Good good.
Alright, so just asking about the dividend obviously you bought that back last year haven't paid a dividend now for the last few quarters. So its earnings return as expected I guess here in the in the coming quarters as there is a formula for the dividend to return or is it kind of fully discretionary and if so what will cause you to reintroduce the dividend.
Dividend.
I mean, I think it's that on.
In the earnings.
Morning.
Yeah.
Yes.
Yeah.
Return on our dividends total shareholder.
But we would have to look at.
Yes.
Both are positive yourself first.
Or do you have.
Adding a positive result, and then obviously also we would have to go get them knocking on that.
The.
That's the same wording in the way he asked me having on our press release.
Got it okay.
And then as your operating both the.
And the product tanker market, you know, which of those or maybe which asset class vlccs suezmax or twos are you most bullish on here.
On the coming months.
[noise] oven on.
A couple of times.
Hey.
Actually.
Crude.
We all our companies is like a four cylinder engine are working on the VLCC suezmax the well they're allowed to start on trading clean under up to <unk>.
So.
Recently, we've made.
Some spark.
In the Suezmax cylinder.
Uh huh.
To that excitement.
At least recovering from negative.
Richard.
Right now we have the Aframax space, where there's some excitement due to weather disruptions in the us Gulf.
Right.
On shore, which segment will be hit first she'd be caught on us.
When when the recovery story starts to two.
To kind.
Kind of come true.
<unk>.
Potentially the VLCC market, because eventually you need refinery runs to increase for products to flow but.
Then.
Such off of and a return on volume will probably come from the middle East, which would firstly they benefit from it.
Okay.
Got it.
Alright, Thats there and then quickly here on asset values, you know how have those been impacted kind of in this current market weakness. However, there's also.
On the optimistic outlook for the back half of this year.
So it seems like the share price rally maybe outpaced the increases in asset values is that accurate or what are you seeing on that side.
Alright.
I agree with your analysis I believe share price.
The market is pricing the recovery a little bit.
So.
Obviously jumping over the non security in the front half.
But we have seen a few transactions.
Underpinning.
The volume at least if you look at the five year old bucket.
We also are about to get some pricing.
Further I believe on re sales.
On the Newbuild, but I wouldn't say, it's an upward movement, but I would say it's at.
At least the firmly up.
What might be the floor.
Sure.
Good day, well that's it from me thanks again.
Thank you.
Foreign sales.
Thank you, ladies and gentlemen, with no further question at this time. Please go ahead.
Yeah.
Okay.
We have no further question at this time please continue.
Okay.
With that I would like to thank you all for for this thing.
We are expected from the time to come and talk is on.
Sure.
Great weekend.
Thank you.
Ladies and gentlemen that does conclude your conference for today. Thank you for participating you may now disconnect.
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Yes.
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Okay.
Okay.
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