Q1 2021 Frontline Ltd Earnings Call
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Good day and thank you for standing by welcome to the Q1 'twenty 'twenty 1 frontline earnings conference call. At this time all participants are in a listen only mode. After the presentation. There will be a question and answer session to ask a question. During this session you will need to press star 1 on your telephone on it.
Must've devices at this conference is being recorded the day on Thursday, the 27th of May 'twenty 'twenty 1.
And now without any further delay I would like to end the conference over to your speak at the day loss ball Salt interim CEO. Please go ahead.
Thank you very much.
Good morning, and good afternoon to everyone will come to from our first quarter earnings call for 2021.
They're obviously quite some time to being able to to provide black numbers, maybe to the surprised too.
To many of you.
Q1 to 1 with a fairly quiet quarter corporate wise as we are in a good position financially on no major transactions were concluded during the quarter.
We continue from time to have a high focus on the well being of our seafarers as they are out there being exposed to the global ebb and flow of COVID-19 infections.
Our technical and operations team are doing a fantastic job in mitigating the challenges otherwise and I'm very happy to report a fair well underway in our in Vaccinating our sales.
Let's move to slide 3 and have a look at the highlights.
Yeah.
The Q1 'twenty 1 performance is very much a testament to keeping true to our strategy.
Being mostly spot exposed are not expecting an imminent recovery in the market are suffering that's remained true to trading the ships in a manner, where we allow our vessels to commit to long voyage, this securing income, but potentially giving away upside on.
Our modern fuel efficient fleet is built for this purpose.
On the it also gives us this flexibility the flexibility this proved to be the right pool.
In the first quarter sales for 'twenty 'twenty, 1 we've made 19th.
That $1 per day on our VLCC fleet 50.
$15300 per day on our Suezmax fleet on $12000 per day on luxury class from my fleet.
So far in Q1 with 70% of our VLCC days at $18100 per day.
63% of our Suezmax days or $13600 total this per day on 15, 9% off on a lot to slash from stays up $14200 per day.
All of these numbers in the table or on the load to discharge basis.
Before in your takes you through the financial highlights let me quickly comment on the fleet development as well.
We took delivery of 2 <unk>.
For our luxury was coming this year.
From fusion on from future in March on a per respectively, bringing on a number of our low twos on the water to 'twenty.
Further so secretly we confirmed acquisition through resale of 6 high spec eco scrubber fitted vlccs to be delivered from Hyundai heavy industries in Korea.
<unk> in 2022 on the wall.
Early in 2023.
I'll now, let <unk> take you through the financial highlights.
Thank you Josh.
Good morning, and good afternoon tea on it yet.
And if it does turn to slides 4 and get the income.
Uh huh.
That said, we are happy to our reported numbers and blacks.
Total operating revenue.
Yes.
107 million in the first call day and you also have an adjusted EBITDA of 59 million.
And they get for connect income.
$28.9 million.
What's sustaining cents per share.
So there we had on adjusted net income of 8 point based on again, what 4 cents per share.
Yeah. It does.
Think about <unk> 7 million gain on the independents.
Hey, Pete.
And then on the advice.
Gain on marketable securities.
A 1.2 million amortization of a quiet kind of soccer and I sit up on 20 million share of yourself.
Come on that.
Okay.
Yeah.
Adjusted net income in the first quarter.
Having feet on me.
Compared with the previous quarter.
The increase that's true.
By a decrease in ship operating expenses.
On a million.
Mainly on flavor.
Out of 6.4 million okay.
And we also had an increase in <unk>.
John I'm, starting to kick it into mining of 6 point day familiar.
And that's just due to the high interest rates.
As well as we had a lot of sense and again suitcase in other calls.
Yeah.
Yes.
Our latest undertaken at the balance sheet on slide 5.
The total balance sheet numbers have increased with 10 million into first of all day.
The balance sheet in the quarter that from my lens.
Related to taking delivery on their lot 2 tanker from Houston.
In addition to ordinary debt repayments on depreciation.
Yeah.
That's the locks 31st 2021 frontline.
The city on that $18 million in cash on cash equivalents, including Undrawn amounts under our senior unsecured loan facility.
Suppose the characters and minimum cash.
Your appointment.
That's been paid.
Okay.
So on the cash break even rates and effects.
Yeah.
Yeah.
We estimate our risk cash cost breakeven rates go live on the names on 2021.
Perhaps with a $21500 per day from Easter.
$17700 per day for the Suezmax tankers.
And she stands out from $900 per day for electric case.
This gave us the diversity of about $18100 per day.
These rates are the all in day rates that our vessels must earn to cover budgeted operating cost and died.
Estimated interest expenses Tc and bareboat hire.
And installments on loans and G&A expenses.
In the quarter, we reported Opex.
Expenses offset themselves from $300 per day for the need to see.
So that's all from $100 a day for the Suezmax tankers and $7200 per day for day 2 decades.
It will be dry docked 1 suezmax tanker in the first quarter on that.
And we expect to dry docked juices second tankers and pour it on 2 tankers in the second quarter.
Uh huh.
Less than the GAAP.
The graph on the right times.
Uh huh.
As you should at least show being good that's the cash flow after debt service per year and per share, assuming 10, 2030 or $40000 per day achieved rates in excess of all the cash breakeven rates.
The number of executed vessels on time charter.
Our adjusted from your building deliveries and then looking at the payer, though to you on that.
5 day from April the first 2021.
So in this graph assets like as an example, but a fleet average cash cost breakeven rates from 8 investing $100 per day.
On a soothing $30000 on top of the average fleet.
I guess that the TCE rate would be 4 days from 100, a day, sometimes would then generate a cash flow per share adjusted if service of $8.45.
Yeah.
With this I leave the books to us again.
Like what I'm seeing here.
Let's move to 2 slides 7 on the.
Yeah on a recap of the Q1.2 on the.
Tanker market on.
It goes without saying that it's a it's been somewhat the demanding so total world oil consumption rose by $4.3 million barrels from January to March.
On reached $96.5 million barrels per day.
Other on supply.
Now, let's see <unk> 5 million barrels this was mostly.
Fueled by the adoptions from Saudi Arabia on their volunteer Cups.
That ended up at 93, and a half million barrels per day up there on this quarter.
We continue to draw on the inventory tanker demand remained basically unchanged.
We did during the quarter see return of Libyan volumes and we all saw the towards standard of the quarter on U S. The U S. Cold snaps created a lot of volatility.
So tanker rates firmed towards the end of the quarter on this is quite positive because it actually is indicating an AR balance.
On what may be perceived.
So basically to wrap up Q1, we see demand or consumption is running ahead of supply.
The the draw on the inventory is coming from me to get to that volume.
If you look at the chart on the right on Slide you see what I referred to that's a richtel rather than on a very strong market, but we see how quickly rates react where we saw firstly the aframax market move.
In line with the Libya opening up on.
Secondly, the suezmax small country occupancy on ductless, mostly fueled by.
The U S Gulf coast or the U S cold snap affecting that what we've thought of east coast.
So let's move on to slide 8 and look at the tanker order books.
On the all on successes, we are observing observing delayed recycling.
We see very little support for keeping older tonnage in this market, but they remain in the fleet list.
Recycling prices are up 30% year to date.
And on all kind of being negotiated around $550 per prolong from $423 million for VLCC.
This is to some extent being our competes it by the fact that we continue to see demand from vintage tonnage from undisclosed price buyers.
Relatively from.
Prices.
The overall tanker order book has shrunk yesterday by approximately 4%. This also helps us deliver on new ordering has been fairly muted.
We've seen on the Vlccs 20, new.
So at the ICU orders placed.
But at 25 vessels are delivered at the same time.
The order book.
It remains to be fairly flat.
The VLCC order book Thumps up around 9% of the existing fleet on the overall order book for tankers is right on 7% of the existing fleet.
Let's move to slide 9 on recap, what's going on in my mouth the process.
So the prices are on the move.
We have over the last 6 months see more seen more than 170, new orders for container ships.
We are also seeing quite some ordering on LPG on also seen confirmation of LNG orders.
Which further contributed to the activity.
And in line with unstable commodity space steel prices have depreciated sharply.
The fundamentals of the tanker market suggest the tightening of capacity over the coming years.
On the regulatory tightening in respect of greenhouse gas.
<unk> further supports the case of investing in modern fuel efficient ships.
So propulsion is yet not the driver right now, it's the yard capacity or rather the lack of it which is driving prices together with.
Steel.
So let's move to slide 10 on.
Look at the short term outlook.
So we're currently right in the middle of OPEC plus production.
The increasing.
They are increasing somewhat slowly, but they are adding to transportation demand.
[noise] currently Asia on in particular, China coming out of proof on your mid teens.
On the oil demand continues continues to recover.
Oh, I see U S on European focus.
We're coming out of Lockdowns.
Inventories, both on land and floating on a normalized on up.
Pre COVID-19 levels from.
From where we are now according to EIA oil supply is expected to grow by 6 million barrels by year end.
I mean, if you look at the graph on the left hand side below.
We see that most of these increases are expected to have them basically from where we stand now on over the summer.
The key to the demand balances in 2021, you can find on the right on site.
We know that gasoline demand fell by $3.3 million barrels per day in 2020.
On its now expected to grow by $8.1.8 million barrels per day in 2000 and sensible.
For John.
It's affected the crude oil balances by.
3.2 million barrels per day negative intuit to 'twenty on them.
About 1.3 million barrels per day is expected to return this year.
For diesel we're actually adding more than we've lost.
1.2 million barrels per day on.
For fuel oil, we're keeping up level.
Other kind of uses of oil is also adding to this of <unk> 7 million barrels per day.
Let's move over to <unk>.
Slide 11 I'm on.
Right.
So basically to wrap this up.
All key macro indicators point towards a firm recovery.
On global GDP is expected up 6% this year.
Asset prices are on the mood of yard capacity capacity is tightening on steel prices are increasing.
Oh, just mentioned global low surprise is expected to grow by 6 million barrels by the end of 'twenty on tool.
The COVID-19 vaccination pace in the developed countries is very encouraging on countries are opening up.
We can see on the graph below which indicates activity within the various key segments of the shipping sector.
The cyclical recovery from half thoughts at.
All key shipping sectors are thorough.
The tankers are lagging.
Frontline is ideally positioned to capitalize on capitalize on the anticipated recovery in fact from markets with a modern sports exposed fuel efficient fleet.
And with that I would like to open up for questions and answers.
Thank you and once again as a reminder, if you wish to ask a question at Star and 1 on your telephone.
Your first question today comes from the volume of John Chappell of Evercore. Please ask your question Lou on line is now open.
Thank you good afternoon.
So I'd say, that's pretty pretty balanced outlook on the market, maybe a bit more balance than some of the optimism out there yet.
Obviously, the press release last week on the 60 Vlccs indicate a I think a lot of optimism about where the market's going I think I asked this 3 months ago, but you know at this stage in the cycle based on what you see for the next 12 months or so do you think you're a more aggressive acquirer.
Assets and if so.
How much of this fuel propulsion question play into whether Youre doing more new builds like you announced last week.
Is it mainly the traditional frontline activity in the secondhand market.
Well, it's a it's all a question on well first of all I would say that we're always aggressive but the write up of June sales to kind of come our way.
But.
Our overall view of the market has kind of.
Uh huh.
Over the last couple of months I mean on more conviction now that we are moving in the right direction.
With regards to 2 resale versus modern kind of vessels on the water.
We obviously have to look at the current.
On a spot market.
The way to take a ship that's.
On the sailing.
Selling in this market or taking a ship that will be delivered on the point in time, where.
We expect it to be on full truckload again.
So that was the part of the consideration secondly.
No it's actually not that many vessels for sale not kind of fall within where we will now and less. So so you can say that although the activity in drybulk has been tremendous and the activity on ordering container ships on LPG has been fantastic and so forth the VLCC kind of.
Assets took the markets have been.
Fairly muted year to date.
Yeah.
Okay.
And then just a follow on to that as far as the financing is concerned like I I understand youre going to almost certainly get financing for these ships ordered.
Announced last week.
A bit curious to me that for the down payment given the cash you have on your balance sheet, you still drew down $50 million from the I mean.
The facility so what's kind of the thought process around the amount of liquidity you want to keep.
Taking that to pay down payments.
<unk> resuming the dividend despite a profitable quarter on like I understand that the second quarter's weak and you have kind of near term choppy outlook, but should.
Should we think about.
Just draw downs of debt to finance, new builds going forward and maybe retain the cash for a stronger market than you can think about capital returns again.
And I think.
They havent flexibility with respect to this.
Facility that we are doing on the.
We will establish Cynthia.
The debt financing.
We intend to do that.
I guess, probably in the second half of 2021 at least for the first doses.
And maybe also for all of them, depending upon the opportunities that arise when net again or start to work on that.
Sure.
I thought with respect to equity and the payment of all that.
Facility, that's been going on.
Neither have flexibility going forward to decide how to do that went on to do it I thought you'd.
I'd like to use day again.
It depends upon the share price and when they bid activity.
Rents on that so I think we have them keep that did open on it.
Mhm, Okay, alright, thank you inger thanks Lars.
Thank you.
Thank you. Your next question today comes from the line of Randy <unk> of Jefferies. Please ask your question.
Howdy team frontline how's it going.
But it is geared around the holidays to you too.
Alright.
I guess question you know we've talked a lot about the crude markets. Just looking also at the product tankers, maybe how do you view the those 2 and maybe the timing of an inflection on where you really start to see some rate improvement and then with that are using any of this kind of soft patch to clean up some of your LR twos that we're trading dirty to start.
Trading clean going forward.
Well to start with the first 1.
We are.
We are obviously in a recovery phase on the.
I think we probably just finished kind of drawing on on inventories separately. Some of this from I'm seeing which is relatively light.
Which means that you know and we will.
Also in the refinery turnaround there relatively have been wrong, so so actually quite.
Quite hopeful for the product market to start to run.
Kind of already in March.
On the paid that.
I think in order for the product market to start to properly move we need a bigger portion of the lost adjusted Mumbai.
On the but there is always a product market to be hot around arbs comp opening up and sometimes we need to see the refineries coming out of turnaround. So it's like a chicken and egg.
1 off discussion.
On the to be quiet on this I'm still kind of not 100% sure which with compressed. So so whether if it's going to be a pool or a push or or whether if we're going to see increased demand for crude oil first pushing the VLCC market than just linked to that low to some of the product is transported.
Or the other way around.
So it's a it's difficult to say on.
Yes.
With regards to cleaning up.
We have cleaned up 1 vessel on unused kind of day, so constraints in the market, it's not really an opportunity because it always comes from.
With some degree of costs.
And we always have to remind ourselves that we actually have a lot of incremental income derchin.
Hmm.
When we're doing this but I think it's a it should be expected that we gradually we will look at utilizing our vessels have a low twos because that's what they are rather than office.
Yeah that makes sense.
Alright, and then I guess second question from me you know you've shown some impressive expense control here with the market downturn, specifically more recently, a sharp reduction in vessel Opex and G&A, so going forward, what's a good run rate for those 2 line items.
And as I mentioned.
Quoted out to be or to now.
We would have a dry docking cost which is higher than it had in the first quarter, we only had.
$600000 on dry docking cost in the first school day.
Yes for the second quarter, we estimate around.
7 are probably a bit more as well.
So.
In that sense of course are the operating expenses will increase.
In the next quarter, but we didn't buy the handoffs between quarters, depending upon.
How much of a dry dock.
In the third quarter Lee.
Our planning to dry dock Kid you that huh.
Instead of 6.
Meaning that it can be kinda pop again, although that said for the second bolted on.
Of course on it with respect to day.
Admin expense I would say that.
On a wood Oh isn't that.
We had no on the first quarter skeptical there right I think it's a.
Probably a couple of million dollars on top of that would be on building a base going forward.
Couple of million on top of the 6 okay.
So $9 million is that a good run rate going forward.
That's probably a bit too high but a couple of dollars on top of what is seen in the report that just against it when there's something that country on April 5 whatever something in that respect.
Perfect Yep.
Well that's it for me. Thank you so much thank.
Thank you. Thank you.
Thank you. Your next question today comes from the line of Mike Misfire from H C. Wainwright. Please ask a question.
Yeah. Good afternoon, just most of my questions have been answered, but just kind.
Kind of going back to John's question regarding your thoughts on on ordering or buying more ships do you think there's an opportunity here. It seems like a lot of the operating so I'm going to pass it on 2.2.
To buy ships on order ships at these levels given the uncertainty regarding propulsion technology.
You know just curious to see if do you think there's further opportunities there.
New building versus acquiring retail.
Well, we think we will remain true to 2.2 kind of Harvard I'm trying not to harp too to the order book on to be quite honest.
Where the current order book is quite difficult to gauge gauge because.
I think you would struggle tremendously to order a VLCC say for delivery in Q4.2023 on.
If you should locate the slop there I think the prices are probably north of 100.
So so you know it could be that.
We would rather than focus on on on acquiring other re sales or or a modern eco vessels on the water.
But I think it's important to note that after the husband the frantic activity with yards.
The Ingram I'd like to compare some of the outlook going forward to the periods. We have been in 2002.2003.
On at that time, we had a lot more yard capacity coming right now we don't have that so.
We even have.
Yards.
Starting to look at 2025, just to give you a color on on a on a kind of.
Of the situation.
Yeah.
Okay.
And you know you guys had a really modern fleet.
And you mentioned the scrapping prices are picking up what do you see out there as far as you know actually if somebody's older ships finally heading to the scrap yards I mean, you know.
Current market prices on the current spot prices are are.
Very challenging for these older ships and I was just curious if we do you expect to see that scrapping and finally start to increase here during the summer.
I think as well kind of are.
Counts stands up to 8 vlccs sold for crop year to date on them.
I think it's 3 suezmax is.
We have to remember, though that the hurricane disruptions and the capacity for the recycling yards to to actually accept office due to COVID-19. So so the pandemic has affected the kind of efficiency there as well.
I think where the prices are now on on on recycling steel we should.
Definitely see some some action.
Some that we still have this competition out in the market for <unk>.
Vintage secondhand tonnage.
Coming from undisclosed.
On the parties, which most likely are involved in and.
The trade that's all I'd like to refer to as the dark web of oil basically transporting our the Venezuelan or Iranian sanctions crudes.
So I guess with your ongoing yeah, I guess below ongoing talks.
Yeah.
I guess with the ongoing talks with uranium.
Essentially.
Those sanctions being removed.
You know whats your thoughts about those about soles.
Finally, maybe not being able to compete in an open market.
I think that could be tremendous kicked out too.
On a conventional low binding tanker market.
Hum is basically.
We took on we'll talk about the Costco moment.
In our in the tanker industry and I think you could could have that because suddenly at least with the nuclear deal between us and our on Iraq.
You're going to have quite a lot of volume that needs a compliant ships to trade trade that kind of within within the component market.
Okay, Great and just 1 final question, if I may to anger.
Regarding the the dry docking schedule.
You know are you trying to do all the dry dockings ahead on the fourth quarter or do you think you'll have some ships in the fourth quarter as well just kind of positioning yourself for a market recovery.
We will end up doing it.
And the fourth 1 zone and then the second on the third.
Okay, great. Thank you.
Thank you ladies and take the minutes as a reminder, its star 1 if you wish to ask a question. We do have 1 more question at this time. This comes from the line of Chris song. Please ask your question.
Hey, guys. Good afternoon, how are you.
Okay.
Hi, I wanted to just kind of dig in a little bit more to a question that was asked.
Earlier regarding the Opex, so that it kind of came down significantly from Q to Q4, but roughly around 20% and just looking back at your from your previous presentation on the Opex daily Opex, where like the Suezmax is that correct.
9700, a day and you know in this presentation. It sounded like 7100, so maybe if.
If you can help explain yep.
How that cheap.
Uh huh.
Opex will vary between quarters assets that you could be John.
Got it.
All the vessels that there'll be a drydocking are not going away.
In this particular quarter you are referring to with the Suezmax is having a high opex.
Due to that you had dry docking so is that to say.
In that quarter.
Why now are.
Are you on they had them.
A small drydocking cost isn't immediate.
Okay.
But I think the southern clarify we actually take the actual dry docking cost in in the quarter defense. It that we expense them kept at ISS menu a lot of tenants.
So that's why we get that volatility on the yeah.
Right I see I see okay understood. Thanks, so much I guess just following up on another question.
For your the 6 Vlccs resale.
Turbine delivery in 2022 could you, perhaps expand on the cadence of deliveries it more frontloaded or back loaded I know wanted to delivering 2023.
Wanted to know if it's gonna be smoothed out or for.
Any color would be appreciated.
Well, it's it's it's going to be fairly fairly.
Sadly smoothed the 2 to be quite honest.
The first vessel delivering very early in that tended to obviously, we have a little bit of flexibility on the deliveries.
At this stage so on them coming like price on the string.
On the last 1 is coming very very early in 2023.
Okay and.
Great.
The last question I noticed in the.
The presentation or in your press release, there was a.
Purchase there was a decision to purchase shares in Golden Ocean.
Just I think you only have about 20000, so it's not material, it's not big but I wanted to see.
See if you can go on to your details on the purchase serious Golden Ocean.
This is really.
Related to that they have a.
Forward contract, where we and total notion shares.
We then are sitting.
And with that contract in a way that the possibility to take part in that practice Uhm Golden Ocean.
So that it was not a huge amount. It was he was his shares but anyway, we did it it will sit within them on anyway.
<unk>.
Alright fair enough that's it from me. Thank you guys.
Thank you there are no further questions at this time and I'll speak to you.
Yeah.
Thank you very much for hosting and also thank you very much for listening in thank you to the entire frontline team for.
Not to take efforts in <unk>.
Q1 on the stay safe everyone.
That does conclude our conference for today, Thank you for participating.
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