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Frontline Plc Investor Presentation 2010
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Investor Presentation
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F R O N T L I N E
Q2 2010 Results
CEO Frontline Mgt, Jens Martin Jensen
CFO Frontline Mgt, Inger M. Klemp
August 27, 2010
Disclaimer
THIS PRESENTATION AND ITS ENCLOSURES AND APPENDICES (HEREINFER JOINTLY REFERRED TO AS THE "PRESENTATION" HAS BEEN PREPARED BY FRONTLINE LTD. ("FRONTLINE" OR THE "COMPANY") EXCLUSIVELY FOR INFORMATION PURPOSES. THIS PRESENTATION HAS NOT BEEN REVIEWED OR REGISTERED WITH ANY PUBLIC AUTHORITY OR STOCK EXCHANGE. RECIPIENTS OF THIS PRESENTATION MAY NOT REPRODUCE, REDISTRIBUTE OR PASS ON, IN WHOLE OR IN PART, THE PRESENTATION TO ANY OTHER PERSON.
THE DISTRIBUTION OF THIS PRESENTATION AND THE OFFERING, SUBSCRIPTION, PURCHASE OR SALE OF SECURITIES ISSUED BY THE COMPANY IN CERTAIN JURISDICTIONS IS RESTRICTED BY LAW. PERSONS INTO WHOSE POSSESSION THIS PRESENTATION MAY COME ARE REQUIRED BY THE COMPANY TO INFORM THEMSELVES ABOUT AND TO COMPLY WITH ALL APPLICABLE LAWS AND REGULATIONS IN FORCE IN ANY JURISDICTION IN OR FROM WHICH IT INVESTS OR RECEIVES OR POSSESSES THIS PRESENTATION AND MUST OBTAIN ANY CONSENT, APPROVAL OR PERMISSION REQUIRED UNDER THE LAWS AND REGULATIONS IN FORCE IN SUCH JURISDICTION, AND THE COMPANY SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY FOR THESE OBLIGATIONS. IN PARTICULAR, NEITHER THIS PRESENTATION NOR ANY COPY OF IT MAY BE TAKEN OR TRANSMITTED OR DISTRIBUTED, DIRECTLY OR INDIRECTLY, INTO CANADA OR JAPAN.
THIS PRESENTATION DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH JURISDICTION.
IN RELATION TO THE UNITED STATES AND U.S. PERSONS, THIS PRESENTATION IS STRICTLY CONFIDENTIAL AND IS BEING FURNISHED SOLELY IN RELIANCE ON APPLICABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED. THE SHARES OF MDL HAVE NOT AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES, OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS, UNLESS AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT IS AVAILABLE. ACCORDINGLY, ANY OFFER OR SALE OF SHARES IN MDL WILL ONLY BE OFFERED OR SOLD (I) WITHIN THE UNITED STATES, OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS, ONLY TO QUALIFIED INSTITUTIONAL BUYERS ("QIBs") IN PRIVATE PLACEMENT TRANSACTIONS NOT INVOLVING A PUBLIC OFFERING AND (II) OUTSIDE THE UNITED STATES IN OFFSHORE TRANSACTIONS IN ACCORDANCE WITH REGULATION S. ANY PURCHASER OF SHARES IN THE UNITED STATES, OR TO OR FOR THE ACCOUNT OF U.S. PERSONS, WILL BE DEEMED TO HAVE MADE CERTAIN REPRESENTATIONS AND ACKNOWLEDGEMENTS, INCLUDING WITHOUT LIMITATION THAT THE PURCHASER IS A QIB.
NONE OF THE COMPANY'S SHARES HAS BEEN OR WILL BE QUALIFIED FOR SALE UNDER THE SECURITIES LAWS OF ANY PROVINCE OR TERRITORY OF CANADA. THE COMPANY'S SHARES ARE NOT BEING OFFERED AND MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN CANADA OR TO OR FOR THE ACCOUNT OF ANY RESIDENT OF CANADA IN CONTRAVENTION OF THE SECURITIES LAWS OF ANY PROVINCE OR TERRITORY THEREOF.
THIS PRESENTATION INCLUDES "FORWARD-LOOKING" STATEMENTS (DEFINED IN SECTION 27A OF THE US SECURITIES ACT AND SECTION 21E OF THE US EXCHANGE ACT AS ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS) INCLUDING, WITHOUT LIMITATION, THOSE REGARDING THE COMPANY'S FINANCIAL POSITION, BUSINESS STRATEGY, PLANS AND OBJECTIVES FOR FUTURE OPERATIONS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR, AS THE CASE MAY BE, THE INDUSTRY, TO MATERIALLY DIFFER FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON NUMEROUS ASSUMPTIONS REGARDING THE COMPANY'S PRESENT AND FUTURE BUSINESS STRATEGIES AND THE ENVIRONMENT IN WHICH THE COMPANY WILL OPERATE. AMONG THE IMPORTANT FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO MATERIALLY DIFFER FROM THOSE IN THE FORWARD-LOOKING STATEMENTS ARE, AMONG OTHERS, THE COMPETITIVE NATURE OF THE MARKETS, TECHNOLOGICAL DEVELOPMENTS, GOVERNMENT REGULATIONS, CHANGES IN ECONOMICAL CONDITIONS OR POLITICAL EVENTS.
FRONTLINE
FRONTLINE
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Agenda
- ☐ Second Quarter 2010 Highlights and Transactions
- ☐ Financial Review
- ☐ Newbuildings
- ☐ Market Update
- ☐ Outlook
- ☐ Q & A
Second Quarter 2010
Highlights and transactions
- Completion of private placement of $225 million of convertible bonds (April)
- Delivery of two Suezmax newbuildings from Rongsheng
- Hull H1018 – Front Odin, 12 May 2010
- Hull H1026 – Front Njord, 12 August 2010
- Delivery of two VLCC newbuildings from SWS
- Hull H2419 – Front Cecilie, 10 June 2010
- Hull H2420 – Front Signe, 9 August 2010
- Acquisition of two 2009 built VLCCs
- Front Eminence delivered 18 May, 2010
- Front Endurance delivered 28 June, 2010
- Secured long term financing of 70% of the purchase price
FRONTLINE
Second Quarter 2010
Highlights and transactions
- Ordering of two 156,900 dwt Suezmax newbuildings with expected delivery in February and May 2013 and securing options for two similar Suezmax newbuildings (June)
- Front Duke redelivered from time charter and subsequently entered into a bareboat charter until end-2012
- Extention of charter-in periods until 2013 for the following vessels:
- Front Melody (Suezmax)
- Front Symphony (Suezmax)
- Front Tina (VLCC)
- Front Commodore (VLCC)
FRONTLINE
Second Quarter 2010
Financial Highlights
Q2 2010 results
- Net income: $81.3m
- EPS: $1.04
- Net income excl. gain: $71.6m
- EPS excl. gain: $0.92
Dividend declared per share Q2: $0.75
Share price NYSE 25 Aug. 2010: $26.69
- Market cap: $2,078m
FRONTLINE
Financial Review
Income Statement
| 2009
Apr-Jun | 2010
Apr-Jun | CONDENSED CONSOLIDATED INCOME STATEMENTS
(in thousands of $) | 2010
Jan-Jun | 2009
Jan-Jun | 2009
Jan-Dec
(audited) |
| --- | --- | --- | --- | --- | --- |
| 281,536 | 356,116 | Total operating revenues | 687,939 | 638,137 | 1,133,286 |
| - | 9,664 | Gain on sale of assets and amortization of deferred gains | 19,481 | - | 3,061 |
| 48,691 | 76,227 | Voyage expenses and commission | 144,161 | 112,884 | 219,375 |
| 8,016 | 11,430 | Profit share expense | 22,745 | 22,503 | 33,018 |
| 50,794 | 47,169 | Ship operating expenses | 92,540 | 99,407 | 206,381 |
| 45,218 | 52,498 | Charterhire expenses | 96,398 | 97,194 | 169,503 |
| 7,016 | 7,637 | Administrative expenses | 15,513 | 15,271 | 30,647 |
| 59,667 | 52,841 | Depreciation | 105,894 | 117,783 | 237,313 |
| 219,402 | 247,802 | Total operating expenses | 477,251 | 465,042 | 896,237 |
| 62,134 | 117,978 | Net operating income | 230,169 | 173,095 | 240,110 |
| 5,551 | 3,900 | Interest income | 7,976 | 11,624 | 22,969 |
| (40,131) | (37,555) | Interest expense | (73,066) | (80,751) | (160,988) |
| (101) | (112) | Share of results from associated companies | (285) | (265) | (544) |
| (325) | 167 | Foreign currency exchange gain (loss) | 181 | (434) | (346) |
| 1,262 | (2,833) | Other non-operating items | (2,625) | 2,423 | 4,632 |
| 28,390 | 81,545 | Net income before taxes and noncontrolling interest | 162,350 | 105,692 | 105,833 |
| (48) | (55) | Taxes | (104) | (46) | (361) |
| 28,342 | 81,490 | Net income | 162,246 | 105,646 | 105,472 |
| (572) | (184) | Net income attributable to noncontrolling interest | (1,252) | (1,258) | (2,771) |
| 27,770 | 81,306 | Net income attributable to Frontline Ltd. | 160,994 | 104,388 | 102,701 |
| | | | | | |
| $0.36 | $1.04 | Basic earnings per share ($) | $2.07 | $1.34 | $1.32 |
FRONTLINE
Financial Review
Income on time charter basis
| 2010 | 2009 | |||||
|---|---|---|---|---|---|---|
| $/day | YTD | Q2 | Q1 | FY | Q2 | Q1 |
| VLCC Spot DH | 49 700 | 50 020 | 49 200 | 38 000 | 38 700 | 56 200 |
| VLCC Spot SH | 23 200 | 22 100 | 23 600 | 23 800 | 28 300 | 28 200 |
| VLCC Spot | 48 600 | 49 500 | 47 500 | 36 900 | 37 700 | 53 700 |
| VLCC whole fleet | 46 000 | 46 600 | 45 300 | 38 300 | 38 400 | 50 300 |
| VLCC Spot excl. floating charter | 51 600 | 51 900 | 54 000 | |||
| Suezmax Spot DH | 30 400 | 30 300 | 30 600 | 23 200 | 24 400 | 38 300 |
| Suezmax Spot SH | 7 300 | N/A | 8 700 | 9 100 | 13 100 | 18 200 |
| Suezmax Spot | 29 800 | 30 100 | 29 500 | 22 500 | 23 800 | 37 300 |
| Suezmax whole fleet | 31 400 | 31 000 | 31 800 | 25 300 | 26 800 | 37 900 |
| Gemini Suezmax pool | 30 300 | 29 800 | 30 900 | |||
| OBO | 47 800 | 47 700 | 47 900 | 43 000 | 42 700 | 44 200 |
FRONTLINE
Financial Review
Ship operating expenses/Off-hire
Total fleet opex ($/day)
Number of vessels drydocked
Off hire (days)
☐ Tentative drydock schedule/no. of vessels
- Q3-10: 2
FRONTLINE
Financial Review
Balance sheet
| Balance sheet
(in $ million) | 2010
Jun. 30 | 2010
Mar. 31 | 2009
Dec. 31 |
| --- | --- | --- | --- |
| Cash | 169 | 86 | 83 |
| Restricted cash | 236 | 224 | 430 |
| Other Current assets | 345 | 400 | 271 |
| Long term assets: | | | |
| Restricted cash | 69 | 68 | 70 |
| Vessels | 2 782 | 2 446 | 2 419 |
| Newbuildings | 278 | 351 | 414 |
| Other long term assets | 88 | 85 | 29 |
| Total assets | 3 967 | 3 658 | 3 715 |
| Current liabilities | 514 | 554 | 605 |
| Long term liabilities | 2 626 | 2 298 | 2 359 |
| Noncontrolling interest | 11 | 10 | 9 |
| Frontline Ltd. stockholders' equity | 816 | 796 | 741 |
| Total liabilities and stockholders' equity | 3 967 | 3 658 | 3 715 |
FRONTLINE
Financial Review
Cash Cost Breakeven
Estimated Cash cost breakeven rates 2010 ($/day)
VLCC 30,900
Suezmax 26,400
Suezmax OBO 24,500
Comments to B/E rates:
☐ Included in cash B/E rates are: BB hire/installments & interest loans + opex and admin. costs.
☐ B/E rates exclude vessels on short term TC-in, vessels on BB-out, capex. and balloon repayments on loans.
FRONTLINE
Newbuildings
FRONTLINE
Newbuildings
Newbuildings Overview
- Total newbuilding program end Q2-10 after cancellations and restructuring approx. $799.7m
- Five VLCCs and three Suezmax tankers.
-
Financial exposure limited to $601.7m (three VLCCs and three Suezmax tankers + $54m).
-
Installments paid per end Q2-10: $246.4m (Q1-10: $313m including H1018 and H2419)
- Remaining installments to be paid approx. $355.3m
- H1026 "Front Njord" and H2420 "Front Signe" were delivered in August 2010. Remaining installments to be paid excl. these vessels approx. $268.9m.
FRONTLINE
Newbuildings
Financing
- 80% of contract price for first two VLCCs from Waigaoqiao and four Suezmax tankers from Rongsheng
- $334m outstanding debt per end Q2-10
-
Remaining to be drawn: $39.6m in August 2010
-
70% of contract price for last two VLCCs from Waigaoqiao
- $109.8m outstanding debt per end Q2-10
-
Remaining to be drawn: $36.6m in August 2010
-
The newbuildings for delivery in 2011-2013 currently unfinanced.
- Assumed financing approx. 70% of market values
FRONTLINE
Newbuildings
Capital Expenditures
FRONTLINE
*Assumed financing for the unfinanced NBs approx. 70% of market value
Corporate Overview
Frontline Fleet
Incl. vessels on commercial management & ITCL, excl. newbuildings
FRONTLINE
DH: Double Hull, SH: Single Hull
Total: 80
16
Corporate Overview
Frontline Fleet
| 2010 | VESSELS AS PER END 2011 | ||||||
|---|---|---|---|---|---|---|---|
| No. of vessels (current) | Av. TC Coverage (2010) | Av. Net TC/BB Rate $/day (2010) | No. of vessels | Av. TC Coverage (year) | Av. Net TC/BB Rate ($/day) | ||
| VLCC | DH | 34 | 14 % | 46 300 | 31 | 8 % | 47 700 |
| SH | 1 | 77 % | 41 100 | ||||
| SH/DS on BB-out | 4 | 94 % | 15 800 | 2 | 100 % | 16 300 | |
| Newbuildings | 4 | 2 | |||||
| Suezmax | DH | 18 | 14 % | 37 100 | 18 | 6 % | 38 500 |
| OBO | 8 | 96 % | 47 500 | 8 | 63 % | 49 900 | |
| Newbuildings | 2 | 2 | |||||
| ITCL | VLCC DH | 6 | 100 % | 6 | 100 % | ||
| Suezmax DH | 3 | 100 % | 3 | 100 % | |||
| Com. Mng. | VLCC DH | 6 | 6 | ||||
| *Bareboat rate | |||||||
| Total Fleet (ex. Newbuildings & SH BB) | 76 | 28 % | 45 500 | 72 | 17 % | 48 000 | |
| Total Fleet (ex. Newbuildings, incl. SH BB) | 80 | 34 % | 74 | 22 % | |||
| Total Fleet (ex. Newbuildings, incl. SH BB & floating rate charters) | 45 % | 35 % |
- The TC/BB rates exclude profit split.
FRONTLINE
Market Update
Earnings & Market Factors
Q2 - Average Market earnings
VLCC : $54.500/day
Suezmax : $32.700/day
Market Movers
Fewer newbuilding deliveries than expected for Q2
- VLCC: 12 del. Vs. 18 estimated
- Suezmax: 8 del. Vs. 14 estimated
Storage: Around 50 DH VLCCs in Q2
China's oil demand at record levels with 9.4 mill b/d
- Up 420 kb/d from Q110
- Slight decrease going into Q310
OPEC production up 500.000 b/d from Q2 2009
- Down 80 kb/d from Q1 2010
Global Oil Demand up 2.7 mb/d from Q2 2009
- Up 510.000 b/d from Q1 2010
Iran situation
Single hull fleet
- VLCC : 55
Removals: 8 - Suezmax : 23
Removals: 3
FRONTLINE
Source: Fearnleys, IEA, Clarksons
Market Update
VLCC Fleet
Fleet
| Current Fleet | 537 | Orderbook | 180 |
|---|---|---|---|
| DH Fleet | 482 | Deliveries 2010 | 74 |
| SH (DS, DB, SS) Fleet | 55 | Deliveries 2011 | 76 |
Current fleet & Orderbook
Delivery Schedule
FRONTLINE
Source: Fearnleys August 2010
Market Update
Suezmax Fleet
Fleet
| Current Fleet | 406 | Orderbook | 151 |
|---|---|---|---|
| DH Fleet | 383 | Deliveries 2010 | 67 |
| SH (DS, DB, SS) | 23 | Deliveries 2011 | 53 |
Current fleet & Orderbook
Delivery Schedule
FRONTLINE
Source: Fearnleys August 2010
Market Update
Rates
NEWBUILDING
TC MARKET
FRONTLINE
Source: Clarksons
Market Update
Actual deliveries
RS Platou
R.S. Platou Economic Research a.s
| 2009 | VLCC | Suezmax |
|---|---|---|
| Estimate | 68 | 73 |
| Actual | 55 | 46 |
FRONTLINE
Source: RS Platou, 5/8 2010, Fearnleys
Market Update
Waiting
- One waiting day at Fujairah is equal to abt. 0,4 ws points (on a regular PG- Singapore voyage) which by the way in today's market is an approximate $11,000/day voyage over 26 days.
- You could thus wait for abt. 20 days and still make the same voyage return if the market increases by 10 ws points!
FRONTLINE
Market Update
Outlook
FLEET
- Modest fleet growth in 2010 for VLCC
- 87.6% utilization for the total tanker fleet 1st half 2010
- Floating storage still of essence
- About 50% of single hulls untradeable
- Orderbook still large but container and offshore market back in fashion – taking away yard space.
WORLD
- Chinese oil consumption increasing (14% in July)
- World oil demand increased ½ mill b/d from Q1 2010
- China increasing their imports from the Atlantic
- ...decreasing from the MEG
FRONTLINE
- Increased charter coverage (both fixed and floating)
- Decreased cash breakeven rates for Q3
- Outperforming peers
FRONTLINE
Source: IEA, Platou Monthly 7-2010
Questions?
(It's not dead... - only resting)
FRONTLINE