Frontline Ltd.
Q4 2008 Earnings Call Transcript

Published: 26 Feb 2009

[Jens Martin Jensen:]

Good afternoon everybody listening in. Welcome to Frontline Q4 Presentation. The agenda for this presentation will be that our CFO Inger Klemp will go through the major transactions and highlights in Q4, then after a financial review, some information regarding our newbuilding program. And after that, myself will be talking little bit about the market, and the way we see things going forward. And after that, there should be time for some questions and answers. So Inger, if you could start.

[Inger M. Klemp:]

Thanks Jens. I would guide you quickly through the major transactions and the financial highlights in the fourth quarter of 2008 together with a run through of the newbuilding program. Moving down to slide 4; in December 2008, Frontline and Teekey agreed to expand the Gemini Suezmax Pool, and that was bringing the number of vessel into that pool to 36 vessels. To manage the larger fleet and establish chartering presence in Europe to supplement its existing Stanford, Connecticut operation, Gemini has opened an office in Oslo as well in Norway. In addition to the Jensen's plan, Teekey to an extend (ph) is participated in the pool. And for Frontline, we expect that this would improve utilization of our fleet and to reduce the cost basis by entering a large pool. In January 2009, in which we've delivered the first newbuilding Front Kathrine from Shanghai and Waigaoqiao ship yard, and that was more than two months ahead of contract delivery dates. In Q4 2008 and Q1 2009, we have done a number of time charter out agreement, and we have increased on our fixed contract revenues. First of all, we did in November 2008 two contracts, one for Front Energy and one for Front Champion; first for three years and second one for one year; both were delivered in November. Then we did a contract for Front Brabant, three years period commencement in January 2009. And in the first quarter 2009, we further did contracts for Genmar Phoenix and Genmar Harriet G, both Suezmax tankers, which was then chartered out to Shell for balance of period of existing charters. And in early December, we delivered costs to relate (ph) after total length of the charter pat both at 3.5 years. Moving to slide 5, and Frontline reported net income of approximately $52 million, equivalent to earnings of $0.66 in the fourth quarter 2008. Net income includes then a loss of $28.4 million mainly related to a loss of $27.5 million forcing a price adjustment of shares in overseas Shipholding Group. At the 31st of December 2008, the overseas share price is significantly lower than it was when being acquired the shares. And therefore in accordance with prevailing U.S. general accepted accounting principles, we decided to write down the value of these financial assets at the year end 2008. And then charge $27.5 million to the fourth quarter 2008 income statement. Then the next income excluding this loss was approximately $80 million in the fourth quarter, equivalent to earnings of $1.03. On this basis, we announced a dividend of $0.25 for the fourth quarter. Frontline reported annual 2008 net income of 699 million equivalent earnings per share of $9.15. This is the second best year for Frontline; only the golden year of 2004 was better. Moving down to slide 6, net income excluding gain is 57 million lower than in the third quarter of 2008. The decrease can mainly be experienced first of all by reduction in time charter equivalents in the fourth quarter compared to the third quarter. At the same time, on high days increase in the fourth quarter and being down the net effect of this to a reduction in income on time charter basis of $90 million. The profit sharing payable to ship finance has decreased in the quarter with $13 million. Ship operating expenses decreased by $13.3 million compared with the third quarter, mainly as a consequence of less drydocking, but also as a general cost decrease. Charterhire expenses have decreased by $12.million in the fourth quarter compared with the third quarter of which $12 million is a reduction relating to the successful chartered in from Nordic American Tankers. A further $2.8 million reduction is applicable to the two vessels chartered in from Knightsbridge Tankers under a profit sharing arrangement. And this is offset by an increase in charterhire expense of five Suezmax vessels chartered in. And this increase is due to full chart in the fourth quarter for these vessels. Rest of the items is more or less minor changes. Income on time charter basis, slide 7, VLCC fleets earned in the spot market approximately $60,000 a day for double and 33,500 per day for single, giving an average of 58,500 per day. And then for the whole fleet including the vessels on the coverage, we have 54,100 per day. Earnings for single relates only to one vessel and that was Front Voyageur (ph). The Suezmax fleet earned in the spot market approximately 43,400 for double and 12,000 for the single vessels with an average spot earning of $42,000 a day. The average for the whole fleet was about 41,900 a day, and the earnings for the single relate to only vessel, which was the Front Voyageur. The OBOs earned 42,800 per day in the quarter. These timer charter equivalent number show that Frontline this quarter has stayed in line with the competitors that have released their numbers in the fourth quarter 2008. VLCC vessels are not included in these numbers. Moving down to slide 8

[Jens Martin Jensen:]

Thank you, Inger. We are now on slide number 17

[Operator:]

(Operator Instructions). We'll now take our first question from Mr. Jonathan Chappell from JPMorgan. Please go ahead sir you're line is now open.

[Jonathan Chappell:]

Thank you, good afternoon. Jens, I was hoping you can give a little bit more insight on the thought process and the chartering of the Genmar Phoenix and the Genmar Harriet G. If the numbers that we've seen in the brokerage reports are correct, you basically lost and loss on those ships given the time charter expense you are paying to General Maritime. Was that just a function of just trying to get the best thing you can get right now in the market. You are a little bit concerned about where the spot market might be heading in the second and third quarters?

[Jens Martin Jensen:]

The numbers being reported in the various billboards are (ph) incorrect. We have fixed both ships out in time charter for the remaining period, and the rate is of a floating nature, but it's not as any levels being mentioned.

[Jonathan Chappell:]

Okay. So it's completely dependent on where the spot is at that time?

[Jens Martin Jensen:]

To some extent.

[Jonathan Chappell:]

Okay. So you just guaranteed utilization, but basically keep the opportunity to maybe make a profit; got it. Also on the Suezmaxes at the Rongsheng yard, five to nine months delivery delay. Is there any parts of the contract in place, where you could back out of those ships... back out of those contracts if the delay reaches a certain period of time? And would you be interested in potentially backing out of some of those contracts?

[Jens Martin Jensen:]

Every shipbuilding contract has a MX period, where a ship can be delayed. And then of course, it's up to the owner to consider if they want to cancel. But I think it's before we go into that discussion, it's important to remember that while we order these ships, during the last two years, we have actually sold 10 single hull Suezmaxes, and we need replacement. So, we are aware that the ships are being delayed. And we are in a, I will say, constructive discussion with the shipyard. So, to discuss on cancellation is pretty immature.

[Jonathan Chappell:]

Okay. Final question and then I'll turn it over, regarding the OSG write down. Do you still own the same percentage of OSG shares that you did during the fourth quarter? So, is there a potential for a further write down in 2009?

[Inger Klemp:]

We still own the same number of shares, yes.

[Jonathan Chappell:]

Okay. And is that roughly... do you have the share count handy, Inger?

[Inger Klemp:]

It's approximately 1.4 million shares.

[Jonathan Chappell:]

Okay. Thank you very much Jens and Inger.

[Jens Martin Jensen:]

Thank you.

[Inger Klemp:]

Not at all.

[Operator:]

Thank you. We'll now take our next question from Anders Rosenlund from ABG. Please go ahead. Your line is now open.

[Anders Rosenlund:]

Thank you. Could you breakdown the almost $300 million in short term debt on the balance sheet?

[Inger Klemp:]

In 2009?

[Anders Rosenlund:]

Yes.

[Inger Klemp:]

On the balance sheet? Okay.

[Anders Rosenlund:]

Because I know a sum that's a sum that's related to ITCL now (ph), is there anything else for fees down that you mentioned?

[Inger Klemp:]

You are thinking about all the current liabilities then?

[Anders Rosenlund:]

Short-term interest paying debt. Which I guess is maturing in the next 12 months?

[Inger Klemp:]

Short-term interest bearing debt is more than $360 million. I don't know what number you are referring to? I mean, if you look at the balance sheet in the presentation, you have current liability number of $715 million, is that what you are thinking over?

[Anders Rosenlund:]

I am thinking of is under short-term debt in current portion of long-term debt, as of December 31, which is 297.999 million.

[Inger Klemp:]

Short-term debt, yeah, the count for long-term debt, the $298 million in the balance sheet. You want a breakdown on this; is that what you're thinking over?

[Anders Rosenlund:]

No. I am thinking some of that is related to ITCL, isn't it.

[Inger Klemp:]

It is. Just a moment, I'll see if I have a numbers under here.

[Anders Rosenlund:]

That was 54 million as of Q3. So, has that changed?

[Inger Klemp:]

It's a bit lower, because it's now $53.5 million.

[Anders Rosenlund:]

Okay, great. And so, the rest or the roughly 250 million that's retirement of different slows in addition, or and of that 250 million, you have 130 million, which is the short-term debt, which is maturing in June. Is that correct?

[Inger Klemp:]

Yeah. So, that is included of course. And then, you have this 53.5 million on market sale, and then remaining is ordinary installments that we have.

[Anders Rosenlund:]

Okay. So, no balloon payments?

[Inger Klemp:]

No, not apart from the $129.6 million facility that's mentioned.

[Anders Rosenlund:]

Okay. Great, very good. Thank you very much.

[Jens Martin Jensen:]

Thank you.

[Operator:]

Thank you. (Operator Instructions). We'll now take our next question from Ron Enrique from Bloomberg (ph). Please go ahead; your line is now open.

[Unidentified Analyst:]

Hello. I am just wondering if could elaborate a little bit on how much you are looking for long-term time charters or if there is any kind of proportion that you are seeking anything at all just sort of explain how your strategy might have changed?

[Jens Martin Jensen:]

Well, if you look at our slide on page 16, as Inger mentioned, we have 39% of our fleet, which is fixed on a fixed time charter. Apart from that we have up to around 50% of the total fleet, which is a related to various market mechanisms that is minimum higher, there is indexes. So we actually have around 50% of the fleet being employed now on various charter and we are looking to expand further, but also we need to have some spot presence to satisfy the customers we have at Rongsheng, (ph) but we are looking at if there is good possibilities to time charter out a few more ships.

[Unidentified Analyst:]

Has that 39% and 50% changed over the past year?

[Jens Martin Jensen:]

We have increased out total utilize, I mean employment with almost 10% during the last quarter.

[Unidentified Analyst:]

Right. So you put 10% more on long-term chart you mean either with this kind of marking minimum mechanism or fixed rate going forward, yeah. Okay, thank you very much.

[Jens Martin Jensen:]

Thank you.

[Operator:]

Thank you. And there are no further questions. I would like to turn the call back over to you for any additional or closing remarks.

[Jens Martin Jensen:]

I would just like to say thank you for everybody for dialing in. 2009 will be an interesting year, and we are looking forward to update you all in that process in the quarters depends. I would like to thank you everybody in Frontline for a very good year 2008, which as Inger mentioned was the second best ever in this company's history. Thank you for dialing in. Thank you.

[Operator:]

This concludes this conference, you may now disconnect.