Frontline Ltd. (FRO)
Q2 2010 Earnings Call Transcript
August 27, 2010 9:00 am ET
Jens Martin Jensen – CEO, Frontline Management AS
Inger Klemp – CFO, Frontline Management AS
Scott Burk – Oppenheimer
Justin Yagerman – Deutsche Bank
Doug Garber – FBR Capital Markets
Anders Hagen – ABG
David Neuhauser – Livermore Partners
Fotis Giannakoulis – Morgan Stanley
Zou Dazou [ph] – Sterne Agee
Good day and welcome to the Frontline Q2 2010 results presentation conference call. For your information, today’s conference is being recorded. And at this time, I would like to turn the conference over to Jens Martin Jensen, CEO, and Inger Klemp, CFO. Please go ahead.
Jens Martin Jensen
Good morning and good afternoon, and welcome to our Q2 presentation. I think we had a good second quarter, and again we outperformed our benchmark competitors. We will follow our usual program for this presentation with our CFO, Inger Klemp, going through the Q2 highlights and transactions to offer a financial view of the quarter. After that, I will go through some market slides, fleet development, and outlook on how we see things. Finally, after that, there should be time for some questions. Inger, please?
Thanks, Jens. And good morning and good afternoon, ladies and gentlemen. I will guide you through the highlights and the financial review in the second quarter 2010 together with a run-through of newbuilding program, as Jens just said.
Moving to slide four and five, in March 2010, Frontline announced the successful completion of its $225 million convertible bond offering. And in April, Frontline completed the issuance of the bond loan and the loan will disperse. The third and the fourth Suezmax newbuildings from Rongsheng, Front Odin and Front Njord were delivered in May and August 2010 respectively.
The third and the fourth VLCC newbuildings from Waigaoqiao, Front Cecilie, and Front Signe were delivered in June and August 2010 respectively. Then in April 2010, Frontline announced the acquisition of the two 2009-built double hull VLCC tankers. And the first vessel, Front Eminence, was delivered in May the 18th, 2010; and the second vessel, Front Endurance, was delivered on June 28, 2010.
Further in May, we secured long-term bank financing for these vessels, representing 70% of the purchase price. Then in June 2010, the single hull VLCC Front Duke was redelivered from her time charter agreement and subsequently entered into a bareboat charter agreement expiring at the end of 2012. The vessel will be operating as a floating storage unit and has ceased to trade as a regular tanker.
Further in June 2010, Frontline received notices from the owners of two chartered-in 2001-built Suezmax tankers and two chartered-in 2000-built VLCCs that the owners exercised their option to extend the charter period for two years to the end of 2013 from the expiry of the mandatory lease period at the end of 2011.
In June, we also ordered two new Suezmax newbuilding contracts with expected delivery in February and May 2013, and we secured two options for similar Suezmax newbuildings from Rongsheng.
Moving to slide six, I will then go quickly through the financial highlights in the second quarter. Frontline reports net income of $81.3 million equivalent to earnings per share of $1.04 in the second quarter of 2010. This is an improvement compared to the first quarter 2010 of $1.6 million. The net income includes a gain of $6.7 million relating to the amortization of a deferred gain on three lease terminations and a gain of $3 million relating to a lease termination. On this basis, we announced dividend of $0.75 per share for the second quarter.
Moving to slide seven. Net income, excluding gain, is about $1.8 million better than in the first quarter 2010. The increase can mainly be explained by that we have had an increase in the contract equivalent earnings in the second quarter compared to the first quarter due to more trading days, slightly offset by lower TCEs per day, which has led to an increase in income on time charter basis by $60 million.
The profit sharing payable to Ship Finance is in line with the previous quarter. Ship operating expenses increased by $1.8 million compared with the preceding quarter, primarily as a result of increase in running cost of $2.8 million mainly related to the four newbuildings, which were delivered in the period, and then partially offset by a $1 million decrease in dry-docking costs.
Charterhire expenses have increased by $8.6 million in the second quarter compared with the first quarter primarily due to an increase in the number of Nordic American Tanker Shipping vessels, which entered the Gemini pool and had a corresponding increase in pool earnings.
Please note that with effect from July 1, 2010, these NATS vessels became a full pool partner in the Gemini pool and we no longer charter in the NATS vessels. This will result in a decrease in charterhire expense in the third quarter with a corresponding decrease in operating revenues. Then the financial expenses have increased about $2 million due to the convertible bond loan issued in April and a drawdown of financing for the delivery of newbuildings as well as drawdown of this on delivery of Front Eminence.
Other financial items have increased about $3 million mainly due to costs of approximately $2.7 million, which were paid in connection with the early redemption of the debt on Front Voyager. The minority interest in the second quarter is $900,000 less than in the first quarter due to the low results in ITCL in the second quarter.