Frontline Q1 2010 Earnings Call Transcript - TheStreet

Frontline Q1 2010 Earnings Call Transcript

Frontline Q1 2010 Earnings Call Transcript
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Frontline (FRO)

Q1 2010 Earnings Call

May 21, 2010 9:00 am ET

Executives

Inger Klemp - Chief Financial Officer and Chief Financial Officer of Frontline Management AS

Jens Jensen - Chief Executive Officer of Frontline Management AS

Analysts

David Neuhauser - Livermore Partners

Gregory Lewis - Crédit Suisse AG

Doug Garber - Fbr Asset Investment Corp.

Urs Dür - Lazard Capital Markets LLC

Jonathan Chappell - JP Morgan Chase & Co

Presentation

Jens Jensen

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Previous Statements by FRO
» Frontline Ltd. Q4 2009 Earnings Call Transcript
» Frontline Ltd. Q2 2009 Earnings Call Transcript
» Frontline Ltd. Q1 2009 Earnings Call Transcript

Morning, afternoon and welcome to our Q1 2010 presentation. I think we had a pretty good result in the first quarter of the year, especially when we compare to what our benchmark competitors has reported. We will follow our usual program for this presentation with our CFO, Inger Klemp, going through the Q1 highlights and transactions, financial review of the quarter and the update of our newbuilding program and finance of the same. Thereafter, I will go through some market slides and sectors and outlook on how we see ourselves. And after that, there should be time for some questions. Inger, please?

Inger Klemp

Thanks, Jens and good morning and good afternoon, ladies and gentlemen. I will guide you through the highlights and the financial review in the first quarter 2010 together with a run-through of the newbuilding program.

Moving to Slide 4, in March 2010, the Frontline announced the successful completion of its $225 million convertible bond offering. The proceeds from these bonds will be used for general corporate purposes, financing on the remaining equity investments in the company's newbuilding program and will improve the company's ability to react to attractive market opportunities.

In January, March and May 2010, we took delivery of three out of total four Suezmax newbuildings from Rongsheng, and a compensation payment for delayed delivery when negotiated with the yard for all these three vessels. In April 2010, Frontline announced the acquisition of two 2009-built double hull VLCC tankers. And the first vessel was renamed Front Eminence was delivered on May 18, 2010, and the second vessel is expected to be delivered in June 2010 and will be renamed Front Endurance.

In May, we secured long-term bank financing for these vessels, representing 70% of the purchase price. In February 2010, Frontline agreed with Ship Finance to reduce the restricted cash deposits relating to 31 double hull crude oil tankers and OBOs by approximately $112 million. Further, the parties agreed a net upfront payment of charterhire less operating expenses of approximately $74 million, covering 80% of the payments due over the next six months. This change of structure took effect from April 1, 2010.

These solutions will reduce Frontline's cash break-even level for these vessels and improve Frontline's free cash balance by approximately $112 million during the next two quarters. From April 1, 2010, restricted cash is thereby reduced to $62 million.

In March 2010, Frontline agreed with Ship Finance to terminate a long-term charter party for the single hull VLCC Golden River. Termination of the charter took place in April 2010 and Ship Finance has made a compensation payment to Frontline with approximately $2.9 million for the early termination of the charter party. In April 2010, we chartered out the OBO from four to six months.

Moving to Slide 5. I will then do a quick run through of the financial highlights in the first quarter 2010. Frontline reported net income of $79.7 million, equivalent to earnings per share of $1.02 in the first quarter 2010. This is an improvement compared to the fourth quarter 2009 of $76 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 $3.1 million relating to a lease termination. We announced a dividend of $0.75 per share for the first quarter.

Moving to Slide 6. The net income, excluding gain, is $66 million better than in the fourth quarter of 2009. And the increase can mainly be explained by, firstly, an increase in time charter equivalents in the first quarter compared to the fourth quarter, which has led to an increase in income on time charter basis by $63 million.

The profit sharing payable to Ship Finance has increased in the quarter with $6 million, due to the improved market. Ship operating expenses decreased by $9 million compared to the preceding quarter, due to a decrease in dry docking of $5.5 million and a decrease in running cost of $3.5 million.

Charterhire expenses have increased by $9 million in the first quarter compared to the fourth quarter, mainly due to three vessels which were chartered in under long-term leases up to the end of December 2009, but are now chartered in and accounted for as short-term operating leases; profit share payments on the two vessels and an increase in charterhire expenses regarding the Nordic American Tanker vessels due to the stronger spot market. These items were partially offset by the redelivery in the first quarter of the final vessel chartered in from Eiger.

Lastly, depreciation and financial items have decreased about $9 million due to termination of leases on the four vessels.

Moving then to Slide 7. Frontline's double hull VLCC, excluding the vessel from floating time charter earned in the spot market approximately $54,000 per day in the first quarter. If we include the vessels on floating time charter, the VLCC earned $49,200 per day for doubles and 23,600 per day per singles, with an average spot earnings of $47,500 per day. Then the average for the whole fleet was about $45,300 per day in the quarter when you include the coverage vessel.

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