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Frontline full year 2019 results – Due to the coronavirus, there is a near-term macro headwind with a slowdown in oil demand

Frontline Ltd. (the “Company” or “Frontline”), today reported unaudited results for the three months and year ended December 31, 2019:

Highlights

  • Highest quarterly net income in more than eleven years of $108.8 million, or $0.55 per diluted share for the fourth quarter of 2019, excluding $8.7 million of net cash receipts and accrued profit share in relation to the five charter-in and charter-out agreements with Trafigura that have been treated as a reduction of the acquisition cost of the vessels.
  • Net income adjusted for certain non-cash items of $106.9 million, or $0.54 per diluted share for the fourth quarter of 2019, excluding the net impact of the item above.
  • Declared a cash dividend of $0.40 per share for the fourth quarter of 2019.
  • Reported spot TCEs for VLCCs, Suezmax tankers and LR2 tankers in the fourth quarter of 2019 were $58,000, $38,200 and $29,800, respectively.
  • For the first quarter of 2020, we estimate spot TCE on a load-to discharge basis of $90,300 contracted for 83% of vessel days for VLCCs, $71,900 contracted for 75% of vessel days for Suezmax tankers and $36,300 contracted for 72% of vessel days for LR2s. We expect the spot TCEs for the full first quarter of 2020 to be lower than the TCEs currently contracted, due to the impact of ballast days at the end of the quarter, as well as current tanker market weakness.
  • The Company is in the final process of signing the sale-and-leaseback agreement in an amount of up to $544.0 million with ICBC Financial Leasing Co., Ltd (“ICBCL”) to finance the cash amount payable upon closing of the acquisition (as defined below), expected to take place on March 16, 2020.
  • In November 2019, the Company signed a senior secured term loan facility in an amount of up to $42.9 million with Credit Suisse to part finance the Suezmax tanker resale under construction at HSHI.
  • In February 2020, the Company obtained a financing commitment for a senior secured term loan facility in an amount of up to $62.5 million from Crédit Agricole to part finance the VLCC resale under construction at HSHI.

Robert Hvide Macleod, Chief Executive Officer of Frontline Management AS commented:

“Frontline’s ability to generate significant income has been proven in our fourth quarter results, and the strong market continued into the first quarter of 2020, resulting in the strongest earnings period since 2008 for owners of modern, fuel-efficient vessels. However, primarily due to the effect of the coronavirus, we have a near-term macro headwind with a slowdown in oil demand, particularly in China. We can’t forecast the duration of this impact, but once the coronavirus is contained Frontline is exceptionally well positioned for the strong rebound we believe will follow. We have a very modern fleet and robust capital structure at a historically low cash breakeven level, and a clear ambition to continue paying significant dividends to our shareholders.”

Inger M. Klemp, Chief Financial Officer of Frontline Management AS, added:

“Frontline’s superior access to financing evidenced by the interest margins and terms of our recently concluded financings is a clear endorsement of the Company and reflects our strong relationships within the lending community. The terms of our recently concluded financing agreements further reduce the highly competitive breakeven levels across our fleet. Frontline’s estimated daily cash breakeven levels of $22,700, $19,700 and $15,600 for VLCCs, Suezmax tankers and LR2 tankers, respectively, provide significant operating leverage and help to protect our cash flows during periods of market weakness.”

The estimated average daily cash breakeven rates are the daily TCE rates the vessels must earn in order to cover operating expenses including dry docks, repayments of loans, interest on loans, bareboat hire, time charter hire and net general and administrative expenses.

Spot estimates are provided on a load-to-discharge basis. The rates quoted are for days currently contracted. The actual rates to be earned in the first quarter of 2020 will therefore depend on the number of additional days that we can contract, and more importantly the number of additional days that each vessel is laden. Therefore, a high number of ballast days at the end of the quarter will limit the amount of additional revenues to be booked on a load to discharge basis. Furthermore, when a vessel remains uncontracted at the end of the quarter, the Company will recognize certain costs during the uncontracted days up until the period end, whereas if a vessel is contracted, then certain costs can be deferred and recognized over the load-to-discharge period.

On November 27, 2019 the Company disclosed that spot TCE of $64,800 per day had been contracted for 78% of vessel days for our VLCCs in the fourth quarter of 2019. As described above, due to the limited number of additional laden days at the end of the fourth quarter, additional booked revenues were limited and as such the total revenues for the 78% of vessel days contracted were spread over 100% of the days in the quarter, resulting in a lower TCE per day by the end of the fourth quarter of 2019.

The reporting of revenues on a load-to-discharge basis results in revenues being recognized over fewer days, but at a higher rate for those days. Over the life of a voyage there is no difference in the total revenues and costs to be recognized.

When expressing TCE per day for the fourth quarter of 2019, the Company uses the total available days for the quarter and not just the number of days the vessel is laden.

Source: Frontline