Frontline 2012 Ltd. : FRNT - First Quarter 2013 Results
oFrontline 2012 reports a net loss of $4.8 million and a loss per share of
$0.02 for the first quarter of 2013.
oIn January 2013, Frontline 2012 completed a private placement of 59
million new ordinary shares of $2.00 par value at a subscription price of
$5.25, raising $310 million in gross proceeds.
oIn January 2013 the Company cancelled the second of its five newbuilding
contracts at Jinhaiwan due to excessive delay and in April 2012 the
Company received a refund of $94.0 million.
oIn April 2013, the Company cancelled the third of its five VLCC
newbuilding contracts at Jinhaiwan due to the excessive delay.
oAs of today, the newbuilding program has increased to 58 newbuilding
contracts within the crude oil, petroleum product, drybulk and Liquefied
Petroleum Gas ("LPG") markets.
Frontline 2012 Ltd. (the "Company" or "Frontline 2012") is a commodity
shipping company incorporated in Bermuda on December 12, 2011, which as of
today owns a total of ten crude oil tankers and 58 newbuilding contracts
within the crude oil, petroleum product, drybulk and Liquefied Petroleum Gas
The Company's sailing fleet is one of the youngest in the industry and
currently consists of six very large crude carriers, or VLCCs, and four
Suezmax tankers, with an average age of 3.3 years operating in the spot and
the period markets.
The largest shareholder is Hemen Holding Ltd. ("Hemen") with a shareholding of
approximately 51 percent.
First Quarter 2013 Results
Frontline 2012 announces a net loss of $4.8 million and a loss per share of
$0.02 for the first quarter of 2013 compared with net income of $0.7 million
and earnings per share of $0.0046 for the fourth quarter of 2012.
The average daily time charter equivalents ("TCEs") earned in the spot and
period market in the first quarter by the Company's VLCCs and Suezmax tankers
were $19,600 and $11,800, respectively, compared with $25,700 and $12,400,
respectively, in the preceding quarter. The spot earnings for the Company's
VLCCs and Suezmax vessels were $14,900 and $11,800 respectively, compared with
$24,100 and $12,400 respectively, in the preceding quarter.
As of March 31, 2013, the Company had cash and cash equivalents of $297.0
million compared with $132.7 million as of December 31, 2012. The Company
raised $306.7 million (net) from the private placement in January, used $42.8
million in investment activities and repaid bank borrowings of $43.2 million.
The Company also used $56.3 million in cash in operating activities primarily
due to the reclassification of $63.6 million regarding the second cancelled
newbuilding contract from newbuildings to short term claim receivable.
The Company estimates average total cash cost breakeven rates for the
remainder of 2013 on a TCE basis for its VLCCs and Suezmax tankers of
approximately $16,700 and $13,700, respectively.
In January and April 2013, the Company cancelled the second and third of the
five VLCC newbuilding contracts at Jinhaiwan ship yard (hulls J0026 and J0027)
due to excessive delay. The Company's claims against the yard are secured with
refund guarantees from some of Chinas five largest banks.
In April 2013, the Company received a refund of $94.0 million representing
installments paid and accrued interest for the cancellation of hull J0026.
$44.9 million of the refund was used to repay debt associated with the
newbuilding. The Company's balance sheet carried an amount of $63.6 million in
Newbuildings at December 31, 2012 in respect of hull J0026 and expects to
record a gain of approximately $30.4 million in the second quarter of 2013.
As of March 31, 2013 , the Company's newbuilding program totaled 53 vessels
and comprised 18 newbuildings within the crude oil and petroleum product
markets, 24 Capesize vessels, eight very large gas carriers or VLGCs and three
VLCCs. Total installments of $349.0 million have been paid and the remaining
installments to be paid amount to $2,249.0 million.
As of March 31, 2013, the Company had $300.6 million in net debt and a further
$2,249.0 million in remaining installments under its new building program.
Since March 31, 2013 the Company has negotiated and concluded additional
newbuilding contracts and cancelled one additional VLCC. As of today the total
firm newbuilding program comprises 58 vessels. The total capital commitment is
The Company also holds fixed price options for newbuilding contracts
declarable in the coming months. The Company has in addition entered into
specific discussions with existingandnew yard relations with the target to
increase the newbuilding orderbook further. The Board has so far targeted new
buildings with deliveries in 2014 and 2015.
Frontline 2012 has 14 newbuilding contracts with STX (Dalian) Shipbuilding
Co., Ltd., which has encountered financial difficulties, and we are following
the situation closely. Frontline 2012 will make every effort to ensure that
STX Offshore & Shipbuilding Co., Ltd. and STX (Dalian) Shipbuilding Co., Ltd
deliver the new buildings, which they are contractually committed to. The
delivery of six of these vessels has a contractual commitment from STX
Offshore & Shipbuilding Co., Ltd., Korea in addition to STX (Dalian)
Shipbuilding Co., Ltd.
215,000,000 ordinary shares were outstanding as of March 31, 2013, and the
weighted average number of shares outstanding for the quarter was 208,444,445.
In January 2013, Frontline 2012 completed a private placement of 59 million
new ordinary shares of $2.00 par value at a subscription price of $5.25,
raising $309.8 million in gross proceeds. The proceeds from the private
placement will be used to part finance new building investments.
In March 2013, the Company prepaid bank debt equal to ordinary loan
amortization for 2013 in exchange for amendments to the loan-to-value clauses
in three of the Company's loan agreements
In April 2013, the Board of Frontline 2012 Ltd appointed Carl Erik Steen as a
Director to fill a vacancy on the Board.
Mr Steen graduated in 1975 from ETH Zurich Switzerland with a M.Sc. in
Industrial and Management Engineering. He then worked as a consultant in
various Norwegian companies before joining I.M. Skaugen as a Director in
1978. In 1983, Mr Steen moved to Christiana Bank Luxembourg and in 1987
returned to Norway to establish the international shipping desk of Christiania
Bank. In 1992, Mr. Steen was appointed Executive Vice-President with the
responsibility of Christiania Bank's Shipping, Offshore and International
activities. From January 2001 until February 2011, Mr Steen was head of
Nordea Bank's Shipping, Oil Services & International Division. Mr Steen is
also a board member of Eitzen Chemical ASA, Wilhelm Wilhelmsen Holding ASA, RS
Platou ASA and Seadrill Limited.
The market rate for a VLCC trading on a standard 'TD3' voyage between the
Arabian Gulf and Japan in the first quarter of 2013 was WS 35, representing a
decrease of approximately WS 7.8 point from the fourth quarter of 2012 and a
decrease of approximately WS 21 points from the first quarter of 2012. The
flat rate increased by 9.1% from 2012 to 2013.
The market rate for a Suezmax trading on a standard 'TD5' voyage between West
Africa and Philadelphia in the first quarter of 2013 was WS 57.5, representing
a decrease of three WS points from the fourth quarter of 2012 and a decrease
of WS 25 points from the first quarter of 2012. The flat rate increased by
9.3% from 2012 to 2013.
Bunkers at Fujairah averaged $633/mt in the first quarter of 2013 compared to
$615/mt in the fourth quarter of 2012. Bunker prices varied between a low of
$606/mt on January 2^nd and a high of $663/mt on February 18^th.
The International Energy Agency's ("IEA") May 2013 report stated an OPEC oil
production, including Iraq, of 30.5 million barrels per day (mb/d) in Q1. This
was a decrease of 0.4 mb/d compared to the fourth quarter of 2012.
The IEA estimates that world oil demand averaged 89.8 mb/d in the first
quarter of 2013, which is a decrease of 1.2 mb/d compared to the previous
quarter. IEA estimates that world oil demand in 2013 will be 90.6 mb/d,
representing an increase of 0.9 percent or 0.8 mb/d from 2012.
The VLCC fleet totalled 634 vessels at the end of the first quarter of 2013,
up from 622 vessels at the end of the previous quarter. 14 VLCCs were
delivered during the quarter, two were removed. The order book counted 81
vessels at the end of the first quarter, unchanged from the previous quarter.
The current order book represents approximately 13 percent of the VLCC fleet.
According to Fearnleys, the single hull fleet is 15 vessels, two less than
The Suezmax fleet totaled 480 vessels at the end of the first quarter, up from
468 vessels at the end of the previous quarter. 14 vessels were delivered
during the first quarter whilst two were removed. The order book counted 54
vessels at the end of the first quarter which represents approximately 11
percent of the Suezmax fleet. According to Fearnley's, the single hull fleet
stands unchanged at five vessels.
According to IEA, gasoline is expected to lead non-OECD demand growth over the
next years. In 2012, strong gasoline-led non-OECD demand and contraction in
OECD caused a shift in distribution of products. Gasoil which has in earlier
years risen faster than any other product was overtaken by gasoline in 2012, a
trend that may be replicated in 2013. Near recessionary conditions in many
OECD nations combined with relatively subdued non-OECD gasoil demand, led to
global gasoil demand growing less than previous years.
The two regional markets with the highest dieselization rates in the
transportation sector were also those who performed worst economically, Europe
and OECD Asia Oceania. This factor, coupled, with the clear preference for
gasoline in still thriving Chinese and Saudi Arabian transportation sector,
boosted gasoline demand to such a degree that it outpaced gasoil. This trend
is forecast to hold in 2013.
Total worldwide oil stocks decreased by 8.1mb during the first quarter of
2013. On a forward basis, OECD product stocks cover 31.2 days
The MR fleet totaled 1,524 vessels at the end of the first quarter of 2013, up
from 1,513 vessels at the end of the previous quarter. The order book counted
149 vessels at the end of the first quarter, which represents approximately
ten percent of the MR fleet.
The LR2 fleet totaled 212 vessels at the end of the first quarter of 2013,
down from 217 vessels at the end of the previous quarter. The order book
counted 13 vessels at the end of the first quarter, which represents
approximately 6.1 percent of the LR2 fleet.
The beginning of 2013 saw an increase of LPG and Ethane demand of 2.75 percent
compared to the same period in 2012. Q1 2013 spot rates have been impacted by
a reduction in OPEC crude oil production, which influences the LPG production
in the Middle East. Throughout 2012, VLGCs trading in the Western Hemisphere
commanded an earnings premium compared to the Eastern Hemisphere according to
BRS. Recently we have seen an increase in monthly earnings.
Traditionally naphtha has dominated the global petrochemical industry, but IEA
is forecasting a degree of substitution to LPG, particularly in North America.
LPG saw its market share increase from 7 to 9 percent from 2000 to 2010.
Through to 2018, LPG's market share is forecast to rise further on the back of
low-priced and plentiful US supplies, which has spurred a revival on the North
American petrochemical sector. In the coming period the US dominates the
supply side, while China and the Middle East dominate the demand side.
The VLGC fleet (60,000+ Cbm) totaled 148 vessels at the end of the first
quarter of 2013, an increase of three vessels from the previous quarter. The
order book counted 24 vessels at the end of the first quarter, up from 23
vessels the previous quarter, representing 16.2 percent of the VLGC fleet
according to Platou.
The dry bulk market showed few signs of recovery during the first quarter of
2013. The smaller sizes performed better than the Capesize segment also in
absolute terms for most of the quarter. A Capesize earned on average $6,015
per day according to the Baltic Dry Index, which did not cover operating
expenses for many owners.
The Capesize segment has underperformed mainly due to that iron ore exports
out of Brazil have been low. There is a strong correlation between the
Brazilian iron ore export and the Cape size spot market due to the long
sailing distances. In addition, Fortescue delayed their ramp up of production
in Australia from March until May 2013 and Colombian coal exports were almost
70 million metric ton lower on an annualized basis, partly due to strikes
during first quarter of 2013.
The dry bulk market is increasingly dependent on the development of the
Chinese economy. During 2012 the Chinese iron ore and coal imports in
combination increased more than 12 percent, while preliminary data show an
increase of about six percent for the first quarter of 2013. Historically the
first quarter is the slowest quarter of the year, which is mainly due to
adverse weather in the Southern Hemisphere.
Development in international coal and iron ore prices will have a great impact
on the dry bulk market going forward. Presently there is a positive arbitrage
both for steel producers and utilities compared to domestic Chinese iron ore
and coal. With new iron ore capacity from Australia, Brazil and West Africa
coming on stream the next three years and poorer quality of Chinese domestic
iron ore, it is expected that imports of iron ore to China will increase.
According to Fearnley's the Capesize fleet (150-200'dwt) totaled 1,028 vessels
at the end of the first quarter of 2013, an increase of 6 vessels from the
previous quarter. The order book counted 98 vessels at the end of the first
quarter, compared with 94 vessels the previous quarter, representing 9.5
percent of the Capesize fleet.
Strategy and Outlook
The Board is of the opinion that several of the shipping markets are massively
oversupplied today and that it may take some time before a reasonable market
balance is restored. The Board believes that such a market balance will be
dependent on the extent of phase out of existing tonnage as well as global
The freight market continues to show weakness, however, there is a clear
indication that we have reached a level where rates are unlikely to decrease
The Board is getting increasingly confident about the development in the LPG
segment where the Company has eight newbuildings to be delivered in
approximately the next 2 years. This market appears well balanced and there
are clear signs that positive developments have started. This trend is driven
by increased LPG production as well as new trading patterns mainly driven by
development in the US.
Frontline 2012's target is to build the leading global commodity shipping
company within three years and position the Company for an anticipated
recovery of the shipping markets in the next 2 to 3 years. In order to achieve
this, the Company follows a strategy of aggressive growth through the
placement of large orders for new efficient tonnage at historically low prices
with the main focus on tankers and dry bulk carriers.
The Board is confident that the historically low contracting cost and the
significant fuel efficiency of the new tonnage materially reduces the risk of
the Company's aggressive ordering and will position Frontline 2012 favorably
to industry competitors and offer shareholders an attractive future reward.
The value of the Company's newbuilding program increased in the first quarter
of 2013 and the positive development has continued in the second quarter. This
is in line with the Company's expectation that newbuilding prices are likely
to firm up before the freight market. The Board believes there is currently
additional value in the newbuildings compared to contract price.
The Board will in view of the limited downside risk endeavor to optimize the
Company's debt to equity level with the target to increase the equity return
going forward. This includes aggressive use of debt and yard financing.
The Company will seek a listing in New York within 8 to 14 months. As the
Company develops, the Board targets a dividend strategy, and a refinement of
the fleet profile through sale of assets or spin offs.
Frontline 2012 operates a fleet consisting of 6 VLCCs and 4 Suezmax tankers
and owns 58 newbuilding contracts. Due to the composition of Frontline 2012,
the Company has limited exposure to the current weak freight market and the
major factors driving the shareholder value currently is the development in
the newbuilding prices which shows a positive trend and the recovery of the
freight markets at the time the new buildings are delivered.
The major part of the fleet will be delivered in 2014 and 2015, when it is
expected that freight market will have strengthened somewhat and thereby
creating better operating economics. Due to the low ordering prices and high
fuel efficiency of our new buildings Frontline 2012 will have significant
lower long term capital cost and better operating economics than the majority
of our main competitors.
The Company has received financing proposals for the MR tankers to be
delivered this year and expects financing to be completed within the next
couple of months. Debt per vessel, margin and other terms are in line with or
better than originally anticipated.
The Board is confident that the current remaining newbuilding commitment can
be financed through a combination of cash, debt and only a limited new equity
need, if any at all.
The Board is pleased with the execution of the Company's strategic plan, and
looks optimistically on the opportunity to create solid return to our
shareholders over the next three to five years.
Forward Looking Statements
This press release contains forward looking statements. These statements are
based upon various assumptions, many of which are based, in turn, upon further
assumptions, including Frontline Ltd's management's examination of historical
operating trends. Although Frontline Ltd believes that these assumptions were
reasonable when made, because assumptions are inherently subject to
significant uncertainties and contingencies which are difficult or impossible
to predict and are beyond its control, Frontline 2012 cannot give assurance
that it will achieve or accomplish these expectations, beliefs or intentions.
Important factors that, in the Company's view, could cause actual results to
differ materially from those discussed in this press release include the
strength of world economies and currencies, general market conditions
including fluctuations in charter hire rates and vessel values, changes in
demand in the tanker market as a result of changes in OPEC's petroleum
production levels and world wide oil consumption and storage, changes in the
Company's operating expenses including bunker prices, dry-docking and
insurance costs, changes in governmental rules and regulations or actions
taken by regulatory authorities, potential liability from pending or future
litigation, general domestic and international political conditions, potential
disruption of shipping routes due to accidents or political events, and other
important factors described from time to time in the reports filed by the
Company with the United States Securities and Exchange Commission.
The Board of Directors
Frontline 2012 Ltd.
June 6, 2013
Questions should be directed to:
Jens Martin Jensen: Chief Executive Officer, Frontline Management AS
+47 23 11 40 99
Inger M. Klemp: Chief Financial Officer, Frontline Management AS
+47 23 11 40 76
1st Quarter 2013 Results
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applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of
information contained therein.
Source: Frontline 2012 Ltd. via Thomson Reuters ONE
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