FRNT - First Quarter 2013 Results

 Frontline 2012 reports a net loss of $4.8 million and a loss per share of $0.02 for the first quarter of 2013.
- 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 $310 million in gross proceeds.
- In 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.
- In April 2013, the Company cancelled the third of its five VLCC newbuilding contracts at Jinhaiwan due to the excessive delay.
- As of today, the newbuilding program has increased to 58 newbuilding contracts within the crude oil, petroleum product, drybulk and Liquefied Petroleum Gas ("LPG") markets.
Introduction
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 ("LPG") markets.
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.
Newbuilding Program
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 $2,768 million.
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.
Corporate
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.
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 growth conditions.
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 further.
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.
http://hugin.info/150498/R/1707640/565550.pdf
Source: Frontline