2013-03-19 08:25:56 -
* Frontline 2012 reports net income of $0.7 million and earnings per share of
$0.004 for the fourth quarter of 2012.
* Frontline 2012 reports net income of $8.1 million and earnings per share of
$0.06 for the year ended December 31, 2012.
* 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 the five
newbuilding contracts at Jinhaiwan ship yard due to the excessive delay
compared to the contractual delivery date.
Frontline 2012 Ltd. (the "Company" or "Frontline 2012") is a commodity
company incorporated in Bermuda on December 12, 2011, which as of December
31, 2012 owned a total of ten crude oil tankers and 28 newbuilding contracts
within the crude oil, petroleum product, drybulk and Liquefied Petroleum Gas
As of today the newbuilding program has increased to 53 firm newbuilding
The Company's sailing fleet is one of the youngest in the industry with an
average age of approximately three years and currently consists of six very
large crude carriers, or VLCCs, and four Suezmax tankers, operating in the spot
and the period markets.
The largest shareholder is Hemen Holding Ltd. ("Hemen") with a shareholding of
approximately 51 percent.
Preliminary Fourth Quarter and Full Year 2012 Results
Frontline 2012 announces net income of $0.7 million and earnings per share of
$0.004 for the fourth quarter of 2012. Frontline 2012 announces net income of
$8.1 million and earnings per share of $0.06 for the year ended December
The average daily time charter equivalents ("TCEs") earned in the spot and
period market in the fourth quarter by the Company's VLCCs and Suezmax tankers
were $25,700 and $12,400, respectively, compared with $25,100 and $10,400,
respectively, in the preceding quarter. The spot earnings for the Company's VLCC
and Suezmax tankers were $24,100 and $12,400, respectively, compared with
$23,100 and $10,400, respectively, in the preceding quarter.
As of December 31, 2012, the Company had cash and cash equivalents of $132.7
million compared with $184.6 million as of September 30, 2012. The Company
generated $9.2 million in cash from operating activities, used $74.6 million in
investment activities and increased bank borrowings by $13.5 million.
The Company prepaid bank debt repayments for the year 2012 in exchange for a one
year payment holiday in 2013. Following this the estimated average cash cost
break even rates for 2013 on a TCE basis for its VLCCs and Suezmax tankers are
approximately $16,300 and $13,700, respectively.
As of December 31, 2012, the Company's newbuilding program comprised 16
newbuildings within the crude oil and petroleum product markets, four Capesize
vessels, four very large gas carriers or VLGCs and four VLCCs. Total
installments of $324.0 million have been paid and the remaining installments to
be paid amount to $1,112.5 million.
In January 2013, the Company cancelled the second of the five VLCC newbuilding
contracts at Jinhaiwan ship yard due to excessive delay compared to the
contractual delivery date. The Company's claim towards the yard is secured with
refund guarantees from one of Chinas five largest banks.
Since December 31, 2012 the Company has negotiated and concluded a significant
number of additional newbuilding contracts. As of today the total newbuilding
program amounts to 53 vessels within the crude, product, LPG and dry bulk
segments. The total capital commitment for this newbuilding program is $2,598
million out of which $315 million has already been paid in.
The Company also holds a significant number of fixed price options for
newbuilding contracts declarable in the coming months. The Company has in
addition entered into specific discussions with existing and new yard relations
with the target to increase the newbuilding orderbook further. The Board will
target newbuildings with deliveries in 2014 and 2015.
The final size of the total newbuilding program including options is still under
negotiation and will be reported to shareholders as soon as practically
156,000,000 ordinary shares were outstanding as of December 31, 2012, and the
weighted average number of shares outstanding for the quarter was 156,000,000.
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. The proceeds from the private placement will be
used to part finance new building investments.
The market rate for a VLCC trading on a standard 'TD3' voyage between the
Arabian Gulf and Japan in the fourth quarter of 2012 was WS 42.8, representing
an increase of approximately WS 7 point from the third quarter of 2012 and a
decrease of approximately WS 15 points from the fourth quarter of 2011. Present
market indications are $1,250 per day in the first quarter of 2013.
The market rate for a Suezmax trading on a standard 'TD5' voyage between West
Africa and Philadelphia in the fourth quarter of 2012 was WS 60.5, representing
an increase of one WS point from the third quarter of 2012 and a decrease of WS
9 points from the fourth quarter of 2011. Current market forward rates are
approximately $12,000 per day in the first quarter of 2013.
Bunkers at Fujairah averaged $615/mt in the fourth quarter of 2012 compared to
$650/mt in the third quarter of 2012. Bunker prices varied between a low of
$593/mt on November 5(th) and a high of $655/mt on October 1(st).
The International Energy Agency's ("IEA") February 2013 report stated an
oil production, including Iraq, of 30.9 million barrels per day (mb/d) in Q4.
This was a decrease of 0.5 mb/d compared to the third quarter of 2012, due to
lower Saudi Arabian production in November and December.
The IEA estimates that world oil demand averaged 91.0 mb/d in the fourth quarter
of 2012, which is an increase of 0.8 mb/d compared to previous quarter and the
IEA estimates that world oil demand averaged approximately 89.8 mb/d in 2012,
representing an increase of 1.1 percent or 1.0 mb/d from 2011. 2013 demand is
expected to be 90.7 mb/d.
The VLCC fleet totalled 622 vessels at the end of the fourth quarter of 2012, up
from 617 vessels at the end of the previous quarter. 11 VLCCs were delivered
during the quarter, six were removed. The order book counted 81 vessels at the
end of the fourth quarter, down from 91 orders from the previous quarter. The
current order book represents approximately 13 percent of the VLCC fleet.
According to Fearnleys, the single hull fleet is 17 vessels, five less than last
The Suezmax fleet counts 468 vessels at the end of the fourth quarter, up from
462 vessels at the end of the previous quarter. 14 vessels were delivered during
the quarter whilst eight were removed. The order book counted 72 vessels at the
end of the fourth quarter, which represents 15 percent of the total fleet.
According to Fearnley's, the single hull fleet has been reduced from nine to
Improved economic signals from US and China, robust financial market activity
and colder temperatures in the Northern Hemisphere made the foundation for
higher oil demand in the fourth quarter of 2012. Stronger growth became apparent
for China, Brazil, Korea and Canada. Notable November contractions were seen in
the US and Saudi Arabia, as both suffered from weather-related downturns.
Particular sharp November contractions in the US was seen in gasoil and residual
fuel oil demand which fell by 5 percent and 31.2 percent, respectively, year
over year. For January, the US Energy Department's Weekly Petroleum Status
report suggests that total products supplied increased 1.2 percent in 2012. The
surprisingly large gains in transport fuel deliveries including gasoline (+4.7
percent and jet/kerosene (+2.3 percent) supports the trend of strengthening
Total worldwide products storage now cover 30.4 days after a year end growth in
middle-distillates and gasoline while "other products" saw a draw. While plant
maintenance slashed US runs in January Asian runs hit new highs ahead of Chinese
maintenance. Strong Atlantic Basin gasoline cracks, resilient gasoil cracks and
narrowing fuel oil discounts lifted January margins.
The MR fleet totaled 1,513 vessels at the end of the fourth quarter of 2012, up
from 1,503 vessels at the end of the previous quarter. The order book counted
142 vessels at the end of the fourth quarter, which represents approximately ten
percent of the MR fleet according to IEA.
The LR2 fleet totaled 217 vessels at the end of the fourth quarter of 2012, up
from 216 vessels at the end of the previous quarter. The order book counted
eight vessels at the end of the fourth quarter, which represents approximately
3.7 percent of the LR2 fleet according to IEA.
Spot rates have fluctuated greatly through the year and with a seasonal dip in
the fourth quarter of 2012 ended in line with 2011. LPG carrier demand is
especially linked to oil production since LPG is associated gases coming up with
the crude and natural gas streams. Saudi oil production was strong during
summer months but has recently been on a downward trend. Saudi domestic
consumption of LPG is also higher in winter months, which reduce volumes
available for exports.
During the fourth quarter of 2012 VLGCs steamed at 14.5kn on average compared to
a designed speed of 16kn. The main barometer on the VLGC market is the
naphtha/LNG price ratio. LPG prices have increased due to lower export volumes
making naphtha more attractive for chemical producers. RS Platou expects 2013 to
stay in line with 2012 and sees interesting opportunities arising from US shale
gas long term, which is expected to be very positive for VLGCs.
The VLGC fleet (60,000+ Cbm) totaled 147 vessels at the end of the fourth
quarter of 2012, an increase of three vessels from the previous quarter. The
order book counted 23 vessels at the end of the fourth quarter, up from 20
vessels the previous quarter, representing 15.6 percent of the VLGC fleet
according to Platou.
Dry bulk transportation increased by around seven percent in 2012, however, due
to the high number of new vessels entering the market, fleet utilization
decreased. Given a net fleet growth of approximately 11 percent, the estimated
utilization of the dry bulk fleet was on average 83 percent in 2012.
Consequently spot earnings were low. The capesize and panamax segments both
earned on average approximately $7,650 per day according to The Baltic Exchange.
Around 220 capesizes and 375 panamaxes were delivered in 2012, still this was
30 percent lower than the official order book at the beginning of the year. At
the same time approximately 90 capesizes and 135 panamaxes were sold for scrap.
For the dry bulk fleet as a whole 35 million dwt were scrapped against 95
million dwt of deliveries.
Deliveries of new vessels will decrease sharply over the next 24 months. With
the same delivery ratio we have experienced over the last three years
approximately 60 million dwt should be delivered this year, while the order book
for 2014 is 25 million dwt for the entire dry bulk sector. The low spot market
presently experienced and relatively high scrap prices should encourage more
scrapping. Most forecasters are expecting scrapping to remain at similar levels
as last year and consequently net fleet growth could be as low as five percent
The steel industry and energy coal for utilities are accounting for almost 70
percent of dry bulk transportation. For several years the importance of
increased steel production and energy consumption in China and the increased
dependence of this country for the dry bulk market have been well known. Also in
2012 iron ore and coal imports showed a remarkable growth. Iron ore increased by
around eight percent while coal imports increased by almost 30 percent year on
year. This was in spite of a much slower growth in steel and energy consumption
(2 percent and 3.4 percent respectively)
There are a few factors which make most analysts fairly optimistic for dry bulk
demand growth going forward. Quality of Chinese domestic iron ore production is
on a steady declining trend. Since 2007 China has invested roughly $85 billion
in iron ore mining. Over the same period investments per effective ton iron ore
produced has increased from $15 per ton in 2007 to $60 per ton in 2012.
Adjusting for falling Fe content, effective iron ore production in 2012 is
broadly at the same level as in 2007. Even in a modest steel growth scenario for
China most forecasters believe in a continued strong growth in iron ore imports.
According to Fearnleys the Capesize fleet (150-200' dwt) totaled 1022 vessels at
the end of the fourth quarter of 2012, an increase of 3 vessels from the
previous quarter. The order book counted 94 vessels at the end of the fourth
quarter compared to 106 vessels the previous quarter, representing 9.2 percent
of the Capesize fleet.
Strategy and Outlook
The Company's vision is to build the leading global commodity shipping company
within three years at historically low newbuilding prices with sole focus on
high quality, modern, fuel efficient tonnage.
Frontline 2012's target is to position the Company for an anticipated recovery
of the shipping markets in the next 2-3 years. In order to achieve this, the
Company follows the strategy of aggressive growth through placing large orders
for new efficient tonnage at historically low prices with the main focus on
crude tankers and dry bulk. The Company will also selectively consider
opportunities to invest in modern existing tonnage but this is not likely to be
a central part of the strategy
The Company is currently in the process of concluding one of the most aggressive
new building programs ever executed with vessels in the crude, product, LPG and
dry bulk segments.
The Board is of the opinion that the current historically low newbuild prices
and the significant fuel efficiency of the new tonnage materially reduce the
risk of this major investment. Most of the tonnage the Company has ordered will,
based on the improved fuel efficiency and low capital cost, be profitable at
rate levels where existing tonnage barely covers operating costs.
The global interest in the new building market has recently increased although
from a very low level. The low and, in some cases, negative margins for the
shipyards has led to a significant scale down of yard capacity, particularly in
China and Japan.
We have seen some upward price movements in some of the sectors in the recent
months however, no significant movement should be expected before more activity
is generated from the Container sector.
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 financing and yard
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 occurs. Such a market balance will be dependent on the extent of phase
out of existing tonnage as well as global growth conditions.
The Board is confident, however, that the Company's aggressive ordering of fuel
efficient tonnage at historically low contracting cost will position Frontline
2012 favorably to our industry competitors and offer shareholders an attractive
long term return.
The Company will seek a listing in New York within 10 - 16 months. As markets
develops, the Board targets a dividend strategy, and a refinement of the fleet
profile through sale of assets or spin offs.
Frontline 2012 has started to cover some of the future interest risk by buying
interest swaps. The Board sees this as an attractive risk reward investment with
the long term target to reduce the Company's capital cost.
Frontline 2012's current operating fleet consists of VLCCs and Suezmaxes. Based
on results achieved so far in the first quarter the Board expects the operating
result in the first quarter to be weaker than the fourth quarter.
The Board of Directors
Frontline 2012 Ltd.
March 18, 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
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.
4th Quarter 2012 Results:
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Frontline 2012 Ltd. via Thomson Reuters ONE