Frontline Ltd. (FRO)

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Frontline (FRO)

Q2 2013 Earnings Call

August 28, 2013 9:00 am ET

Executives

Jens Martin Jensen - Chief Executive Officer of Frontline Management AS

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

Analysts

Joshua Katzeff - Deutsche Bank AG, Research Division

Jonathan B. Chappell - Evercore Partners Inc., Research Division

Fotis Giannakoulis - Morgan Stanley, Research Division

Rune Sand - Carnegie Investment Bank AB, Research Division

Ole G. Stenhagen - SEB Enskilda, Research Division

Presentation

Operator

Good day, and welcome to Q2 2013 Frontline Ltd. Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jens Martin Jensen. Please go ahead.

Jens Martin Jensen

Thank you. Good morning, good afternoon, and welcome to our Q2 presentation. We will follow our usual program for this presentation with Inger going through the Q2 highlights and main transactions, financial review of the quarter and an update on our small newbuilding program. After that, I will follow up with some market comments and some comments on the present situation and on the present situation of Frontline. Inger, if you could start, please.

Inger M. Klemp

Thank you, and good morning, and good afternoon, ladies and gentlemen. Moving then to Slide 4, highlights and transactions.

Frontline has recorded a vessel impairment loss of $81.3 million in the 3 and 6 months ended June 30, 2013. This loss relates to 3 vessels leased from Ship Finance: the Front Century, the Front Champion and Golden Victory. Impairment losses are taken when events or changes in circumstances occur that cause the company to believe that future cash flows from an individual vessel will be less than its carrying value and not fully recoverable.

In May of 2013, the company redelivered the chartered-in vessel double-hull Eagle to its owners. Following this redelivery, the company no longer has any vessel chartered-in under operating leases.

At the Special General Meeting held on May 8, 2013, our shareholders approved a decrease in the par value of our ordinary shares from $2.50 to $1 per share effective May 14, 2013.

In June 2013, the company announced that it has entered into an equity distribution agreement with Morgan Stanley, under which Frontline may, at any time and from time to time, offer and sell new ordinary shares, having aggregate sales proceeds of up to $40 million through Morgan Stanley in an at-the-market offering. Frontline has issued 985,094 new shares following the launch of this ATM in June 2013.

Then moving to Slide 5, financial highlights and fixed income statements. Frontline reports a net loss of $120.3 million, equivalent to loss per share of $1.54 in the second quarter of 2013, compared with a net loss of $18.8 million and a loss per share of $0.24 for the preceding quarters. The net loss attributable to the company in the second quarter includes a gain on sale of assets and amortization of deferred gains of $500,000 being the deferred gain relating to the sale and leaseback of double-hull Eagle and an impairment loss of $81.3 million relating to the 3 vessels leased from Ship Finance.

Net loss ex-impairment loss in the second quarter was $39 million. The increased loss ex-impairment loss in the second quarter compared to the first quarter is mainly due to the lower TCE rates in the second quarter compared to the first quarter and also increased OpEx due to an increase in drydocking costs. Slightly offsetting this was a reduction in charter hire expenses in the second quarter following the redelivery of the double-hull Eagle.

Moving then to Slide 7, income on time charter basis. Frontline's double-hull VLCC fleet earned $11,200 per day in the second quarter compared with $14,600 per day in the first quarter. The average for the whole VLCC fleet was about $14,100 per day in the second quarter compared with $17,000 per day in the first quarter. The Suezmax fleet earned $13,800 per day in the second quarter compared with $14,500 per day in the first quarter. The TCE numbers this quarter were disappointing in the VLCC segment and relatively satisfactory in the Suezmax segment compared to both peers and market.

Moving then to Slide 8, ship operating expenses and off-hire. The average OpEx for the fleet in the second quarter was approximately $12,500 per day compared to approximately $9,900 per day in the first quarter. We drydocked 4 vessels in the second quarter compared to one vessel in the first quarter, as you can see from the graph on the upper right-hand side of the slide. However, Q2 includes one vessel overlapping from Q1. As you can see from the graph on the lower right-hand side of the slide, off-hire days were 208 in the second quarter compared with 157 days in the first quarter. Although we drydocked only one vessel in the first quarter, we commenced drydocking for 3 more vessels in the first quarter, hence the tie [ph] off hire days number in the first quarter. We expect to drydock 2 Suezmax tankers in the third quarter of 2013.

Moving then to Slide 9, balance sheet. The total balance sheet in June 30, 2013, is approximately $120 million less than end March 31. This is mainly explained by vessel and equipment under capital lease decrease by $103 million, of which $81.3 million relates to impairment charge and $21.6 million relates to the quarterly depreciation.

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