Frontline plc.

Good morning and good afternoon. Welcome to this frontline fourth quarter and full year earnings call. It's been a very volatile year and black swans have become a common feature in our market landscape. The COVID-19 pandemic has affected our business on many levels, but most importantly, our seafarers have been safe and our organization has been spared serious human consequences. Tanker markets have been challenging, but the year as a whole has been solid business-wise, and we recorded our best full-year result in 2020 since 2008. Let's move to slide three and have a look at the highlights. Frontline came into the fourth quarter of 2020 on a soft note, expecting some degree of normal seasonality to kick in, as the northern hemisphere usually stock up for winter. But this time around, the fourth quarter proved to be softer than Q3, actually for the first time in 10 years. On a load-to-discharge basis, we made $17,200 per day on our BOCCs, $9,800 per day on our SUSMACs, and $12,500 per day on our LR2s. So far in the third quarter, we have booked 78% of our available VLCC days at $22,600, 68% of our available SUSEMAX days at $17,800, and 65% of our LR2 slash AFRAMAX days at $12,200 per day. I think it's safe to say our markets in Q4 were challenging, but I will come to that later in this presentation. I'll now let Inge take you through Frontline's financial highlights.

Thanks Lars, and good morning and good afternoon ladies and gentlemen. Let's then turn to slide 4 and look at the income statement. We achieved the total operating revenues net avoidance expense of $101 million in the fourth quarter, and adjusted EBITDA of $31 million. We report a net loss of $9.2 million, $0.05 per share, and adjusted net loss of $20 million, or $0.10 per share, in the fourth quarter. We have some adjustments in the fourth quarter. which were the gain on the sale of CTEAM of 6.9 million, also a 2.5 million gain on derivatives, a 1.9 million unrealized gain on marketable securities, a 1.3 million amortization of acquired time charters, and a 1.6 million share of losses of associated companies. The adjusted net income in the fourth quarter decreased from third quarter by $76 million, and that was primarily driven by a $75 million decrease in our time chartered earnings due to the lower reported TCE rates in the fourth quarter, which Lars went through. Frontline reports a full year 2020 net income of $413 million, or $2.09 per share, and and adjusted net income of $422 million, or $2.13 per share. And this is the strongest year since 2008. Then let's take a look at the balance sheet on slide five. At the end of December 31, 2020, Frontline has $413 million in cash and practice equivalents, including the earned amounts under our senior unsecured loan facility, the marketable securities and minimum cash requirements. In November 2020, we entered into two term loan facilities in a total amount of 351.5 million to refinance two existing term loan facilities, which matured in the second quarter of 2021, which had total balloon payments of 324.4 million. And we also entered into a loan facility in an amount of up to $133.7 million to partially finance the CAPEX requirements as of the end of 2020 of $142.4 million for the four LRQ tankers that we have under construction. Further, in February 2021, we extended the terms of our senior and security revolving crate facility of up to $275 million by 12 months, to May 2022. 60 million of this extended facility has been recorded as long-term debt as of December 31st, 2020. 215 million remains available and undrawn under this facility. And following the concluded refinancing and financing, we have no material debt maturities until 2023, and the new building program is fully funded. Then let's take a closer look at the cash break-even rates and effects on slide six. We estimate average cash cost break-even rates for 2021 of approximately $21,600 per day for the VHDCs, $17,800 per day for the Zeusvax tankers, and $15,600 per day for the LR2 tankers. And the fleet average estimate is about $18,200 per day. These rates are the all-in daily rates that our vessels must earn to cover the budgeted operating costs and dry dock, the estimated interest expenses, TEC and bare boat hire, installments on loans, and G&A expenses. We've recorded OPEX expenses in the fourth quarter of 2020 of $7,800 per day for the VCCs, $9,700 per day for the SUSEMACs, and $8,300 per day for the LR2 tankers. The operating expenses were impacted by dry docking of four SUSE Maxx tankers and one LRQ tanker in the fourth quarter. We will dry dock one SUSE Maxx tanker in the first quarter of 2021. In the graph on the right-hand side of the slide, we have shown incremental cash flow after debt service per share, assuming 10,000, 20,000, 30,000, or 40,000 per day in achieved rates in excess of our cash break even rates, respectively. And then, sorry, the numbers include vessels on time shorter routes. They are adjusted for new building deliveries. And we are looking at a period of 365 days from January the 1st, 2021. As an example, with a fleet average cash cost per given rate of $18,200 per day, and assuming $30,000 on top, the average fleet TCE rate would be $48,200 per day. And Frontline would generate a cash flow per share after the service of $3.46. With this, I leave the word to Lars again.

Thank you, Inger. So let's move on to slide seven and recap the fourth quarter tanker markets. So during Q4, oil inventories drew at a record pace to the tune of 2.6 million barrels per day, according to EIA. As oil demand continued to rise to levels near 10 million barrels above the Q2 levels, oil prices continued to strengthen further, and the structure of the oil market incentivized players to empty tanks, both floating and on land. as the future price was increasingly lower than the prompt price, making it uneconomical to hold stock. A significant number of tankers were employed in storage in the second half of last year, particularly outside China. This inventory draw cycle added pressure to an already oversupplied market, as these vessels now returned to compete in the spot business. Asia, and in particular China, has been the key driver in the recovery so far. This supported the VOC market for a while as they sourced their returning oil demand from the Atlantic Basin. In the latter part of last year, we saw China also draw on inventories, muting their demand for tankers. By December 2020, Chinese oil consumption reached all-time high at 15.6 million barrels, according to the EIA. Let's move to slide 8 and look at the crude fleet and order books. The argument that ships older than 20 years struggle to trade in the conventional oil market is undisputed. Oil majors, traders, and national oil companies all practice a hard stop at 20 years. This means that you have a very limited amount of options. once the vessel has gone through the 20-air classing. With freight rates at zero to negative for non-equatommage, we struggle to see the prospects for this portion of the fleet for alternative use. The conversion market for FSOs and FSOs is not very hot at the moment, and there is a limited demand for storage, as all the curves are in steep accolades. We also believe the upcoming regulatory changes with regards to GHG emissions will challenge the fleet going forward. This indicates a limited lifespan, even for vessels of 17 and a half years of age. Ordering activity is muted and does not match the current age profile of the fleet. We did see some orders towards the end of last year, and that has lifted the order books slightly. 30% of the overall tanking fleet is about 15 years. And as the regulations on energy efficiency, or the famous now EEXI, kicks in in 2023, the potential for carbon tax regime kicks off. This whole portion of the fleet will either need to invest heavily or retire. Let's move to slide nine, where I want to talk about our clean product rankings. We normally don't mention our clean trading capabilities in these presentations, but we do have 18 modern LA2s and four more to come, which makes us a significant owner in this space. The reduction in jet fuel demand as travel got restricted in 2020 hit refinery margins severely. Refinery margins in Europe and the US have been under pressure for years, and due to bleak prospects, little investments have been done in improving and modernizing these plants. Last year's depressed margins accelerated the decisions to permanently close or convert refineries to storage plants, or in some few examples, biofuel plants. And in particularly, Middle East and China have, over the last three years, expanded refining capacity significantly. Modern refineries process a wider range of crews more efficiently. And I could give you an entire presentation on the topic. But the key is that they outcompete local refineries in especially Europe, but also to some degree in the US. We can see on the slide here that The refining capacity that is permanently closed in Europe is to the tune of 500,000 barrels per day. In the U.S., close to 700,000 barrels per day. There have been some closures in Asia of 705,000 barrels per day, but the new additions are 1.4 million barrels per day. In NET, we see that or we expect the trade flows to be affected by this. As product demand normalizes post-COVID-19 pandemic in Europe and US, we have to assume we return to some level of normality over the coming years. Jet fuel and other products are far more likely to be sourced by Asia, and this will incur longer turnouts. Our LR2s offer great economies of scale for the expected developments in the product trade flows. Let's move on to slide 10 and discuss the market outlook as we see. I'm focusing on the short-term drivers in this presentation, as that's probably the interesting part considering where the markets are. Saudi Arabia has signaled the reversal of their voluntary 1 million barrel per day cut to come in April 21. That comes in addition to whatever they release. Unusual cold weather in the northern hemisphere disforces usual demand patterns. The gas LNG spike in Asia and the unknown capabilities as to how oil for heating work, as we haven't really seen oil for heating in 10 years, creates a lot of uncertainty around how much incremental oil has been consumed during this period. The spike in LNG prices implies oil prices at $250 per day, making great incentives to burn oil for heating. We had episodes of or saw situations where skiing suddenly became popular in Madrid, and most recently in Texas, we've seen how the cold weather has affected production. Goldman Sachs estimates that this production loss to be close to 700,000 barrels per day for February. Oil demand continues to recover despite extended lockdowns. Oil prices indicate tightening markets. The floating storage is no longer a significant factor weighing on the tank market as we see it. And in April alone, oil supply is expected to increase by 3 million barrels, according to EIA. So let's move to slide 11 and sum all these things up. So the global tanker markets have corrected sharply during second half 20, after significant retraction in world growth. All the leading commodity markets are pricing a strong recovery in 2021. And the global GDP is expected to grow by 5.5% during this year. Oil demand is recovering, and to what pace is a little bit unknown. We all know that the rate... The analyst agencies are slow to react both on the downside when demand disappears, but also to the upside when demand is recovering. But global oil production is expected to increase by 5.3 million barrels during 2021. When this recovery starts for tankers is unknown, but we are very low in the cycle, as the chart on the bottom right side indicates. OPEC Plus is expected to ease caps from Q2 21 onwards. And with all the above, we believe Frontline is very well positioned for a recovery in tanking markets with our modern auto-exposed heat. With that, I would like to open up for questions from the audience.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star 1 on your telephone keyboard and wait for your name to be announced. Please stand by while we compile the Q&A Q&A. This will only take a few moments. If you wish to cancel your request, please press the ask key. Once again, it's star 1 if you wish to ask a question. Thank you. And our first question comes from the line of John Chappell from Evercall. Please ask your question. Your line is open.

Thank you. Good afternoon. Lars, as I was reading your press release and your presentation, it struck me that Frontline has a history of being nimble and acquisitive when others kind of can't. And now that you've been very prudent with your dividend, Inger's done a great job of pushing out the maturities, it seems like you're in a position of financial strength at a time when the market's really still kind of struggling. So how do you think about these next six months and Frontline's willingness and ability to acquire ships before the optimistic upturn starts maybe later in the year or early next year? Or do you sit back and wait to see the whites of the eyes on a recovery before you get more aggressive?

Well, it's a good question, and it's an expected one. I think I'd like to emphasize on our capabilities. And as you mentioned there, whether if we sit back or whether if we're looking at something right now or whether if we'll do something in Q2 or later, I'm not going to comment on, to be quite honest. But the standard answer, I believe, is we're always looking. And our financial show, we're also ready to move when we see the opportunity.

Okay. And then second question, more of an industry one, but the one I've also been thinking about. I think scrapping is kind of important on the margin. It's not the most important part of a recovery in this market that's going to be demand-driven. But it seems like a lot of companies have been talking about, you know, the new emission standards and, you know, the terrible market environment and older ships being discriminated against and why that's going to drive scrapping. And you had a whole slide on that yourselves. It just seems like there hasn't been much in the form of scrapping in the last 12 months where rates were pretty much as bad as they can be, at least the last six to nine months. And now there's this kind of consensus optimism that OPEC starts producing again and the world's recovering and everything's going to get better. So why would we see scrapping accelerate when the view is that things can only get better from here when there really wasn't much to be done at the absolute trough?

Well, I'm going to admit, And I think I mentioned or at least indicated in my presentation that the lack of scrapping in this market is a bit of a mystery to me. I think I pointed out that for all economical reasons, we should be scrapping a lot during this month or the last month. And we haven't seen that yet. I think scrapping will accelerate throughout the year. With regards to the challenging kind of somewhat hazy outlook with regards to regulatory changes and so forth, I think it's going to be a very important factor to our market going forward. But I won't join like the doomsday predictors saying that every vessel that's above 10 years needs to scrap and all that stuff. There's a lot to be done for the tankers to actually improve their GSG emissions with the existing kits. But for sure, it will affect our market going forward. But I think one has to be a little bit kind of critical of all the various kind of analyst predictions on the outlook for the tankers.

Yeah, that makes sense. Okay, thank you, Lars.

Thank you. Our next question comes from the line of Chris Tang from Weber Research. Please ask your question. Your line is open.

Good afternoon. How are you, Lauren and Inger?

Good afternoon.

So I guess I just want to start it off kind of following up on what John was talking about regarding strong balance sheet. And you guys pushed out just that bit. And instead of asking about acquisitions and expanding the fleet, what about Is there any appetite to kind of increase your operational leverage and possibly turning in charters at what could be the trunk of this market?

Sorry, we can't really hear you too well. I'm sorry for that.

Is this better?

Yeah, this is better.

Hi, sorry. So I guess I was just following up on what John was saying and commenting and noticing that you guys have incredibly strong balance. Anger's done a great job in pushing out the debt maturities at the 2023. And instead of just thinking from a fleet expansion perspective, what about your appetite to increase your operational leverage, terming in new charters of any sort of duration?

Yeah. So if I got you correctly, basically the appetite to increase our operational leverage. The thing is that, let me answer the question in a different manner. So right now we're really happy with the situation we're in because we have a fleet that's spot exposed to a very large degree. Apart from the five SUSE maxes we have on long-term time shutter out, we are nearly 100% spot exposed. So basically, we are in a position where we want to reap the benefits. Whether if we want to increase our ability to make more money, I think that's potentially a few months out. And back to the previous comments, you know, We are looking, but, you know, I can't really confirm anything.

Yeah, no, that's fair. And I guess if you're looking, are you able to share sort of color if you're looking at, you know, these, you know, specific, you know, propulsion tags or maybe a little bit more on trade, so like LL2s, is there something you can share? Yeah.

Sorry, I'm really struggling to hear you, but did you mention propulsion?

Sorry, is this better?

Yeah, you're breaking off half and half. But whether we are looking at various propulsion types, yes, we are. But we're not ready to invest on that yet. We think the jury is to some degree out. As I mentioned in our Q3 presentation, with our modern fleet, we're actually in a pretty good shape, at least when it comes to emissions towards 2030. You know, obviously, for us to make an investment in propulsion, and with that I mean retrofitting or ordering kind of shifts with a different propulsion than the traditional one, we actually need to see, it's a little bit like discovery discussions, You know, we and others started to invest in scrubbers when it was obvious the economical case for it. On propulsion, it's not yet. You know, we don't know, well, we're pretty sure there will be a carbon tax. We don't know how much it's going to be. We don't know how it's going to be applied. So basically the propulsion discussion is still something we have. I could easily say that both LPG and LNG and eventually ammonia looks probably the way to go or one of the ways to go. I think we'll end up in a situation where there are various propulsion types depending on what kind of trade you're doing. But I think it's very important to keep in mind that ship owners, we can't be paying for this ourselves. So it's basically the market needs to tell us what it's willing to pay for.

Okay, all right. Yeah, part of it, but I mean, I'm going to just try to reconnect and jump back in too. So sorry about my connection. Thanks, guys.

Thank you. Ladies and gentlemen, as a reminder, if you wish to ask a question, please press star 1. Thank you. And our next question comes from the line of Randy Givens from Jefferies. Please ask your question.

Howdy, Lars and Inga. How are you?

I'm fine. Very good.

Good, good. All right, so just asking about the dividend. Obviously, you bought that back last year, haven't paid a dividend now for the last two quarters. So if earnings return as expected, I guess, here in the coming quarters, is there a formula for the dividend to return, or is it kind of fully discretionary? And if so, what will cause you to reintroduce the dividend?

Randy, I think it's like we stated in the earnings release. We are in a way dedicated to return dividends to our shareholders, what the board is. But we would have to look at both positive results. First we have to have a positive result, and then obviously also we would have to look at the market expectation. So that's the same wording in a way as we have in our press release.

Got it. Okay. And then as you operate in both the crude and the products tanker market, which of those or maybe which asset class, BLCC, SUEZMAC, LR2s, are you most bullish on here in the coming months?

Well, I've been asked that a couple of times today, actually. And so, you know, we are... Our company is like a four-cylinder engine where we have the wheels, the seats, who smokes. We have the LR2s that are trading clean and dirty. So... Right recently, we've had at least some spark in the SUSEMAC cylinder, not to any excitement at all, but at least recovering from negative returns. Right now, we have the AFROMAC space where there's some excitement due to weather and disruptions in the US Gulf. I am unsure which segment will be hit. The first, to be quite honest, when the recovery story starts to kind of come true. Potentially, the VLCC market, because eventually you need refinery runs to increase for products to flow. But, you know, the start of any return of volume will probably come from the Middle East, which would, you know, firstly benefit the VLCC.

Got it. All right, that's fair. And then quickly here on asset values, how have those been impacted? Kind of in this current market weakness, however, there's also an optimistic outlook for the back half of this year. So it seems like the share price rally has maybe outpaced the increases in asset values. Is that accurate, or what are you seeing on that front?

I agree with your analysis. I believe the share market is pricing the recovery a little bit further out. So obviously jumping over the insecurity in the front here. But we have seen a few transactions that kind of underpin the values, at least if you look at the five-year-old market. We're also about to get some price transparency, I believe, on resales. a new build, but I wouldn't say it's an upward movement, but I would say it's, you know, we're at least firmly up to what might be the floor.

Sure. Good deal. Well, that's it for me. Thanks again.

Thank you. Thank you. Thank you. Ladies and gentlemen, we have no further questions at this time. Please go ahead. We have no further questions at this time. Please continue.

Okay. With that, I would like to thank you all for listening. We are excited for the time to come in Sankis and wish you all a great weekend. Thank you.