Frontline's Board met for a Board Meeting in Hamilton Bermuda on March 8, 1999. In the meeting the Board of Directors reviewed and approved the Company's preliminary results for 1998.
The Board is pleased to announce the best results ever achieved by the Company. The result is positively influenced by the increase of the fleet with an additional five units, two of which were subject to sale and leaseback arrangements in the fourth quarter of 1998. The fourth quarter produced a net loss due to significantly lower TCE rates than in the previous quarters. In 1998 the competitive cost profile of the Company has been improved, while the overall financing cost has increased as a function of increased borrowing related to the new vessels.
ANNUAL AND FOURTH QUARTER RESULTS
Net income for the year ended December 31, 1998 increased 55% from $17.4 million in 1997 to $27.0 million. Earnings per share for the year were $0.59 (1997 - $0.48) and the weighted average number of shares outstanding was 46,106,731 (1997 - 36,188,509).
For 1998, earnings before interest, tax, depreciation and amortisation, including earnings from associated companies were $126.9 million, compared with $116.8 million for the comparable period. This result reflects the contribution of the expanded fleet and reduced administrative expenses, offset by lower trading results in all sectors in which Frontline operates and a loss on the sale of the two VLCCs to German KGs. The average daily TCEs earned by the VLCCs, Suezmax tankers, and OBO carriers were $31,800, $22,400 and $21,800 compared with $32,700, $24,800 and $25,500 for 1997. The total days technical offhire, including drydockings, were 135 compared with 122 in 1997.
Average daily operating costs have continued to decrease across the fleet in the fourth quarter as further benefits of the cost reduction program are realised. The average daily operating costs of the VLCCs, Suezmax tankers, and OBOs, including dry-docking and insurance costs, were $7,600, $6,400 and $6,700 compared with $6,700, $7,500 and $7,000 for 1997. The reduction for the Suezmaxes and OBOs reflects the successful implementation of new shipmanagement systems. Depreciation has decreased for the year due to the change in the depreciation schedule for the fleet from 20 to 25 years in the fourth quarter of 1997.
If the majority holding position in ICB Shipping AB (ICB) had been consolidated into Frontline's accounts on an equity accounting basis, it would have increased EBITDA to approximately $165 million.
Net other expenses for 1998 were $48.2 million (1997 - $42.6 million). This increase reflects the increased average level of debt, offset by a dividend received from ICB in the second quarter of 1998.
The Board is disappointed to report a loss of $5.2 million for the fourth quarter of 1998, compared with a net income of $9.2 million for the comparable period in 1997. Earnings per share for the quarter were $(0.11), (1997 - $0.20). The weighted average number of shares outstanding for the quarter and at December 31, 1998 was 46,106,860 (as at December 31, 1997 - 46,105,860 and for the quarter then ended - 45,608,086).
Earnings before interest, tax, depreciation, and amortisation for the quarter, including earnings from associated companies were $22.7 million, compared with $37.6 million for the comparable period. This decline reflects strong TCE earnings across the fleet in the fourth quarter of 1997 compared with the weak results in the comparable 1998 period. The average daily TCEs earned by the VLCCs, Suezmax tankers, and OBO carriers were $27,100, $17,800 and $17,700, respectively, compared with $42,500, $26,000 and $24,600 in the fourth quarter of 1997. The reduction in EBITDA also reflects the loss on the sale of two VLCCs, which were subject to sale and leaseback transactions in December 1998. In addition, the fourth quarter of 1998 suffered due to the drydockings of two vessels, with a total of approximately 29 days offhire. The TCE results from the Suezmaxes are negatively influenced by the positioning for the drydocking.
Net other expenses for the quarter were $13.9 million (1997 - $15.1 million). This decrease reflects higher average debt balances, offset by lower interest rates, a reduction in higher margin debt and the effect of interest capitalisation on the newbuildings.
In the second quarter of 1998, Frontline consolidated the results of Independent Tankers Corporation (ITC) following its acquisition on May 12, 1998. As previously disclosed, Frontline subsequently sold this investment to Hemen Holding Limited (Hemen). The acquisition and subsequent sale of ITC are treated as occurring on the same date for accounting purposes and therefore the results of ITC are not consolidated for any period in Frontline's financial statements, as a result of a common control relationship between Frontline and Hemen. This adjustment to previously reported results has had no significant impact on the net income of Frontline.