- Frontline reports Second Quarter EBITDA of $77.6 million and net income of $34.7 million.
- The tanker market soared in the second quarter and is currently at levels not experienced since the 1970s.
- Frontline adds 3 VLCCs and 1 Suezmax to its fleet in the second quarter through acquisitions and newbuilding deliveries.
- Bankruptcy court approval obtained for Frontlines disclosure statement for restructuring of Golden Ocean and Frontlines restructuring plan recommended by Golden Ocean and by the official Creditors Committee.
- Fundamentals point towards a continued healthy market and strong earnings.
- Frontline expects doubling of net income in third quarter compared to second quarter.
SECOND QUARTER AND SIX MONTH RESULTS
The Board of Frontline is pleased to report net income of $34.7 million in the second quarter of 2000. This compares with a loss of $13.5 million in the second quarter of 1999. This result reflects the strong improvement in the tanker market that started in the first quarter of 2000 and continues to date. Earnings before interest, tax, depreciation, and amortisation (EBITDA) for the quarter, including earnings from associated companies were $77.6 million, compared with $27.5 million for the 1999 period. The average daily time charter equivalents (TCEs) earned by the VLCCs, Suezmax tankers, and Suezmax OBO carriers were $36,100, $27,700 and $26,800, respectively, (1999 - $17,800, $17,000 and $16,800, respectively). Total operating costs have decreased as the successful implementation of a cost reduction program is recognised over the increased fleet. Depreciation expense has decreased due to inclusion in the second quarter of 1999 of four VLCCs in the ICB fleet which were sold in the latter part of 1999, combined with the fact that these VLCCs, plus the other eight vessels in the ICB fleet, were being depreciated over a twenty year expected life. This was amended to twenty five years with effect from the fourth quarter of 1999. Administrative expenses have increased primarily due to the operation of the Tankers International Pool, with costs of approximately $700,000 included in the second quarter. This quarter was the first full quarter during which the Companys VLCCs operated in the Tankers International Pool.
Net other expenses for the quarter were $21.9 million (1999 - $17.5 million) as the average debt level increased with fleet expansion.
Basic earnings per share for the quarter were $0.49, (1999 loss of $0.29). A total of 9,957,500 ordinary shares were issued during the second quarter of 2000 as a result of the various transactions discussed below, resulting in 78,769,360 shares outstanding at June 30, 2000 and a weighted average number of shares outstanding for the quarter of 71,434,745 (as at June 30, 1999 and for the quarter then ended - 46,106,860). Cashflow per share for the quarter was $0.78, compared with $0.22 for the same quarter in 1999.
For the first six months of 2000, the Company incurred net income of $35.7 million (1999 - net loss of $9.2 million) and EBITDA of $118.8 million (1999 - $74.7 million). The average daily TCEs earned by the VLCCs, Suezmax tankers, and Suezmax OBO carriers were $29,000, $24,300 and $22,800 respectively, compared with $22,600, $18,700 and $18,700 in the first six months of 1999.
Net other expenses for the first half of 2000 were $42.4 million (1999 - $33.0 million). Earnings per share for the 2000 year to date were $0.53 (1999 loss of $0.20) and cashflow per share was $1.13 (1999 - $0.83).
The comparative results for the 1999 periods presented have been restated to include the results of ICB Shipping AB on a consolidated basis.
The tanker market continued to improve in the second quarter. After stable rates around USD 30-35,000 per day for the VLCC market and USD 25-30,000 per day for Suezmax in most of the quarter, rates improved significantly by the end of the quarter.
After a weak 1999, the tanker fleet had reduced slightly through scrapping of older vessels and slow newbuilding deliveries. As transportation demand picked up in 2000 as a result of OPECs increase in production, the balances swung in favour of tanker owners and charter rates improved steeply. The trend from the second quarter has continued into the current quarter. Second-hand values and newbuilding prices have improved through the year and the trend continues. In the first six months of this year 19 VLCCs and 13 Suezmaxes were scrapped. 22 VLCCs and 14 Suezmaxes were delivered from shipyards in the same period.
CORPORATE AND OTHER MATTERS
On April 12, 2000, Frontline took delivery of the Front Sun, the fifth and final Suezmax newbuilding in the Companys current program. On May 23, 2000 and June 14, 2000, Frontline took delivery of the 1993-built VLCCs, Front Tartar and Front Tarim, respectively, pursuant to the previously announced agreement with Wilh. Wilhelmsen ASA. A total of 2,975,000 ordinary shares of Frontline were issued at NOK 80.00 each for the acquisition of these vessels. Both vessels have been entered into the Tankers International Pool.
On June 1, 2000 the Company took delivery of the ex-Golden Ocean newbuilding VLCC, Front Tina. The acquisition of the Front Tina was part-financed by a Private Placement to institutional investors of 3,000,000 ordinary shares at $10.20 per share that was completed on May 25, 2000.
In June 2000 the Company entered into an agreement with Euronav to acquire two Suezmax tankers, Ardenne and Brabant for a total price of $95.0 million. The vessels will be taken over by Frontline in September 2000.
On June 20, 2000, the Company issued 4,000,000 ordinary shares at a price of NOK 104.5 per share in a private placement to a group of international institutional investors. Part of the $48.5 million proceeds of the issue will be used to part finance the acquisition of the Ardenne and Brabant.
During the second quarter and through July, Frontline continued its attempts to gain acceptance of its plan for the financial restructuring of the Golden Ocean Group (Golden Ocean). On August 4, 2000 the bankruptcy court in Wilmington, Delaware approved Frontlines disclosure statement for restructuring of Golden Ocean. Frontlines restructuring plan was also recommended to the court by the debtor, Golden Ocean Group Ltd., and by the official Creditors Committee. The proposal for restructuring will now be distributed to the bondholders for voting. Frontline has through its own bond position and through a lock-up agreement already secured support from two thirds of the unsecured claims.
On August 15, 2000, the bankruptcy court approved a proposal to appoint Frontline as the manager of Golden Oceans operations with immediate effect. The final confirmation hearing for the restructuring plan is scheduled to be held in Wilmington on September 15, 2000. A full take-over of Golden Ocean would increase Frontlines controlled fleet to 29 VLCCs and 28 Suezmaxes, and would add 10 modern bulkcarriers to the fleet.
The fundamentals for the tanker market are encouraging. Oil demand is strong, on the back of favourable economic development in important consumption areas. Incremental oil supply will come out of the Middle East Gulf area where most of the worlds spare production capacity is located - Increased Middle East Gulf production favours tanker owners through long transport distances. The global order book for delivery of tankers this year and the following years is modest compared with requirement for replacement of tankers coming to the end of their service life due to age and tightening regulations. The risk for over-ordering is limited in the near term. Vessels ordered today will only get delivered in two years time or later. Continued strong demand for oil transportation will keep tanker utilisation rates high. In the third quarter to date, daily TCE rates for Frontlines VLCCs and Suezmaxes have averaged approximately USD 44,000 and USD 40,000 respectively. Based on the earnings achieved so far in the third quarter the Board is confident that net income for the third quarter will show an improvement of more than 100 per cent compared to the second quarter.
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