Highlights
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First Quarter 2008 Results
The Board of Frontline Ltd. (the “Company” or “Frontline”) announces net income of $221.0 million for the first quarter of 2008, equivalent to earnings per share of $2.95. Operating income for the quarter was $235.4 million including a gain on sale of assets of $15.5 million. This gain includes $17.1 million relating to the termination of the lease for the Front Maple.
The reported earnings reflect a stronger spot market. The average daily time charter equivalents (“TCEs”) earned in the spot and period market in the first quarter by the Company’s VLCCs, Suezmax tankers and Suezmax OBO carriers were $82,400, $51,600 and $43,200, respectively compared with $45,700, $33,100 and $42,400 respectively in the fourth quarter of 2007. The results show a continued differential in earnings between single and double hull tonnage. The spot earnings for the Company’s double hull VLCC and Suezmax vessels were $104,700 and $53,700 in the first quarter, compared to $43,600 and $37,500 in the fourth quarter of 2007.
Profit share expense of $33.7 million has been recorded in the first quarter as a result of the profit sharing agreement with Ship Finance International Limited (“Ship Finance”) compared to $16.1 million in the fourth quarter. No profit share expense was recorded in the first quarter of 2007 since Ship Finance was consolidated in that quarter.
Charterhire expenses have increased by $19.5 million in the first quarter compared with the fourth quarter of 2007 mainly as a consequence of chartering in six vessels from Nordic American Tankers under a floating rate timecharter agreement. These six vessels are also included in result on time charter basis with $19.8 million and about 450 trading days.
Interest income was $10.9 million in the first quarter, of which $7.5 million relates to restricted deposits held by subsidiaries reported in Independent Tankers Corporation (“ITCL”). Interest expense, net of capitalized interest, was $47.9 million in the first quarter of which $13.6 million relates to ITCL.
Other financial items in the first quarter include an $18.0 million gain on the spin-off of 17.53% of the Company’s shareholding in ITCL and a $3.5 million gain on the forward contract to purchase shares in Overseas Shipholding Group, Inc. (“OSG”).
As of March 31, 2008, the Company had total cash and cash equivalents of $766.9 million which includes $638.2 million of restricted cash. Restricted cash includes $414.6 million relating to deposits in ITCL and $223.6 million in Frontline Shipping Limited and Frontline Shipping II Limited which are restricted under the charter agreements with Ship Finance.
As of May 2008, the Company has average total cash cost breakeven rates on a TCE basis for VLCCs and Suezmaxes of approximately $31,500 and $23,500, respectively.
Fleet development
In line with our strategy to reduce exposure to single hull tonnage, Frontline has in the first quarter of 2008 agreed with Ship Finance to terminate the long term charter party between the companies for the single hull VLCC Front Sabang and Ship Finance has simultaneously leased the vessel to an unrelated party. Frontline has received a compensation payment of approximately $24.6 million in the second quarter of 2008 for the early termination of the charter party, which will be recognized in the second quarter of 2008
The single hull Suezmax Front Maple was sold in January 2008 by Ship Finance and the charter with Frontline terminated. Frontline has recognized a gain in the first quarter of approximately $17.1 million related to the termination of the lease.
The vessels Front Granite and Front Marble were delivered to Dockwise Ltd. for conversion for their account in February and March 2008, respectively. The third heavy lift vessel, Front Comor, converted by COSCO was redelivered to Dockwise Ltd. in May 2008.
In April 2008 Frontline entered into a contract with Zhoushan Jinhaiwan Shipyard Co., Ltd. (“Jinhaiwan”) in China for delivery of four 320,000 dwt VLCC newbuildings at a contract price of $135 million each and with attractive payment terms. The vessels are expected to be delivered in the second half of 2011. Frontline announces that it has also declared options for a further two similar VLCC newbuildings at a fixed price for delivery in the first half of 2012.
Other Matters
In January 2008, Golden President Shipping Corporation, a 100% subsidiary of Golden Ocean Group Limited (“Golden Ocean”), had a full and final win in the court case against Bocimar N.V. on the Channel Alliance Time Charter Party and was awarded $14.7 million plus interest thereon in an amount of $2.3 million. The amount of $14.7 million was originally guaranteed by Frontline to Golden Ocean in connection with the spin-off in December 2004, and was later paid to Golden Ocean as it became due according to the charter party. In the second quarter of 2008 an amount of $16.6 million has been received from Bocimar N.V which will be recognized in the second quarter of 2008.
In February 2008, Frontline spun off 17.53% of its holding in ITCL to Frontline shareholders. Frontline has recorded a gain of $18.0 million in the first quarter of 2008 as a result of this spin off. This is reported in other financial items.
In February 2008, Frontline announced that it had agreed to invest $20 million in NAVIG8 LIMITED (“Navig8”) against the issue of new share capital representing a 15.8% stake in the company. Navig8 controls approximately 30 tankers representing approximately 1.4 million dwt, including newbuildings on order. Navig8 actively trades a time-charter fleet, owns and invests in tonnage, commercially and technically manages vessels for third parties and trades in the freight-derivatives market. The investment should be considered as purely financial, but gives Frontline at the same time a foothold in the clean petroleum product market.
In March 2008, we announced that the Company and companies indirectly controlled by Mr. John Fredriksen, our Chairman and principal shareholder, together held an aggregate of 1,628,300 shares in OSG, or 5.3% of the total outstanding shares of OSG. In addition to this holding, Frontline also entered into a forward contract for an additional 1,366,600 shares in OSG, or an additional 4.4% of the total outstanding shares of OSG.
On May 20, 2008 the Company filed a Schedule 13 D with the United States Securities and Exchange Commission reporting that companies indirectly controlled by Mr. John Fredriksen have reduced their holding in OSG to 244,900 shares and that the Company and companies indirectly controlled by Mr. John Fredriksen as of May 20, 2008 together held an aggregate of 1,794,900 shares in OSG, corresponding to 5.2% ownership.
In April 2008, Bjørn Sjaastad, the Chief Executive Officer (“CEO”) of Frontline Management AS, informed the Board of Frontline of his resignation and he left the Company in May 2008. The Board has started the recruitment process in order to find a new CEO for Frontline Management AS and expects that conclusion will be made before end of August. In order to fill the operative functions in the meantime the Board has asked Frontline’s Vice President S&P Jens Martin Jensen to be temporarily in charge.
On May 21, 2008, the Board declared a dividend of $2.75 per share. The record date for the dividend is June 4, 2008, ex dividend date is June 2, 2008 and the dividend will be paid on or about June 25, 2008
74,825,169 ordinary shares were outstanding as of March 31, 2008, and the weighted average number of shares outstanding for the quarter was also 74,825,169.
The full report is available for download in the link enclosed below and on the Company’s website: www.frontline.bm
May 21, 2008
The Board of Directors
Frontline Ltd.
Hamilton, Bermuda
Questions should be directed to:
Jens Martin Jensen:, Vice President S&P, 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 management’s examination of historical operating trends. Although Frontline 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 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, drydocking 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.