Preliminary Fourth Quarter and Financial Year 2007 Results
The Board of Frontline Ltd. (the “Company” or “Frontline”) announces net income of $202.3 million for the fourth quarter of 2007, equivalent to earnings per share of $2.70. Operating income for the quarter was $152.7 million including a gain on sale of assets of $53.4 million. This gain consists of $37.0 million relating to the delivery of the second converted heavy lift vessel to Dockwise Ltd. (“Dockwise”) and $16.4 million relating to the termination of the lease for the Front Birch.
The reported earnings reflect a stronger spot market. The average daily time charter equivalents (“TCEs”) earned in the spot and period market in the fourth quarter by the Company’s VLCCs, Suezmax tankers and Suezmax OBO carriers were $45,700, $33,100 and $42,400, respectively compared with $36,000, $25,000 and $41,300 respectively in the third quarter. 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 $43,600 and $37,500 in the fourth quarter, compared to $35,500 and $28,300 in the third quarter.
Profit share expense of $16.1 million has been recorded in the fourth quarter as a result of the profit sharing agreement with Ship Finance International Limited (“Ship Finance”) compared to $5.5 million in the third quarter.
Interest income was $14.4 million in the fourth quarter, of which $7.6 million relates to restricted deposits held by subsidiaries reported in Independent Tankers Corporation (“ITC”). Interest expense, net of capitalized interest, was $58.1 million in the fourth quarter of which $14.0 million relates to ITC and $44.1 million relates to the capital lease interest expense.
Other financial items in the fourth quarter includes a $48.7 million gain on the sale of the Company’s entire shareholding in Dockwise and a $41.9 million gain on the sale of the Company’s entire shareholding in IMAREX ASA (“IMAREX”).
Frontline announces net income of $574.4 million for the year ended December 31, 2007, equivalent to earnings per share of $7.68. The average TCEs earned in the spot and period market by the Company’s VLCCs, Suezmax tankers, and Suezmax OBO carriers for the year ended December 31, 2007 were $45,700, $33,000 and $39,700, respectively.
As of December 31, 2007, the Company had total cash and cash equivalents of $819.8 million which includes $651.4 million of restricted cash. Restricted cash includes $422.8 million relating to deposits in ITC and $228.6 million in Frontline Shipping Limited and Frontline Shipping II Limited which are restricted under the charter agreements with Ship Finance.
The financial statements for the fourth quarter of 2006 have been restated to reflect the revised accounting treatment for three entities within the ITC group which were previously fully consolidated but are now being accounted for as investments under the equity method. The restatement has no effect on net income.
As a result of the spin-off and subsequent deconsolidation of Ship Finance in the first quarter of 2007, Frontline no longer reports vessels leased from Ship Finance as owned vessels, but rather as vessels held under capital lease. Additionally, Frontline no longer reports results relating to containerships and rig that were consolidated by Ship Finance since the Company will not have continued involvement with these vessels. Consequently, the results for the years ended December 31, 2007 and 2006 have been reclassified to reflect discontinued operations related to these containerships and rigs.
As of February 2008, the Company has average total cash cost breakeven rates on a TCE basis for VLCCs and Suezmaxes of approximately $31,400 and $22,500, respectively.
Sale of Assets
In line with our strategy to reduce exposure to single hull tonnage, Frontline has in the fourth quarter of 2007 agreed with Ship Finance to terminate the long term charter parties between the companies for the single hull VLCC Front Duchess and for the double side single bottom Suezmax tankers Front Birch and Front Maple. Ship Finance has simultaneously sold the vessels. Frontline has received and recognized a compensation payment of approximately $16.4 million for the early termination of the charter party regarding Front Birch in the fourth quarter of 2007 and will receive and recognize a further $41.8 million in the first quarter of 2008 relating to Front Duchess and Front Maple.
In October 2007, Frontline announced the sale of its entire holding of 34,976,500 shares in Dockwise. The shares were sold at a gross price of NOK 25 per share, with net proceeds of approximately $157 million. Frontline has recorded a gain of $48.7 million in the fourth quarter of 2007 as a result of this sale. This is reported in other financial items. Simultaneously with the sale of the shares, Frontline declared an interim extraordinary dividend of $1.75 per share which was paid on October 24, 2007. In the second quarter of 2007, Frontline recorded a gain on the issuance of shares by Dockwise of $43.7 million and in the second and fourth quarter of 2007 Frontline recorded a gain on delivery of vessels to Dockwise in an amount of $60.7 million. Further gains will be recorded at the time of delivery of the two remaining vessels to Dockwise, which is estimated to be in the second quarter of 2008.
In November 2007, Frontline sold its entire holding of 1,714,544 shares in IMAREX to NYMEX Holdings, Inc. The sale price was NOK 160 per share, with proceeds of approximately $51 million. Frontline has recorded a gain of $41.9 million in the fourth quarter of 2007 as a result of this sale. This is reported in other financial items.
Frontline announces today that it has agreed to invest $20 million in NAVIG8 LIMITED (“Navig8”) against the issue of new share capital representing a total of 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 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. The full settlement from Bocimar N.V. is therefore due to Frontline. The proceeds are expected to be recognized in the first quarter of 2008.
On February 13, 2008, the Board declared a dividend of $2.00 per share. The record date for the dividend is February 26, 2008, ex dividend date is February 22, 2008 and the dividend will be paid on or about March 10, 2008.
74,825,169 ordinary shares were outstanding as of December 31, 2007, and the weighted average number of shares outstanding for the quarter was also 74,825,169.
The full report is avalable for download in the link.
February 13, 2008
The Board of Directors
Questions should be directed to:
Bjørn Sjaastad: Chief Executive Officer, Frontline Management AS
+47 23 11 40 99
Inger M. Klemp: Chief Financial Officer, Frontline Management AS
+47 23 11 40 76