Second Quarter and Six Months 2008 Results
The Board of Frontline Ltd. (the “Company” or “Frontline”) announces net income of $318.4 million for the second quarter of 2008, equivalent to earnings per share of $4.25. Operating income for the quarter was $327.1 million including a gain on sale of assets of $126.8 million. This gain consists of $102.0 million relating to the delivery of the final two converted heavy lift vessels and deferred gains relating to the transaction in addition to $24.8 million relating to the termination of the capital lease for the Front Sabang. Net income also includes a gain of $16.6 million following receipt of the Bocimar settlement and a $12.0 million mark-to market gain in the quarter on the forward contract for the shares in Overseas Shipholding Group Inc. (“OSG”) recorded under other non-operating items.
Net income excluding gain on sale of assets and shares was $163.0 million in the second quarter of 2008 compared to $183.9 million in the first quarter of 2008. The reduction can mainly be explained by the reduction of on hire days in the second quarter compared to the first quarter as a consequence of drydockings, upgrading/repairs and reduced number of vessels together with docking expenses.
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 $86,300, $72,000 and $44,100, respectively compared with $82,400, $51,600 and $43,200, respectively, in the first quarter of 2008. 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 $105,200 and $77,500, respectively, in the second quarter, compared to $104,700 and $53,700 in the first quarter of 2008.
Profit share expense of $33.1 million has been recorded in the second quarter as a result of the profit sharing agreement with Ship Finance International Limited (“Ship Finance”) compared to $33.7 million in the first quarter.
Ship operating expenses increased by $13.4 million compared with the first quarter, of which $9.5 million relates to drydocking costs.
Charterhire expenses have increased by $18.6 million in the second quarter compared with the first quarter of which $15.6 million is due to the six vessels chartered in from Nordic American Tankers under a floating rate timecharter agreement.
Interest income was $10.0 million in the second quarter, of which $7.6 million relates to restricted deposits held by subsidiaries reported in Independent Tankers Corporation (“ITCL”). Interest expense, net of capitalized interest, was $46.8 million in the second quarter of which $13.6 million relates to ITCL.
Other non-operating items in the second quarter include a $16.6 million gain following receipt of the Bocimar settlement and a $12.0 million gain on the forward contract of OSG shares.
Frontline announces net income of $539.4 million for the six months ended June 30, 2008, equivalent to earnings per share of $7.21. The average TCEs earned in the spot and period market by the Company’s VLCCs, Suezmax tankers, and Suezmax OBO carriers for the six months period ended June 30, 2008 were $84,300, $61,100 and $43,600, respectively.
As of June 30, 2008, the Company had total cash and cash equivalents of $776.1 million which includes $649.9 million of restricted cash. Restricted cash includes $430.9 million relating to deposits in ITCL and $216.1 million in Frontline Shipping Limited and Frontline Shipping II Limited which is restricted under the charter agreements with Ship Finance.
The income statement and cash flow statement for the six months ended June 30, 2007 have been restated for adjustments concerning the leases for the Ship Finance vessels, which reduced net income by $1.2 million in the second quarter of 2007. This adjustment did not impact net income in the first quarter of 2007 since it was recognized directly through equity by adjusting the Ship Finance stock dividend amount. In addition, the results of Ship Finance’s container vessels and rig are shown as discontinued operations in the income statement in the first quarter of 2007 and certain comparatives have been reclassified to the current presentation.
The balance sheet at June 30, 2007 has been restated for adjustments to vessels under capital lease, net and obligations under capital lease due to the leases with Ship Finance such that stockholders’ equity at June 30, 2007 was reduced by $16.7 million. Certain comparatives have also been reclassified to the current presentation.
In August 2008, the Company has average total cash cost breakeven rates on a TCE basis for VLCCs and Suezmaxes of approximately $31,400 and $24,800, respectively.
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 recognized a gain of $24.8 million in the second quarter of 2008 for the termination of the capital lease for the Front Sabang.
In April and May 2008 Frontline signed contracts with Zhoushan Jinhaiwan Shipyard Co., Ltd. (“Jinhaiwan”) in China for construction of six 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 from the middle of 2011 to the middle of 2012.
The third heavy lift vessel, Front Comor renamed m/v Talisman and the fourth heavy lift vessel Front Traveller renamed m/v Treasure were successfully delivered to Dockwise Ltd. in May and June 2008, respectively.
In June 2008, Frontline acquired five double hull Suezmax tankers en bloc from Top Ships Inc. at a purchase price of $240 million. One vessel was delivered in June, while the remaining vessels will be delivered in July and August 2008.
In June 2008, Frontline also entered into an agreement to take five double hull Suezmaxes on timecharter from Eigir Shipping for the balance period of existing charters, all with delivery from June to August 2008 and redelivery from November 2009 to April 2010.In August 2008, Frontline entered into an agreement to timecharter out one of these vessels for the balance of the period.
Corporate and other Matters
In June 2008, Frontline completed a private placement of three million new shares at a subscription price of NOK 357 per share. Gross proceeds from the equity issue amounted to NOK 1,071 million (equivalent to approximately $210 million). The net proceeds from the private placement will be used to part finance the acquisition of the abovementioned five double hull Suezmaxes and as settlement for the delivery of shares in OSG, currently covered by forward contracts.
In June 2008, Frontline completed a $129.6 million syndicated loan facility to finance 80 percent of the contract price for the first instalment of the six newbuildings being built at Jinhaiwan ship yard. Additionally, in July 2008, Frontline completed a $420 million syndicated loan facility to finance 80 percent of the total contract price for six of the newbuildings being built at Rongsheng and Waigaoqiao ship yards.
In August 2008, Frontline received commitments from banks to part finance the acquisition of the five double hull Suezmaxes from Top Ships Inc. with approximately 75 percent debt.
In August 2008 Frontline either owns or has a forward position covering a total of 1,508,868 shares of OSG, or approximately 4.9 percent of OSG’s shares.
On August 20, 2008, the Board declared a dividend of $3.00 per share. The record date for the dividend is September 4, 2008, ex dividend date is September 2, 2008 and the dividend will be paid on or about September 19, 2008.
74,858,502 ordinary shares were outstanding as of June 30, 2008, and the weighted average number of shares outstanding for the quarter was 74,837,257.
The full report is available for download in the link enclosed and on the Company’s website: www.frontline.bm
August 20, 2008
The Board of Directors
Questions should be directed to:
Jens Martin Jensen:, Acting 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
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, dry-docking 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.