FRO – Third quarter 2008 results

• Frontline reports net income of $107.8 million and earnings per share of $1.39 for the third quarter of 2008.
• Frontline reports net income of $647.2 million and earnings per share of $8.53 for the nine months ended September 30, 2008.
• Frontline announces a cash dividend of $0.50 per share for the third quarter of 2008.
• Frontline receives $207 million after the completion of a private placement of three million new shares at a subscription price of NOK 357 per share end June 2008.
• Frontline takes delivery of remaining four vessels acquired from Top Ships Inc.
• Frontline completes a syndicated loan facility for $180 million to part finance the vessels acquired from Top Ships Inc.
• Frontline enters into five years charter contracts for Front Guider and Front Viewer with commencement of charter early December 2008 and mid April 2009, respectively.
• Frontline enters into a three year charter contract for Front Energy with commencement of charter mid November and a one year charter contract for Front Champion with commencement of charter early December, 2008.

 

The Board of Frontline Ltd. (the “Company” or “Frontline”) announces net income of $107.8 million for the third quarter of 2008, equivalent to earnings per share of $1.39. Operating income for the quarter was $172.6 million compared to $327.1 million in the second quarter. Operating income in the second quarter includes a gain on sale of assets of $126.8 million. Net income for the third quarter was $107.8 million compared to $318.4 million in the second quarter. Net income in the third quarter includes a $29.3 million mark-to-market loss on a forward contract for shares in Overseas Shipholding Group Inc. (“OSG”), which has been recorded under other non-operating items. In addition to the gain on sale of assets of $126.8 million, net income in the second quarter also includes a gain of $16.6 million for the Bocimar settlement and a $12.0 million mark-to-market gain on the forward contract for OSG shares. Both of these items were recorded under other non-operating items.

 

The average daily time charter equivalents (“TCEs”) earned in the spot and period market in the third quarter by the Company’s VLCCs, Suezmax tankers and Suezmax OBO carriers were $74,700, $62,700 and $44,100, respectively compared with $86,300, $72,000 and $44,100, respectively, in the second 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 in the third quarter were $88,600 and $66,200, respectively, compared to $105,200 and $77,500 in the second quarter.

 

Net income excluding gains/losses on sale of assets and shares was $137.1 million in the third quarter of 2008 compared to $163.0 million in the second quarter of 2008. The decrease can mainly be explained by the reduction in TCEs in the third quarter compared to the second quarter as a consequence of our strategy to fix short during June and July, when the rate differential was more than 100 WS points between long and short voyages, which proved wrong when the market took such a sudden fall at the end of July. The decrease can further be explained by an increase in costs due to increased number of vessels in operation together with increased docking expenses.

 

Profit share expense of $28.5 million has been recorded in the third quarter as a result of the profit sharing agreement with Ship Finance International Limited (“Ship Finance”) compared to $33.1 million in the second quarter. Ship operating expenses increased by $13.3 million compared to the second quarter, of which $6.9 million relates to an increase in drydocking costs and $2.9 million relates to the increased number of vessels.

 

Charterhire expenses have increased by $10.4 million in the third quarter compared with the second quarter. This is mainly due to $16.2 million for the five vessels chartered in from Eiger Shipping offset by a $3.1 million reduction for the six vessels chartered in from Nordic American Tankers Shipping Ltd. under a floating rate timecharter agreement and a $2.6 million reduction for the two vessels chartered in from Knightsbridge Tankers Limited under a profit sharing arrangement.

 

Interest income was $10.8 million in the third quarter, of which $7.6 million relates to restricted deposits held by subsidiaries reported in Independent Tankers Corporation Limited (“ITCL”). Interest expense, net of capitalized interest, was $43.7 million in the third quarter of which $12.2 million relates to ITCL.

 

Other non-operating items in the third quarter include a $29.3 million loss on a forward contract for OSG shares and in the second quarter include a gain of $16.6 million for the Bocimar settlement and a $12.0 million mark-to-market gain on the forward contract for OSG shares.

 

Frontline announces net income of $647.2 million for the nine month period ended September 30, 2008, equivalent to earnings per share of $8.53. The average TCEs earned in the spot and period market by the Company’s VLCCs, Suezmax tankers, and Suezmax OBO carriers for the nine months ended September 30, 2008 were $81,100, $61,800 and $43,800, respectively.

 

As of September 30, 2008, the Company had total cash of $842.4 million, which includes $601.9 million of restricted cash. Restricted cash includes $383.4 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 nine months ended September 30, 2007 have been restated for adjustments concerning the leases for the Ship Finance vessels, which reduced net income by $1.2 million and $1.5 million in the second and third quarters of 2007, respectively. 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 September 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 September 30, 2007 was reduced by $18.1 million. Certain comparatives have also been reclassified to the current presentation.

 

In November 2008, the Company has average total cash cost breakeven rates on a TCE basis for VLCCs and Suezmaxes of approximately $34,700 and $24,800, respectively. These are the daily rates our vessels must earn to cover budgeted operating costs, estimated interest and scheduled loan principal repayments, bareboat hire and corporate overhead. These rates do not take into account capital expenditures, loan balloon repayments at maturity, which we expect to refinance with new loan, and vessels on short term time charter in. Cash cost breakeven rates have increased for VLCCs from the previous quarter mainly due to an increase in docking and running operational costs

 

 

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, one in July, while the remaining vessels were delivered in September 2008. Three of these vessels were purchased with timecharters attached with redelivery from second quarter 2009, second quarter 2010 and third quarter 2010, respectively. 

 

In June 2008, Frontline also entered into an agreement to take five double hull Suezmaxes on timecharter from Eiger Shipping for the balance period of existing charters, all with commencement of charter from June to August 2008 and redelivery from September 2009 to April 2010.

 

In September 2008, Frontline chartered out Front Guider and Front Viewer for a period of five years with commencement of charter early December and mid April 2009, respectively.

 

In November 2008, Frontline chartered out Front Energy for a three year period with delivery mid November and Front Champion for a period of one year with commencement of charter early December, 2008.

 

In early December we will redeliver Cosglory Lake after a total length of the charter party of approximately 3.5 years.

 

 

Frontline’s newbuilding program is developing according to schedule, however we expect that the eight Suezmaxes being built at Rongsheng ship yard might be somewhat delayed compared to original schedule. The first VLCC to be delivered from SWS, Hull no. 2396 tbn Front Kathrine, will be delivered in January 2009.

 

The total contractual cost of Frontline’s newbuilding program is $1,794 million. As of September 30, 2008, $393 million in installments have been paid on the newbuildings as compared to $333 million at the end of the second quarter. The remaining installments to be paid for the newbuildings amount to $1,401 million with expected payments of approximately $42 million, $386 million, $578 million, $342 million and $54 million in 2008, 2009, 2010, 2011 and 2012, respectively.

 

The Company has established long term pre- and post delivery newbuilding financing in an amount of $420 million representing 80 percent of the contractual cost of four of the newbuildings beeing built at Rongsheng ship yard and two of the newbuildings being built at Shanghai Waigaoqiao Shipbuilding Company Ltd. (SWS) ship yard. In addition, the Company has established short term pre-delivery newbuilding financing in the amount of $129.6 million representing 80 percent of the contractual cost of the first installment for the six vessels being built at Jinhaiwan ship yard. This facility matures June 2009. As of September 30, 2008, $221 million has been drawn under these facilities and we expect to draw a further $51 million in 2008.

 

Based on committed financing and indications given in today’s depressed credit market for possible obtainable financing of the remaining unfinanced vessels, together with fixed contract revenues above cash cost breakeven rates, the Company expects maximum $300 million in additional funds will be needed to complete a full financing of  the Company’s new building commitment. If credit market doesn’t improve before 2012, this might have to be funded from the operational earnings from existing and new vessels. Such a solution might reduce the dividend capacity temporarily. The Board is confident that Frontline with its strong presence in the banking market and through possible refinancing of existing tonnage can improve this position further.

 

 

In July, 2008 Frontline received approximately $207 million after the completion of a private placement of three million new shares at a subscription price of NOK 357 per share.

 

In September 2008, Frontline completed a syndicated loan facility for $180 million to part finance the acquisition of the five double hull Suezmaxes purchased from Top Ships Inc.

 

On November 27, 2008, the Board declared a dividend of $0.50 per share. The record date for the dividend is December 9, 2008, ex dividend date is December 5, 2008 and the dividend will be paid on or about December 22, 2008.

77,858,502 ordinary shares were outstanding as of September 30, 2008, and the weighted average number of shares outstanding for the quarter was 77,858,502.

 

The full report is available for download in the link enclosed and on the Company’s website: www.frontline.bm

 

 

 

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.