Frontline Ltd. Interim Report January – March 2004


  •          Frontline reports a record quarterly result of $214.4 million and earnings per share of $2.91 for the first quarter of 2004.
  •          Frontline announces a cash dividend of $5.00 per share.
  •          Frontline announces the partial spin off of Ship Finance International Limited (“Ship Finance”) through the distribution of one share in Ship Finance for each four shares held in Frontline.
  •          In the first quarter, Frontline’s wholly-subsidiary, Ship Finance, completed the acquisition of 46 tankers, plus an option to acquire a further tanker, from Frontline. The acquisition was financed using the proceeds of the issue of $580 million in 8.5% Senior Notes in December 2003, and refinancing of existing debt with a new $1,058 million facility.
    The Board of Frontline Ltd. is pleased to announce net income of $214.4 million for the first quarter of 2004, equivalent to earnings per share of $2.91. Net operating revenues (being total operating revenues less voyage expenses) and net operating income before depreciation for the quarter were $368.9 million and $320.4 million, respectively.
    The average daily time charter equivalents (“TCEs”) earned in the spot and period market by the Company’s VLCCs, Suezmax tankers, and Suezmax OBO carriers were $74,900, $59,100 and $26,100, respectively, compared with $40,600 $32,600 and $27,900 respectively in the fourth quarter of 2004.
    In accordance with FASB Interpretation 46 Revised, Frontline has consolidated Independent Tankers Corporation (“ITC”), a company over which Frontline holds a purchase option, with effect from December 31, 2003.  The net effect of ITC in the first quarter is a net income of approximately $1.0 million. As at March 31, 2004, the total book value of ITC’s consolidated assets was approximately $900 million, including restricted cash balances of $307.0 million. ITC has total Notes outstanding of $596.4 million. (See Note to the Unaudited Frontline Group First Quarter Report).
    Interest income for the quarter was $7.9 million, of which $5.8 million relates to ITC. Interest expense for the quarter was $53.8 million, increased from $22.0 million in the immediately preceding quarter. This increase reflects the inclusion of ITC, a full quarters interest on the 8.5% Senior Notes and the write off of deferred fees due to the debt refinancing amounting to $16.8 million, $12.3 million and $4.2 million, respectively. In the first quarter of 2004 the Company entered into interest rates swaps with a total notional principal amount of $500 million. Other financial items for the quarter were an expense of $13.7 million of which $12.8 million is attributable to the mark to market valuation of these interest rate swaps. The strengthening of the Yen in the first quarter resulted in the Company recording a foreign exchange loss of $4.1 million on the Yen debt in subsidiaries and certain Yen currency contracts.
    The Yen rate at the end of the quarter was 105.64 while 5 years US Treasury Bonds traded March 31st with a yield of 2.78%. Both prices have moved in the second quarter and look as of today to generate mark to market revaluation gains in the second quarter
    As at March 31, 2004, the Company had total cash and cash equivalents of $857.2 million. This amount includes restricted cash of $571.8 million of which $307.0 million relates to deposits in ITC and $250.0 million in Frontline Shipping Limited.
    As of May 28, 2004, Frontline has cash breakeven rates for VLCCs and Suezmaxes of $21,878 and $15,961, respectively.
    In December 2003, Ship Finance, a newly formed wholly owned subsidiary of Frontline issued $580 million in 8.5% Senior Notes. In the first quarter of 2004, Ship Finance has used the proceeds of the note issue, together with a refinancing of existing debt, to fund the acquisition of a fleet of 47 crude oil tankers, including one purchase option for a VLCC, from Frontline. Ship Finance has chartered each of the ships back to Frontline for most of the remaining life of each of the vessels. The registration statement for the Senior Notes was declared effective by the United States Securities and Exchange Commission on May 25, 2004. Ship Finance has filed a registration statement to register its common shares under the Securities Exchange Act of 1934.  Upon effectiveness of that registration statement, Ship Finance International’s common shares will be eligible for listing on the New York Stock Exchange. Frontline announces the distribution of 25 per cent of Ship Finance’s common shares to Frontline’s common shareholders in a partial spin off.  Each Frontline shareholder will receive one share in Ship Finance for every four Frontline shares held.  The record date for the distribution will be June 7, 2004, and the distribution date is expected to be June 16, 2004. Due to the nature of the distribution the New York Stock Exchange is expected to establish the ex-dividend date as June 17, 2004, at which time the Ship Finance common shares will commence trading under the ticker symbol “SFL”. It is the Board’s further intention that during 2004, Frontline shall divest all its shares in Ship Finance either through a straight sale, a corporate transaction, or through further dividend distribution to Frontline’s shareholders.
    Ship Finance will, based on the existing charters, have a free cash flow of a minimum of $200 million before debt principal and interest repayment and $100 million after scheduled debt principal and interest repayments. In addition, Ship Finance will receive 20 per cent of any earnings, calculated on an annual basis, in excess of the agreed daily charter rates, being $25,575 for VLCCs and $21,100 for Suezmaxes. This excess, which under US GAAP will only be accounted for by Ship Finance following the completion of the annual calculation, is estimated to equal approximately $20 million at March 31, 2004.
    On May 28, 2004, the Board declared a dividend of $5.00 per share. The record date for the dividend is June 7, 2004, ex dividend date is June 3, 2004 and the dividend will be paid on or about June 16, 2004. The dividend consists of $0.25 per share in normal quarterly dividend and an extra dividend of $4.75 per share reflecting the strong earnings achieved in the quarter, the liquidity generated from the Ship Finance transaction and the positive short to medium term outlook for the business. After payment of the dividend in mid June, Frontline is expected to have a solid cash position in addition to the $250 million which is restricted to support the Ship Finance charter payments.
    In the first quarter, the Company completed an agreement with its joint venture partner, Overseas Shipholding Group, Inc. (OSG), to exchange interests in six joint companies, which each own a VLCC. This agreement resulted in the Company becoming the 100% owner of three VLCCs, Edinburgh, Ariake and Hakata.
    On July 1, 2003, the Company entered into an option agreement with Hemen Holding Ltd (Hemen) that gives the Company the right to acquire all shares in ITC from Hemen for a total consideration of $4.0 million plus 4 per cent interest per year. ITC operates a total of six VLCCs and four Suezmaxes which are on long term charters to BP and Chevron. Hemen is a holding company indirectly controlled by Frontline’s Chairman, John Fredriksen. Frontline announces that it has exercised this purchase option effective May 27, 2004.
    During the first quarter of 2004, the Company issued 150,399 shares in connection with the exercise of employee share options and at March 31, 2004, 73,798,329 ordinary shares were outstanding and the weighted average number of shares outstanding for the quarter was 73,691,072.
    The full report is enclosed on the following link: