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Published: 08:04 30.05.2007 GMT+2 /HUGIN /Source: Frontline Ltd /OSE: FRO /ISIN: BMG3682E1277 FRO - First Quarter 2007 Results
Highlights Frontline reports net income of $158.8 million and earnings per share of $2.12 for the first quarter of 2007. Frontline announces a cash dividend of $1.50 per share for the first quarter of 2007. Frontline spun off the remaining 11 percent of Ship Finance March 22, 2007 with a market value at the time of the spin-off of $2.79 per Frontline share. As of March 31, 2007 Frontline will no longer consolidate Ship Finance. Frontline incorporated Sealift in January 2007 and sold six subsidiaries to Sealift. Frontline incorporated Sea Production in February 2007 and sold its subsidiaries involved in the FPSO project to Sea Production. Frontline exercised options for four further Suezmax newbuilding contracts and the total newbuilding program now consists of four VLCCs and eight Suezmaxes First Quarter 2007 Results The Board of Frontline Ltd. (the "Company" or "Frontline") announces net income of $158.8 million for the first quarter of 2007, equivalent to earnings per share of $2.12. Operating income for the quarter was $180.3 million, including a gain on sale of assets of $21.3 million relating to the sale of Front Transporter, compared to operating income of $225.1 million in the fourth quarter including a gain on sale of $73.8 million. Net income also includes a gain on the issuance of shares of Sea Production Ltd. ("Sea Production") of $39.8 million in the first quarter. The earnings reflect an improved market in the first quarter. 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 $50,200, $34,900 and $36,600, respectively compared with $48,000, $31,200 and $34,200, respectively in the fourth 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 $56,600 and $48,100, respectively in the first quarter. Administrative expenses have decreased by $2.5 million compared to the fourth quarter. Administrative expenses in the first quarter include non-recurring items of $1.6 million for Ship Finance International Limited ("Ship Finance") and $1.9 million for the Company's FPSO activities. The remaining shares that Frontline held in Ship Finance have been dividended on a pro rata basis to the shareholders of Frontline on March 22, 2007. As a result of this spin-off, the Company no longer consolidates Ship Finance as of March 31, 2007. The Company is, however, presenting a consolidated income statement for the first quarter as if the spin-off occurred on March 31 and will, therefore, record a minority expense with full effect in the first quarter. As of March 31, 2007 the balance sheet reflects lease accounting for vessels leased from Ship Finance and reports vessels as vessels under capital lease, apart from two vessels reported as operating leases, and depreciates over the term of the lease. Similarly, the Company now reports its lease obligations under the long term charters with Ship Finance as obligations under capital leases, apart from the two charters which are reported as operating leases. Interest income was $11.7 million in the quarter, of which $6.3 million relates to restricted deposits held by subsidiaries reported in Independent Tankers Corporation ("ITC") and $1.4 million relates to Ship Finance. The Company recorded interest expense of $55.9 million in the fourth quarter of which $14.8 million relates to ITC and $31.3 million relates to Ship Finance. Other financial items in the first quarter were a gain of $5.1 million compared to a gain of $0.2 million in the fourth quarter. Valuation losses of $2.5 million were recorded in interest rate swaps, in the first quarter compared to losses of $1.0 million in the fourth quarter. Valuation gains of $6.1 million were recorded in bond swaps compared to gains of $2.0 million in the fourth quarter. All interest rate and bond swaps relate to Ship Finance and due to the deconsolidation of Ship Finance, the Company does not report any swaps in its balance sheet as of March 31, 2007. A loss of $1.2 million was reported in the fourth quarter on the valuation of freight future agreements to market value. There was no activity in freight future agreements in the first quarter. As of March 31, 2007, the Company had total cash, cash equivalents and restricted cash of $821.1 million which includes $571.5 million of restricted cash. Restricted cash includes $331.4 million relating to deposits in ITC and $240.0 million in Frontline Shipping Limited and Frontline Shipping II Limited which are restricted under the charter agreements with Ship Finance. In January 2007, the Company incorporated Sealift Ltd. ("Sealift") and sold six subsidiaries to Sealift. Concurrently, Sealift raised $180 million in a private placement. Subsequent to the private placement, the Company held 33.33 percent of the shares in Sealift and accounts for its investment under the equity method. As part of the sale agreement, Frontline has undertaken to convert four of the vessels owned by the subsidiaries into heavy lift vessels. In May 2007, in line with the strategy previously advised, Sealift successfully completed the combination of its businesses with the Dockwise group of companies. Frontline is the second largest shareholder with an ownership of 17.1 percent in the combined company. The first heavy lift vessel is planned to be delivered May 30, 2007. The total estimated gain for Frontline deconsolidated with Ship Finance on the Sealift transaction is approximately $155 million, subject to the actual heavylift conversion costs for four of the vessels. Under revenue recognition rules, the gain on this transaction is currently being deferred. Frontline invested $60 million in Sealift in a private placement and this investment has been recorded at $39.8 million being 33.33 percent of the net book value of the vessels at the time of the sale to Sealift. The delivery of the converted heavylift vessels is scheduled from the end of May 2007 until the second quarter of 2008. In February 2007, the Company incorporated Sea Production and sold its subsidiaries involved in the FPSO project to Sea Production. Concurrently, Sea Production raised $180 million in equity in a private placement. The Company holds 28.33 percent of the shares of Sea Production and accounts for this investment under the equity method. The Company has recorded a gain on the issuance of shares by Sea Production of $39.8 million in the first quarter representing 71.67 percent of the total estimated gain. The balance of $15.8 million relating to the 28.33 percent interest the Company holds in Sea Production is offset against the carrying cost of the Sea Production shares. This balance will be recognized as gain if and when the shares are sold. Front Puffin is planned to be delivered on contract June 5, 2007. The balance sheet at December 31, 2006 has been restated to reflect a change in the accounting of Ship Finance's investment in the subsidiary Rig Finance Limited ("Rig Finance"). Rig Finance is now consolidated whilst previously, Rig Finance was accounted for under the equity method. As of May 2007, the Company has average cash breakeven rates on a TCE basis for VLCCs and Suezmaxes of approximately $29,500 and $22,000, respectively. For the full report, please see the link below. May 30, 2007 The Board of Directors Frontline Ltd. Hamilton, Bermuda 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
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