August 21, 2008
Frontline reports record quarter
John Fredriksen controlled tanker giant Frontline reports an all time high second quarter net income of $318.4 million and earnings per share of $4.25 for the second quarter of 2008 and an all time high first half-year net income of $539.4 million and earnings per share of $7.21.
Still, Bloomberg reports that Frontline's share price "fell the most in six weeks in Oslo trading after second-quarter profit missed analyst estimates and it didn't say when a slump in freight costs will end." The company was expected to make $339 million, according to the median estimate of nine analysts surveyed by Bloomberg News.
The company has announced a cash dividend of $3.00 per share for the second quarter of 2008.
Second Quarter and Six Months 2008 Results
Operating income for the second 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 a forward contract for the shares in Overseas Shipholding Group Inc.
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 company says 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.
Ship operating expenses increased by $13.4 million compared with the first quarter, of which $9.5 million relates to drydocking costs.
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.
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 its 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 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.
The full report is available for download at: www.frontline.bm