| Frontline Ltd. announces its results and review of the first quarter ended March 31, 1998. This includes a review of the results of London & Overseas Freighters Limited as a separate entity in the period under review.
On May 11, 1998, at Special General Meetings held in Bermuda, the shareholders of Frontline and London & Overseas Freighters Limited approved the transactions necessary to complete the amalgamation between the two companies. The remaining company, named Frontline Ltd. is now listed on NASDAQ (symbol - `FRONY`), on the Oslo Stock Exchange (symbol - `FRO`) and on the London Stock Exchange (symbol - `FRO`). Following the amalgamation and share exchange by Frontline shareholders, the Company now has 446,125,368 shares of par value US$0.25 each issued and outstanding. US GAAP requires that the share capital of Frontline be restated for all prior periods to reflect the amalgamation and exchange of Frontline shares in return for LOF shares and warrants. This is reflected in the results disclosed herein accordingly.
First Quarter Results
Frontline reports net income of US$ 9.1 million for the first quarter, compared with US$ 0.6 million for the first quarter of 1997. Earnings per Ordinary Share were US$ 0.020, (1997 - US$ 0.002). The weighted average number of shares outstanding for the quarter was 446,120,368 (321,619,557 in the comparable quarter 1997) and at March 31, 1998 the number of shares outstanding was 446,125,368.
Earnings before interest, tax and depreciation (EBITDA) for the quarter were US$ 34.0 million, compared with US$ 23.6 million for the first quarter 1997. The EBITDA number includes earnings from associated companies. This increase reflects improved trading of the OBO carriers, as well as the Company`s fleet expansion.
The average daily TCEs earned by the VLCCs, Suezmax tankers and OBO carriers were US$ 29,500, US$ 26,100 and US$ 26,900, respectively, compared with US$ 24,200, US$ 25,200 and US$ 25,300 in the first quarter of 1997. Average daily operating costs have continued to improve as a result of the Company`s cost reduction program. The company continues to seek further ways to reduce costs without any compromise in safety and maintenance standards.
Depreciation has decreased due to the change in the depreciation schedule for the fleet from 20 to 25 years.
Net financial expenses for the quarter were US$ 13.2 million (prior period - US$ 9.2 million). This increase results from an increase in overall debt levels relating to fleet expansion and the acquisition of shares in LOF and ICB in the second half of 1997. Results from associated companies were US$ 1.1 million; this is related to the two limited partnerships which each own a shuttle tanker.
LOF First Quarter Results
LOF reports net income of US$ 1.8 million for the first quarter, compared with US$ 0.8 million for the equivalent prior period. Earnings per Ordinary Share were US$ 0.024, increased from US$ 0.011 for the prior period. The fleet in the prior period comprised six vessels including three Panamax tankers, subsequently sold in late 1997. The fleet in the first quarter of 1998 comprises the three remaining Suezmax tankers.
Earnings before interest, tax and depreciation (EBITDA) for the quarter was US$ 4.2 million, compared with US$ 5.8 million for the prior period. This decrease reflects the decrease in the size of the fleet, partially offset by significantly reduced administration expenses. The average daily TCE earned by the Suezmax fleet increased from US$ 25,500 to US$ 28,000.
Net interest expense, for the quarter were US$ 0.7 million, compared with US$ 1.7 million in the prior period. This results from a combination of reduced debt and reduced cash balances associated with the decrease in the size of the fleet.
Corporate and Other Matters
As a consequence of the amalgamation with LOF, the Board of the continuing Company was reconstituted and the Frontline Board now comprises Mr. John Fredriksen (Chairman and President), Mr. Tor Olav Trĝim (Vice-President), Mr. Kenneth Douglas and Mr. Shaun Morris.
On May 8, 1998 the Company and OMI Corp. announced the formation of Alliance Chartering LLC to handle the chartering of both companies` Suezmax vessels. The joint operation is intended to improve service to customers, maximise the fleets operational flexibility, and thereby reduce the ballast voyages.
On May 11, 1998 the Company announced that it had entered into an agreement with parties associated with Cambridge Fund Management LLC which will lead to the Company acquiring control of three shipowning entities and thereby add six VLCC newbuildings and four modern Suezmaxes to its fleet. The ownership of the new assets will be included in Frontline`s result from the completion of the transaction which is expected to take place in the second quarter.
The Board is pleased to inform the shareholders that all four newbuildings coming out in 1998 now have been fully financed through bank financing arranged by Midland Bank and SE Bank. The company has received proposals for commercial bank financing for the remaining four newbuilding VLCCs to be delivered in 1999. In view of the general market conditions and the competitive terms given in the bank facilities the Board will prefer bank financing as superior to US Bond financing in order to finance the Company`s current newbuilding program.
The Board is continuing to review the Company`s investment in ICB and consider the alternatives available. At this time no further comment is appropriate. The ICB investment is booked according to the cost method and thereby not consolidated in Frontline`s results. The investment is in the balance sheet written down to the market value as of March 31st. Frontline`s 52% share of ICB`s net result for first quarter equalled US$ 2.9 million.
The Market
The underlying fundamentals for the tanker market remain strong. World consumption of oil continues to grow despite the Asian problems and production of oil continues to outstrip demand. Tanker utilisation rates thus continue to remain high.
Market rates for VLCCs have risen steadily upwards from the middle of January following the slump at the end of last year. In contrast to the previous quarter the group did not enjoy the best of timings and the TCE of US$ 29,500 compared with US$ 32,700 fiscal year 1997. The company also suffered from 14 days technical offhire on one of its VLCCs.
The Suezmax market has exhibited the volatility shown by the VLCC market in the previous quarter although good timing has kept income firm on a time charter basis. The fleet continues to be employed mainly in the Atlantic and Mediterranean markets. The TCE was US$ 26,106 in the first quarter compared with US$ 24,800 for fiscal year 1997.
The dry cargo market continues to be weak and so employment of OBO vessels in the wet market continues. The OBO fleet had an income on a time charter basis in the first quarter of US$ 26,900 per day as compared with US$ 25,500 for fiscal year 1997.
Outlook
For the remainder of 1998 the outlook remains positive. Tanker supply growth should not significantly exceed growth in oil consumption. Continued production of oil in excess of consumption has the potential to lead to additional demand for tankers as floating storage due to reports of full storage facilities world wide. The need for producers to curtail production and unresolved issues with Iraq still give rise to significant possibilities for volatility in market conditions. Overproduction of oil promises to keep oil prices low which both encourages consumption as well as keeping bunker prices low and net earnings high.
The Board expressed satisfaction with the results achieved in the first quarter and remains optimistic of a strong tanker market in 1998. The successful completion of the amalgamation with LOF and the opportunities presented for access to the US capital markets, together with the transaction with Cambridge Fund Management reinforces the Board`s confidence in its objective of being a consolidator in the industry.
The results for second quarter will be influenced by the drydocking of two VLCCs, as well as the dividend received on the ICB shares.
The first of the Company`s Suezmax newbuildings, Front Fighter, will be delivered from the yard on May 28, and the ship is immediately after delivery fixed for a two months voyage generating a TCE income of approx. US$ 30,000 per day.
May 27, 1998
The Board of Directors
Frontline Ltd.
Hamilton, Bermuda
Questions should be directed at:
Chairman John Fredriksen,
Director Tor Olav Trĝim,
Company Secretary Kate Blankenship, Phone +1 441 295 6935
Director Tor Olav Trĝim
Tom E. Jebsen, CFO Frontline Management A.S, Phone +47 23 11 4000
Further information on Frontline is located at:
http://www.huginonline.com/Norway/FRO
|
Press
release from Frontline Ltd. - 27.05.1998