UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of November , 2004
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Frontline Ltd.
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(Translation of registrant's name into English)
Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda
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(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F
Form 20-F [X] Form 40-F [_]
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [_] No [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-
Item 1. INFORMATION CONTAINED IN THIS FORM 6-K REPORT
Attached as Exhibit 1 is a copy of the press release of Frontline Ltd. (the
"Company"), dated November 15, 2004.
Exhibit 1
FRONTLINE LTD.
INTERIM REPORT JULY - SEPTEMBER 2004
Highlights
o Frontline reports net income of $150.6 million and earnings per share of
$2.02 for the third quarter of 2004.
o Frontline announces a cash dividend of $2.50 per share.
o A further 13.2 percentage points of Frontline's holding of common shares of
Ship Finance International Limited ("Ship Finance") will be distributed to
Frontline's shareholders on December 15, 2004.
Third Quarter and Nine Months Results
The Board of Frontline Ltd. announces net income of $150.6 million for the third
quarter of 2004, equivalent to earnings per share of $2.02. This is the best
third quarter results ever recorded by the Company. Operating income for the
quarter was $220.5 million. This after a one time charge of $9.6 million
incurred in connection with the termination of the bareboat charters out for two
of the Company's VLCCs. 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 $67,200, $45,900 and $27,300, respectively,
compared with $58,500, $36,700 and $27,000 respectively in the second quarter of
2004.
Administrative expenses were $5.0 million for the third quarter of 2004.
Interest income for the quarter was $7.0 million, of which $5.8 million relates
to Independent Tankers Corporation ("ITC"). Interest expense for the quarter was
$51.1 million (of which $16.3 million relates to ITC) compared with $51.1
million in the second quarter (of which $16.4 million relates to ITC). The total
of other financial items for the quarter was a net loss of $26.2 million
compared to net gains of $25.3 million in the second quarter. Other financial
items include losses of $17.2 million from freight future agreements in the
third quarter compared with gains of $0.5 million in the second quarter. The
freight futures losses result from mark to market valuation of the Company's
hedging program for financial forward fixtures. Movement in interest rates has
generated valuation losses of $10.9 million on interest rate swaps in the third
quarter compared with gains of $26.8 million in the second quarter. At September
30, 2004 the Company had interest rate swaps with a total notional principal
amount of $633.9 million outstanding, of which Ship Finance holds $583.9
million. Net income for the quarter includes a gain of $9.1 million which
resulted from an issue of shares in July 2004 by our subsidiary Ship Finance. As
a result of this transaction, the Company's ownership interest in Ship Finance
International Limited is reduced, resulting in a "dilution gain." The Yen rate
moved from 108.38 at June 30, 2004 to 110.92 at September 30, 2004 and
accordingly the Company recording total foreign exchange gain of $3.0 million in
the quarter on Yen debt in subsidiaries and certain Yen currency contracts.
The Company has a 20 percent profit share arrangement with Ship Finance for any
earnings Frontline makes above the fixed charter rates. This profit share is
determined on an annual basis. So far this year approximately $61.9 million has
been accumulated of which $42.4 million has been recognised in the third quarter
in accordance with US generally accepted accounting principles. The unrecognized
profit share of $19.5 million will be recognised in the fourth quarter provided
Ship Finance's vessels continue to earn in excess of the fixed charter rates we
pay Ship Finance. Frontline's minority interest includes approximately 36% of
the booked amount of profit share as at September 30, 2004.
Frontline announces net income of $534.2 million for the nine months ended
September 30, 2004, equivalent to earnings per share of $7.24. This is the best
nine months results ever recorded by the Company. 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 $66,900, $47,000 and
$26,800, respectively
As at September 30, 2004, the Company had total cash and cash equivalents of
$726.5 million. This amount includes restricted cash of $566.9 million of which
$305.8 million relates to deposits in ITC and $250.0 million in Frontline
Shipping Limited. As of October 25, 2004, Frontline has cash breakeven rates on
a TCE basis for VLCCs and Suezmaxes of $21,263 and $15,848, respectively.
Corporate and Other Matters
On July 12, 2004, the Company announced the purchase of two newbuilding VLCCs to
be delivered in 2006. In addition, on July 13, 2004 the Company announced the
acquisition of three 1989 to 1990 built Suezmax tankers. This acquisition was
part-financed by the issuance and private placement of 600,000 ordinary shares
to a group of institutional investors at a purchase price of NOK 246 per share,
equivalent to a total of approximately $21.5 million. Two of these Suezmax
tankers were delivered to Frontline during the third quarter and the third was
delivered in October 2004.
On October 6, 2004, the Company announced the issuance and private placement of
300,000 ordinary shares to institutional investors at a purchase price of NOK
352 per share. The total proceeds of $15.7 million have been used to assist in
financing the purchase of a 1992 built Suezmax tanker that Frontline acquired on
October 5, 2004.
On October 22, 2004 the Company announced that it had sold the joint owned
single hull VLCC Golden Fountain to Chinese interests. The vessel will be
delivered to the new owner in the period December 15-30.
On November 3, 2004 the Company announced that it had chartered out two 1991
built single hull VLCCs to a subsidiary of Titan Petrochemicals Group, a Hong
Kong Stock Exchange listed company. The vessels are chartered out for a period
that will cover the remaining life of the vessel until IMO's single hull ban
comes into effect in 2010. The contracts will provide the Company with a
guaranteed minimum hire of $35,000 per day and in addition provide for a 50:50
profit sharing of earnings in excess of $37,500 per day.
Since the end of the quarter the Company has also acquired the single hull
Suezmax tanker New Horizon, built in 1988. The vessel has been acquired as an
opportunistic deal with the purpose of maximizing the short to medium term
earnings in the Company. The vessel will enter the fleet in the fourth quarter.
The risk in this transaction is limited by the short-term earnings situation and
is further supported by the scrap value.
On November 5, 2004 the Company informed the owner of three KG financed VLCCs
that it wants to declare its purchase option on these three vessels. Frontline
will initiate discussions with Ship Finance regarding a refinancing and
subsequent long-term leasing of these vessels. It is anticipated that such a
refinancing will release approximately $100 million in liquidity.
On November 15, 2004, the Board declared a dividend of $2.50 per share. The
record date for the dividend is November 26, 2004 and the dividend will be paid
on or about December 8, 2004.
The Board has, in line with existing strategy, decided to divest further 13.2
percentage points of Frontline's investment in Ship Finance. The shares will be
divested through a dividend payout. Every Frontline shareholder will receive 2
shares in Ship Finance for every 15 shares held in Frontline. The record date
for the dividend is December 1, 2004 and the distribution will be made on
December 15, 2004. Based on a valuation of free cash flow before reinvestments,
Ship Finance trades at a substantial discount to other yield oriented shipping
stocks. If this valuation gap continues it is likely that even the remaining
shares will be spun off as dividend instead of a straight sale to third parties.
At September 30, 2004, 74,525,169 ordinary shares were outstanding and the
weighted average number of shares outstanding for the quarter and nine months
then ended were 74,433,865 and 73,758,695, respectively.
The Market
The strong tanker market that we experienced in the second quarter of 2004
continued into the third quarter at even higher levels. Except for a brief, weak
period in the beginning of September, the VLCC market from the Middle East to
the Far East stayed above Worldscale (WS) 100 (or $54,000 per day Time Charter
Equivalent (TCE)) for the whole quarter. The average WS rate from the Arabian
Gulf to the East was about WS 119 versus WS 110 in the second quarter. This
equates to a TCE of $67,000 per day versus $61,000 per day in the second
quarter. In the Suezmax market from West Africa to the east coast of the U.S.
the average WS rate for the third quarter was WS 161 or about $45,500 per day
TCE. The continued strong market was a result of the high world oil demand
especially into China, and improving world economic activity in general. Almost
all additional demand was met by increased production in the Middle East,
resulting in increased ton-miles.
According to the IEA, average OPEC oil production, including Iraq, in the third
quarter of 2004 was approximately 29.2 million barrels per day (b/d), an
increase from the second quarter when they produced about 28.1 million b/d.
During the quarter, OPEC continued their policy of `producing what is needed to
supply the market', but despite this, oil prices continued to climb to record
levels.
The IEA estimates that world oil demand averaged 81.9 million b/d in the third
quarter, an increase of 3.3 percent from the third quarter of 2003. The IEA
further predicts that the average demand for 2005 will be 83.8 million b/d. Many
oil analysts are still concerned that demand might end up being higher than
production capacity this coming winter.
The world VLCC fleet totalled 441 vessels at the end of the third quarter 2004,
an increase of 5 vessels or 1.4 percent over the quarter. One VLCC was scrapped
in the period and 6 were delivered. The total order book is now at 86 vessels.
This represents 20 percent of the current VLCC fleet. A total of 9 VLCCs were
ordered during the quarter.
The world Suezmax fleet totalled 306 vessels at the end of the quarter. 1
Suezmax was scrapped during the quarter and 3 were delivered. The total order
book for Suezmaxes is now at 79. This represents 26 percent of the current
Suezmax fleet. A total of 5 Suezmaxes were ordered in the quarter.
Ship prices continued a strong upwards movement in the quarter. Modern VLCCs for
prompt delivery have been sold at prices up to $125 million, while similar type
Suezmaxes are approaching $80 million price levels. Newbuilding prices have
crossed $100 million for VLCCs, supported by increases in steel prices and
currency movements, but also driven by significant cost increases in main engine
and other equipment prices.
The tanker market looks very attractive for the remainder of the year. The
freight futures market seems to be reflecting this view, and it is currently
possible to sell freight futures for the rest of this year at a level that
equates to approximately $196,000 per day for a VLCC, and $75,000 per day for
next year. For Suezmaxes we can now hedge the rest of this year at $86,000 per
day and $48,000 per day for next year.
Frontline expects a strong market for the rest of the winter with very strong
earnings.
Strategy
The Company has during the last six months acquired a total of seven vessels
including two VLCCs presently under construction. The five single hull Suezmaxes
that have been acquired strengthen the Company's position in the Suezmax market
and improve the Company's earnings. The strong spot market and the substantial
steel value of these vessels limit the financial risk in these transactions
dramatically.
The Board continues monitoring transactions which could strengthen Frontline's
long-term position in the market. This includes individual ship deals as well as
larger corporate transactions.
In order to secure some long-term earnings stability the Company has decided to
put part of the fleet away on long-term charter arrangements. Initially the main
target will be to secure long-term employment for a major part of the Company's
single hull tonnage. Due to the positive outlook for the industry the Company
will prefer agreements where the downside is totally protected but where a
significant part of the upside still can be kept. The two ship VLCC deal with
Titan is an illustration of such an arrangement. The long-term charter rates in
today's market are significantly higher than the rates Frontline pays to Ship
Finance. Through such charter agreements we thereby secure a long-term cash
generation and significantly reduce the risk for the remaining vessels.
Two of the Company's OBO carriers will end their existing charters in the fourth
quarter. One of them has been renewed for a three year charter at $40,000 per
day, while the other ship is likely to trade in the spot market until a
satisfactory charter arrangement has been concluded. The renewal of the OBO
charter will improve the charter income from this segment in the coming period.
Frontline has, in the fourth quarter, increased its ownership in the freight
future exchange Imarex to 30 percent. Imarex is showing strong positive
developments in its results and has recently concluded a heavily oversubscribed
equity offering. Imarex plans a listing on the Oslo Stock Exchange in the first
half of 2005.
The work with the spin off of Frontline's Dry Bulk activities has taken somewhat
longer time than originally anticipated. The technical challenges in the spin
off are now almost concluded. The Dry Bulk company, which will be called Golden
Ocean Group Limited ("Golden Ocean"), will initially own the two cape size
vessels Channel Alliance and Channel Navigator. In addition Golden Ocean will
have a profitable charter agreement for a third cape size vessel. It is
anticipated that the record date for the full spin off of Golden Ocean will be
December 1. Further confirmation of the record date and a brief description of
the Company will be provided to shareholders during the next weeks. It is the
intention to list Golden Ocean at the Oslo Stock Exchange. Golden Ocean will not
be a SEC registered company, and this will limit Frontline's ability to dividend
shares to non-QIB investors in the US. For non-QIB shareholders with addresses
in the US, the shares in Golden Ocean will be sold in the market and the
proceeds distributed directly to these investors.
Outlook
The strong rise in the spot rates this autumn confirms the very tight supply
demand situation in the tanker market. The fundamental situation has been
supported by strong demand for oil, and a limited net supply of new tonnage
during the last years. Even if it is likely that the fleet will show higher net
growth during the next two to three year period, the fundamental picture looks
strong. Such an outlook is supported by the forward freight market as well as by
the increased activities by charterers to secure long-term tonnage. The
increased long-term charter activity gives Frontline a unique opportunity to
lower the financial risk, secure good long-term earnings, and still have the
major part of the fleet exposed to what looks like a very attractive spot market
in the years to come.
The low historic cost price of the Frontline fleet compared to ordering or
second-hand purchase in today's market gives the Company a true financial
benefit. This benefit should be realised as superior earnings and dividend to
the Company's shareholders in the years to come.
The earnings achieved on the ships so far in the fourth quarter show a
significant improvement from the third quarter. The net income for the fourth
quarter is, based on the facts known today, likely to be well above $300
million. The Company will maintain a high pay out ratio.
The Company is well positioned and the Board looks optimistic on the future.
Forward Looking Statements
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.
November 15, 2004
The Board of Directors
Frontline Ltd.
Hamilton, Bermuda
FRONTLINE GROUP THIRD QUARTER REPORT (UNAUDITED)
2003 2004 INCOME STATEMENT 2004 2003 2003
Jul-Sept Jul-Sept (in thousands of $) Jan-Sept Jan-Sept Jan-Dec
(audited)
221,075 410,097 Total operating revenues 1,216,679 886,185 1,173,783
6,914 - Gain (loss) from sale of assets (225) 3,136 5,626
78,837 92,538 Voyage expenses and commission 257,163 256,012 323,598
31,034 33,785 Ship operating expenses 94,402 86,793 117,604
16,117 12,072 Charter hire expenses 33,327 58,967 81,009
4,566 4,961 Administrative expenses 16,313 10,286 17,889
37,311 46,228 Depreciation 137,039 108,253 146,907
174,779 189,584 Total operating expenses 538,244 520,311 687,007
60,124 220,513 Operating income 678,210 369,010 492,402
1,467 6,962 Interest income 23,220 7,448 9,185
(17,543) (51,109) Interest expense (155,979) (53,096) (75,097)
1,662 1,587 Share of results from associated companies 5,933 32,115 33,533
4,414 (26,160) Other financial items (13,533) 29,263 300
- 9,050 Gain on issue of shares by subsidiary 9,050 - -
(12,221) 3,016 Foreign currency exchange gain (loss) 5,071 (12,093) (17,193)
37,903 163,859 Income before taxes and minority interest 551,972 372,647 443,130
- 13,279 Minority Interest 17,659 - -
- - Taxes 113 (3) 3
- - Cumulative effect of change in accounting - - 33,767
principle
37,903 150,580 Net income 534,200 372,650 409,360
Basic Earnings Per Share Amounts ($)
$0.52 $2.02 EPS from continuing operations before $7.24 $4.95 $5.92
cumulative effect of change in accounting
principle
$0.52 $2.02 EPS $7.24 $4.95 $5.47
Time Charter Equivalent earnings ($ per
day per ship)*
28,200 67,200 VLCC 66,900 42,900 42,300
22,000 45,900 Suezmax 47,000 34,300 33,900
22,500 27,300 Suezmax OBO 26,800 33,300 31,900
* Basis = Calendar days minus off-hire. Figures after deduction of
broker commission
The Company's vessels are operated under time charters, bareboat charters,
voyage charters, pool arrangements and COAs. Under a time charter, the charterer
pays substantially all of the vessel voyage costs. Under a bareboat charter the
charterer pays substantially all of the vessel voyage and operating costs. Under
a voyage charter, the vessel owner pays such costs. Vessel voyage costs are
primarily fuel and port charges. Accordingly, charter income from a voyage
charter would be greater than that from an equally profitable time charter, to
take account of the owner's payment of vessel voyage costs, and charter income
from a bareboat charter would be lower than that from an equally profitable time
charter, to take account of the charterer's payment of vessel operating costs.
In order to compare vessels trading under different types of charters, it is
standard industry practice to measure the revenue performance of a vessel in
terms of average daily time charter equivalent earnings, or TCEs. For bareboat
charters this is calculated by dividing the sum of bareboat charter revenues and
an estimate of operating costs that we would pay under a comparable time charter
by the number of days on charter. For voyage charters, this is calculated by
dividing net voyage revenues by the number of days on charter. Days spent
off-hire are excluded from these calculations. Net voyage revenues, a non-GAAP
measure, provides more meaningful information to us than voyage revenues, the
most directly comparable GAAP measure. Net voyage revenues are also widely used
by investors and analysts in the tanker shipping industry for comparing
financial performance between companies and to industry averages. The following
table reconciles our net voyage revenues to voyage revenues.
2003 2004 2004 2003 2003
Jul-Sept Jul-Sept Jan-Sept Jan-Sept Jan-Dec
200,557 329,128 Voyage revenues 998,593 846,237 1,089,583
(78,837) (92,538) Voyage expenses and commission (257,163) (256,012) (323,598)
121,720 236,590 Net voyage revenues 741,430 590,225 765,985
BALANCE SHEET 2004 2003 2003
(in thousands of $) Sept 30 Sept 30 Dec 31
(audited)
ASSETS
Short term
Cash and cash equivalents 159,599 223,787 124,189
Restricted cash 566,865 4,100 891,887
Other current assets 222,674 145,660 181,928
Long term
Newbuildings and vessel purchase options 24,231 18,412 8,370
Vessels and equipment, net 2,297,344 2,089,801 2,165,239
Vessels under capital lease, net 730,438 468,024 765,126
Investment in finance lease 113,668 - 120,894
Investment in associated companies 13,078 131,297 173,329
Deferred charges and other long-term assets 38,455 16,043 32,573
Total assets 4,166,352 3,097,124 4,463,535
LIABILITIES AND STOCKHOLDERS' EQUITY
Short term
Short term interest bearing debt 147,559 148,060 191,131
Current portion of obligations under capital lease 21,139 19,905 20,138
Other current liabilities 133,134 69,564 110,043
Long term
Long term interest bearing debt 2,057,741 1,061,157 2,091,286
Obligations under capital lease 737,615 463,007 753,823
Other long term liabilities 46,393 25,955 41,697
Minority interest 222,022 - -
Stockholders' equity 800,749 1,309,476 1,255,417
Total liabilities and stockholders' equity 4,166,352 3,097,124 4,463,535
2003 2004 STATEMENT OF CASHFLOWS 2004 2003 2003
Jul-Sept Jul-Sept (in thousands of $) Jan-Sept Jan-Sept Jan-Dec
(audited)
OPERATING ACTIVITIES
37,903 150,580 Net income (loss) 534,200 372,650 409,360
Adjustments to reconcile net income to
net cash provided by operating activities
37,865 48,717 Depreciation and amortisation 146,322 109,774 149,769
12,947 (4,944) Unrealised foreign currency exchange (gain) loss (2,618) 11,877 17,955
(6,916) - Gain or loss on sale of assets 225 (3,138) (5,626)
(1,662) (1,587) Results from associated companies (5,933) (32,115) (33,533)
(2,406) 16,298 Adjustment of financial derivatives to market value 142 (24,910) (28,180)
- (9,050) Gain on issue of shares by subsidiary (9,050) - -
- - Change in accounting principle - - 33,767
(29) 12,071 Other, net 14,871 (1,166) 1,311
3,269 12,905 Change in operating assets and liabilities (13,386) (8,059) (21,543)
80,971 224,990 Net cash provided by operating activities 664,773 424,913 523,280
INVESTING ACTIVITIES
744 27,613 Maturity (placement) of restricted cash 327,485 4,549 (559,430)
(51,938) (61,107) Additions to newbuildings, vessels and equipment (61,352) (66,565) (66,589)
236,180 - Proceeds from sales of vessels - 352,065 427,305
(5,858) 1,480 Investments in associated companies, net (29,263) (5,363) (80,030)
(10,042) - Purchase of option - (10,042) (10,042)
- - Acquistion of subsidiaries, net of cash acquired (4,145) (2,363) (2,363)
- 946 Receipts from investments in finance leases
and loans receivable 9,056 - -
13,934 - Purchases and sales of other assets, net 11,690 13,869 22,091
183,020 (31,068) Net cash provided by (used in) investing activities 253,471 286,150 (269,058)
FINANCING ACTIVITIES
(472) 119,155 Proceeds from long-term debt, net of fees paid 1,672,049 45,537 608,808
(122,274) (147,111) Repayments of long-term debt (1,763,066) (347,715) (465,313)
(3,614) (5,569) Repayment of capital leases (15,207) (8,622) (13,134)
(154,335) (159,392) Dividends paid (821,010) (241,843) (338,033)
351 45,735 Issue of shares, net 46,863 (26,711) (25,631)
(280,344) (147,182) Net cash used in financing activities (880,371) (579,354) (233,303)
(16,353) 46,740 Net increase (decrease) in cash and cash
equivalents before change in accounting principle 37,873 131,709 20,919
- - Cash effect of change in accounting principle - - 11,192
(16,353) 46,740 Net increase (decrease) in cash and cash equivalents
after change in accounting principle 37,873 131,709 32,111
240,140 112,859 Cash and cash equivalents at start of period 121,726 92,078 92,078
223,785 159,599 Cash and cash equivalents at end of period 159,599 223,787 124,189
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorised.
Frontline Ltd.
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(Registrant)
Date November 19, 2004 By /s/ Kate Blankenship
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Kate Blankenship
Secretary and Chief Accounting Officer
02089.0009 #527918