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 August , 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 is a copy of the earnings release of Frontline Ltd. (the "Company")
dated August 19, 2004, for the quarter ended June 2004.
FRONTLINE LTD. INTERIM REPORT APRIL - JUNE 2004
Highlights
o Frontline reports net income of $169.2 million and earnings per share
of $2.29 for the second quarter of 2004.
o Frontline announces a cash dividend of $1.60 per share.
o Frontline announces the distribution of a further 10 percentage points
of their shares in Ship Finance International Limited to Frontline
shareholders.
Second Quarter and Six Months Results
The Board of Frontline Ltd. announces net income of $169.2 million for the
second quarter of 2004, equivalent to earnings per share of $2.29. Operating
income for the quarter $183.5 million, respectively. The tanker market remained
strong in the second quarter although at lower levels than experienced at the
start of 2004. 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 $58,500, $36,700 and $27,000, respectively, compared with $74,900,
$59,100 and $26,100 respectively in the first quarter of 2004.
Administrative expenses of $5.2 million for the second quarter of 2004 include a
non-cash charge of $2.0 million for stock option compensation. At June 30, 2004,
the Company has no further stock options outstanding. Interest income for the
quarter was $8.3 million, of which $6.1 million relates to Independent Tankers
Corporation ("ITC"). Interest expense for the quarter was $50.5 million (of
which $16.3 million relates to ITC) decreased from $53.8 million in the first
quarter primarily due to the first quarter write off of deferred fees of $4.2
million. As anticipated in our first quarter report, the movement in interest
rates and the Yen has generated valuation gains in the second quarter. Other
financial items for the quarter were a credit of $24.8 million compared to an
expense of $13.7 million in the first quarter. At June 30, 2004 the Company had
interest rate swaps with a total notional principal amount of $641.3 outstanding
and has recorded a $26.8 million credit attributable to the mark to market
valuation of these interest rate swaps. The Yen rate moved from 105.64 at March
31, 2004 to 108.38 at June 30, 2004 and accordingly the Company recording a
foreign exchange gain of $6.2 million on the 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
calculated on an annual basis. So far this year approximately $40.0 million has
been accumulated of which $1.4 million has been accounted for in the second
quarter in accordance with US generally accepted accounting principles.
Frontline has recorded a liability and minority interest for this $1.4 million.
Frontline announces net income of $383.6 million for the six months ended June
30, 2004, equivalent to earnings per share of $5.20. This is the best half year
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 $66,700, $48,200 and $26,600,
respectively
As at June 30, 2004, the Company had total cash and cash equivalents of $707.3
million. This amount includes restricted cash of $594.5 million of which $327.1
million relates to deposits in ITC and $250 million in Frontline Shipping
Limited. As of August 18, 2004, Frontline has cash breakeven rates for VLCCs and
Suezmaxes of $21,784 and $15,788, respectively.
Corporate and Other Matters
On June 16, 2004, Frontline completed the partial spin off of Ship Finance
International Limited. Frontline distributed 25 per cent of Ship Finance's
common shares to Frontline's ordinary shareholders with each Frontline
shareholder receiving one share in Ship Finance for every four Frontline shares
held. On June 17, 2004, Ship Finance common shares commenced trading on the New
York Stock Exchange under the ticker symbol "SFL". The Board has, in line with
earlier reported strategy, taken a decision to distribute further a 10
percentage points of the Company's holding in Ship Finance. Consequently,
Frontline. shareholders of record as of September 10, 2004 will receive one
share in Ship Finance for every ten shares they hold in Frontline. The
ex-dividend date will be September 8, 2004 and the distribution of shares is
expected to take place on or about September 24, 2004. The decision of the final
distribution of Ship Finance will, in accordance with what has been previously
communicated, be taken later this year.
On July 12, 2004, the Company announced that it had secured two VLCC
newbuildings for delivery in 2006 through the purchase of two resale contracts
for a total price of $158.5 million. Initially only 10 percent of the contract
price is required to be paid in cash.
As a result of the spin-off of Ship Finance, Frontline is more financially
exposed to the charter market. As stated in the first quarter report this is
likely to increase Frontline's activity in the physical as well as in the
financial chartering market. While the physical chartering will be recorded
through the ongoing reported operating revenues, the financial chartering
position will in accordance with US GAAP be recorded on a mark to market
valuation on a quarterly basis. For the second quarter Frontline has recorded a
revaluation surplus on such position of $0.5 million net.
On July 13, 2004, Frontline announced that it had completed the private
placement of 600,000 Frontline ordinary shares to institutional investors at a
purchase price of NOK 246 per share. The total proceeds of $21.5 million are
being used to equity finance the acquisition of three 1989-90 built Suezmax
tankers.
On August 19, 2004, the Board declared a dividend of $1.60 per share. The record
date for the dividend is August 30, 2004, ex dividend date is August 26, 2004
and the dividend will be paid on or about September 13, 2004.
During the second quarter of 2004, the Company issued 147,037 shares in
connection with the exercise of employee share options and acquired 20,197
ordinary shares in connection with the compulsory acquisition of shareholdings
of less than 50 shares that occurred in April 2004. At June 30, 2004, 73,925,169
ordinary shares were outstanding and the weighted average number of shares
outstanding for the quarter and six months then ended were 73,826,317 and
73,758,695, respectively.
The Market
The strong tanker market that we experienced in the first quarter of 2004
continued into the second quarter although at slightly lower levels. Except for
a weak period at the beginning of the quarter, the VLCC market from the Middle
East to the Far East stayed above TCE rates of $50,000 for the whole quarter.
The average TCE rate Arabian Gulf to East was about $61,500 versus $71,500 in
the first quarter. In the Suezmax market from West Africa to the east coast of
the U.S. the average TCE rate for the quarter was around $37,000 per day. This
was the result of continued high world oil demand due to the economic recovery
in the U.S. and Europe, continued strong growth in the demand for oil into
China, and improving world economic activity in general. The oil production in
Venezuela again failed to reach pre-strike levels, the shortfall being covered
from the Middle East, resulting in increased ton miles.
According to the August 11 update from IEA, the average OPEC oil production,
including Iraq, in the second quarter of 2004 was approximately 28.2 million
barrels per day (b/d), an increase from the first quarter when they produced
about 27.9 million b/d. This surprising development came in spite of OPEC going
ahead with their announced cut of 1 million b/d from April 1. After implementing
the cut, OPEC soon discovered that the world economy required more oil, and for
the last two months of the quarter they have produced at close to capacity
levels. On June 3 OPEC announced that they would increase the quota by 2.0
million b/d and that they where committed to `produce what is needed to supply
the market'.
IEA estimates that world oil demand averaged 80.4 million b/d in the second
quarter, an increase of 5.65 percent from the second quarter of 2003. Industry
analysts had expected a seasonal decrease in the demand in the second quarter,
but demand only fell by 1.34 percent from the first quarter and this indicates a
very strong demand for oil. At present all the oil analysts have announced that
they had seriously underestimated the demand for oil, and several are concerned
that demand might end up being higher than production capacity this coming
winter.
The world VLCC fleet totalled 435 vessels at the end of the second quarter 2004,
an increase of three vessels or 0.7 percent over the quarter. One VLCC was
scrapped in the period and 4 were delivered. The total order book is now at 85
vessels up from 80 after the first quarter. This represents 19.5 percent of the
current VLCC fleet. A total of nine VLCCs were ordered during the quarter.
The world Suezmax fleet totalled 304 vessels at the end of the quarter, up from
301 vessels after the first quarter. Three Suezmaxes were scrapped during the
quarter and six were delivered. The total order book for Suezmaxes is now at 79,
up from 77 after the first quarter. A total of eight Suezmaxes were ordered in
the quarter.
The value of second-hand vessels has increased more than 10 percent in the
quarter. The main reason for this has been increased willingness to pay to catch
the strong spot earnings. In addition owners have increased confidence in the
long-term prospects for the tanker market. Newbuilding prices has gone up with
approximately 10 percent in the quarter , but the lack of building slots before
2008 has limited the ordering.
Strategy
The Frontline Group has as of today a large presence in the dry bulk market. All
the eight OBO carriers owned by Ship Finance are currently chartered out medium
term in this market. In addition Frontline owns two capesize vessels and one
handysize which were acquired as part of the original Golden Ocean acquisition.
The dry bulk market has during the last year shown substantial strength driven
by a modest delivery schedule and strong demand, particularly by iron ore and
coal.
In view of Frontline's strategy to be a pure tanker company, the Board feels
that the dry bulk assets will give a higher value to shareholders if developed
in a stand alone company. The Board has therefore taken a principal decision to
seek to establish a new dry bulk company, which is likely to be spun off to
existing holders of Frontline shares. The equity in the three "Golden Ocean"
ships will, together with the ships' contracts and some further cash, create the
core part of the Company. Based on the existing contracts the Company is
expected to be profitable from the first day of operation. The dry bulk Company
is likely to have an aggressive growth ambition focused on consolidation. The
strategy will include ownership, chartering, as well as contract positions. The
Board is currently putting together the organization to run the new company. A
detailed clarification on how the new company will be spun off to Frontline's
shareholders is expected to be given within the next months.
The structuring of Frontline as a chartering company has substantially reduced
the use of capital and thereby the need to reserve capital for long-term
expansion. The Board will instead seek to optimize medium-term cash generation
in order to give the highest possible return to shareholders. A major part of
this return is likely to be given in the form of a dividend. In order to
maximize the direct return to shareholders the Company will also consider tanker
deals, which normally would not have been a part of the old Frontline. The
recent purchase of three Suezmaxes with anticipated full pay off to current
residual value in one year, based on existing forward rates, is an illustration
of such a deal.
Frontline has today 12 ships on charter from different German KGs. Frontline has
purchase options for all these vessels. Most of these options becomes declarable
for the first time six years after the contract was entered into. The first two
vessels will become declarable at the end of this year. The market price for the
vessels is today approximately $11 million higher than the declaration price.
Frontline will therefore consider declaring these options at the first
declaration opportunity and subsequently initiate discussion with Ship Finance
to secure alternative financing of these vessels. Such a transaction is likely
to reduce Frontline's cost of capital, increase the Company's cash position, and
at the same time increase earnings and growth rate for Ship Finance.
Frontline owns approximately 20 percent of the leading market place for tanker
futures IMAREX and is by that the leading shareholder. IMAREX is in a strong
positive development, and Frontline will consider steps in order to maximize the
value of its investment in IMAREX.
Outlook
So far in the second quarter, Frontline has chartered out approximately 75
percent of the VLCC capacity and 65 percent of the Suezmax capacity at TCE rates
of around $62,000 and $38,000. The current market is higher than the average
rates achieved so far this quarter.
The tanker market looks healthy for the remainder of the year. The freight
futures market is reflecting this view, and at the moment it is possible to sell
freight futures for the rest of the year at a level that equates to
approximately TCE rates of $81,000 per day on VLCCs and $60,000 per day for next
year. For Suezmaxes the rate for the rest of the year is $47,000 and $40,000 for
next year.
The net income, as well as the dividend for the second half of 2004, will, in
addition to the general market, be influenced by which model the Board will use
for the divestment of Frontline's remaining 63 percent holding in Ship Finance,
the profit sharing to be paid to Ship Finance, the financial hedging and also by
the capitalization and spin off model of the new Bulk Company.
The current long-term rate in the tanker market is today significantly higher
than Frontline's cash break even rates. A fixture of part of the fleet will
thereby reduce the financial risk and secure return to shareholders. The Board
is currently evaluating several of these opportunities.
The strength in the short-term market combined with the increasingly tight
supply/demand balance until phase out of single hull tonnage in 2010 may create
a very positive market situation for tankers for the next five to seven years.
The Board is, based on the underlying fundamentals, excited about the outlook
for the Company and the ability to give a good return to shareholders. Frontline
expects to report strong earnings for the rest of the year.
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.
August 19, 2004
The Board of Directors
Frontline Ltd.
Hamilton, Bermuda
Questions should be directed to:
Contact: Tor Olav Troim: Director, Frontline Ltd
+47 23 11 40 00
Oscar Spieler: Chief Executive Officer, Frontline Management AS
+47 23 11 40 79
Tom Jebsen, Chief Financial Officer, Frontline Management AS
+47 23 11 40 21
FRONTLINE GROUP SECOND QUARTER REPORT (UNAUDITED)
2003 2004 INCOME STATEMENT 2004 2003 2003
Apr-Jun Apr-Jun (in thousands of $) Jan-Jun Jan-Jun Jan-Dec
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(audited)
330,201 357,004 Total operating revenues 806,581 677,410 1,173,783
(4,271) (469) Gain (loss) from sale of assets (225) (3,778) 5,626
97,505 82,865 Voyage expenses and commission 164,625 177,175 323,598
28,918 29,904 Ship operating expenses 60,617 55,758 117,604
19,303 9,371 Charterhire expenses 21,255 42,850 81,009
2,458 5,236 Administrative expenses 11,352 5,721 17,889
35,582 45,628 Depreciation 90,811 70,941 146,907
183,766 173,004 Total operating expenses 348,660 352,445 687,007
142,164 183,531 Operating income 457,696 321,187 492,402
3,273 8,297 Interest income 16,258 5,981 9,185
(17,082) (51,055) Interest expense (104,869) (35,553) (75,097)
13,287 1,483 Share of results from associated companies 4,346 30,452 33,533
14,302 25,267 Other financial items 12,628 12,549 300
(878) 6,159 Foreign currency exchange gain (loss) 2,055 127 (17,193)
155,066 173,682 Income (loss) before taxes and minority interest 388,114 334,743 443,130
- 4,381 Minority Interest 4,381 - -
(1) 113 Taxes 113 (3) 3
- - Cumulative effect of change in accounting principle - - 33,767
155,067 169,188 Net income (loss) 383,620 334,746 409,360
Basic Earnings (loss) Per Share Amounts ($)
EPS from continuing operations before cumulative
$2.04 $2.29 effect of change in accounting principle $5.20 $4.39 $5.92
$2.04 $2.29 EPS $5.20 $4.39 $5.47
Income on timecharter basis ($ per day per ship)*
46,000 58,500 VLCC 66,700 50,700 42,300
39,600 36,700 Suezmax 48,200 40,200 33,900
35,200 27,000 Suezmax OBO 26,600 38,700 31,900
* Basis = Calendar days minus off-hire. Figures
after deduction of broker commission
BALANCE SHEET 2004 2003 2003
(in thousands of $) Jun 30 Jun 30 Dec 31
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(audited)
ASSETS
Short term
Cash and cash equivalents 112,859 240,140 124,189
Restricted cash 594,478 4,844 891,887
Other current assets 208,437 159,202 181,928
Long term
Newbuildings and vessel purchase options 8,370 35,333 8,370
Vessels and equipment, net 2,286,717 2,275,918 2,165,239
Vessels under capital lease, net 742,035 347,756 765,126
Investment in finance lease 114,237 - 120,894
Investment in associated companies 12,971 131,344 173,329
Deferred charges and other long-term assets 45,816 16,479 32,573
Total assets 4,125,920 3,211,016 4,463,535
LIABILITIES AND STOCKHOLDERS' EQUITY
Short term
Short term interest bearing debt 184,605 156,802 191,131
Current portion of obligations under capital lease 20,787 16,755 20,138
Other current liabilities 139,431 147,105 110,043
Long term
Long term interest bearing debt 2,047,057 1,161,742 2,091,286
Obligations under capital lease 743,536 342,905 753,823
Other long term liabilities 41,879 33,508 41,697
Minority interest 162,011 - -
Stockholders' equity 786,614 1,352,199 1,255,417
Total liabilities and stockholders' equity 4,125,920 3,211,016 4,463,535
2003 2004 STATEMENT OF CASHFLOWS 2004 2003 2003
Apr-Jun Apr-Jun (in thousands of $) Jan-Jun Jan-Jun Jan-Dec
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(audited)
OPERATING ACTIVITIES
155,067 169,188 Net income (loss) 383,620 334,746 409,360
Adjustments to reconcile net income to net cash
provided by operating activities
35,509 47,241 Depreciation and amortisation 97,605 72,146 149,769
188 (6,081) Unrealised foreign currency exchange (gain) loss 2,327 (1,070) 17,955
4,271 469 Gain or loss on sale of assets 225 3,778 (5,626)
(13,287) (1,483) Results from associated companies (4,346) (30,452) (33,533)
(16,250) (28,998) Adjustment of financial derivatives to market value (16,156) (22,410) (28,180)
- - Change in accounting principle - - 33,767
(3,983) 4,779 Other, net 2,800 (4,963) 1,311
145,659 4,323 Change in operating assets and liabilities 26,292 92,322 (21,543)
307,174 189,438 Net cash provided by operating activities 439,784 444,097 523,280
INVESTING ACTIVITIES
5,671 (22,619) Maturity (placement) of restricted cash 299,872 4,697 (559,430)
(157,899) - Additions to newbuildings, vessels and equipment - (172,213) (66,589)
226 1,400 Advances to associated companies, net (30,743) 495 (80,030)
- - Purchase of option - - (10,042)
- (4,145) Acquistion of subsidiaries (4,145) - (2,363)
Receipt from investment in finance lease and loans
- 8,109 receivable 8,109 - -
- (417) Purchase of other assets (417) - -
111,942 682 Proceeds from sale of assets 11,864 115,885 449,396
(40,060) (16,990) Net cash provided by (used in) investing activities 284,359 (51,136) (269,058)
FINANCING ACTIVITIES
52,149 88,776 Proceeds from long-term debt, net of fees paid 1,552,894 51,073 608,808
(116,038) (99,026 Repayments of long-term debt (1,616,956) (178,141) (465,313)
(1,853) (4,842) Repayment of capital leases (9,638) (5,009) (13,134)
(76,037) (329,630) Dividends paid (661,618) (87,508) (338,033)
(24,045) (192) Issue of shares, net 1,128 (23,993) (25,631)
(165,824) (344,914) Net cash used in financing activities (733,190) (243,578) (233,303)
Net increase (decrease) in cash and cash
101,290 (172,466) equivalents before change in accounting principle (8,867) 149,383 20,919
- - Cash effect of change in accounting principle - - 11,192
Net increase (decrease) in cash and cash
101,290 (172,466) equivalents after change in accounting principle (8,867) 149,383 32,111
138,850 285,325 Cash and cash equivalents at start of period 121,726 90,757 92,078
240,140 112,859 Cash and cash equivalents at end of period 112,859 240,140 124,189
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 August 19, 2004 By /s/ Kate Blankenship
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Kate Blankenship
Secretary and Chief Accounting Officer
02089.0009 #507421