Frontline Ltd. (FRO)

FRO 
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Frontline (FRO)

Q4 2010 Earnings Call

February 22, 2011 9:00 am ET

Executives

Inger Klemp - Chief Financial Officer and Chief Financial Officer of Frontline Management AS

Jens Jensen - Chief Executive Officer of Frontline Management AS

Analysts

Peter Kendall

Joshua Katzeff - Deutsche Bank

Fotis Giannakoulis - Morgan Stanley

Jonathan Chappell - JPMorgan

Presentation

Operator

Good day, and welcome to the Frontline Q4 Results Presentation. [Operator Instructions] At this time, I'd like to turn the call over to your host today, Mr. Jens Martin Jensen, CEO; and Ms. Inger M. Klemp, CFO. Please go ahead, gentlemen.

Jens Jensen

Thank you. Good morning, good afternoon, and welcome to our Q4 presentation. We will follow our usual program for this presentation with our CFO, Inger Klemp, going through the Q4 highlights and main transactions, financial review of the quarter, then update of our newbuilding program. Thereafter, I will talk about what happened, marketwise, in Q4 and say a few words on how we see things going forward. So if you could start, Inger, please?

Inger Klemp

Thanks, Jens, and good morning and good afternoon, ladies and gentlemen. I will guide you through the highlights and the financial review in the fourth quarter, together with a run-through of the newbuilding program.

Moving then to Slide 4. November 2011, for instance, Frontline extended the time charter in agreements of Front Chief, Front Commander and Front Crown for one year from January 2011 at $26,500 per day per vessel. On January 2011, Frontline sold its 2006-built VLCC Front Shanghai. The sale proceeds were $91.2 million. And after repayment of debt, the sale generated $31.5 million in cash. Frontline has, in connection with the sale, agreed to charter back the vessel from the new owner. The duration of the time charter is approximately two years at a rate of $35,000 per day. And delivery to the new owners took place in January 26, 2011.

The company expects to record a gain of approximately $6.2 million on delivery of the vessel. And in addition, a gain of $15.2 million will be recognized on a straight-line basis over the period of the time charter. Further in January 2011, Frontline sold all its shares in OSG. The sale generated approximately $46.5 million in cash, and the company expects to record a loss of approximately $3.3 million in the first quarter of 2011 in addition to a loss of $9.4 million recorded in the fourth quarter of 2010 following a market price adjustment of the shares.

Further, in February 2011, Frontline has agreed with Ship Finance to terminate the long-term charter parties between the companies for the single hull VLCCs Front Highness and Front Ace. And Ship Finance has simultaneously sold the vessels to unrelated third parties. The termination of the charters is expected to take place in March 2011. Ship Finance will make a compensation payment to Frontline of approximately $5.8 million for the early termination of the charter, which will be recorded in the first quarter of 2011.

Moving to Slide 5. I will then do a quick run-through of the financial highlights in the fourth quarter. Frontline reports net loss of $11.8 million, equivalent to a loss per share of $0.15 in the fourth quarter of 2010. This is a decrease compared to the third quarter of $24 million. A net loss includes a gain of $4.6 million relating to the amortization of a deferred gain on three leases. The loss in the fourth quarter also includes non-operating losses of $5.2 million, which mainly relates to a loss of $9.4 million following a market price adjustment of shares owned in Overseas Shipholding Group, OSG, partially offset by a gain of $3.6 million, for minority interest in Independent Tankers Corporation, arising on the termination of a funding agreement. The net loss, excluding these gains and losses, was $10.5 million, equivalent to loss per share of $0.13. On this basis, we have decided to announce a dividend of $0.10 per share for the fourth quarter.

Moving then to Slide 6. The net income excluding gains and losses is about $15 million weaker than in the third quarter 2010. The decrease can mainly be explained by a decrease in income on time charter basis with $21 million in the fourth quarter compared to the third quarter due to a decrease in TCE per day in the fourth quarter, slightly offset by more trading days in the quarter. The profit-sharing payable to Ship Finance has decreased $3.9 million in the quarter compared to the previous quarter. Ship operating expenses increased by $4 million compared with the preceding quarter, mainly due to an increase in drydocking costs of $3.3 million. Frontline dry-docked three vessels in the fourth quarter and two vessels in the third quarter. Charter hire expenses decreased by $2.9 million in the fourth quarter compared with the preceding, primarily due to a period of off hire for one vessel due to drydocking and a decrease in loss-making voyage provisions from the previous quarter. Then depreciation has decreased about $1 million due to termination of financial leases of Front Highness and Front Ace in the third quarter, offset by a full quarter depreciation of Front Signe and Front Njord, which were delivered in the third quarter. Interest expense is also down with $1.15 million, mainly due to reduction in interest on financial leases.

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