FRO Frontline Plc

INTERIM FINANCIAL INFORMATION

FRONTLINE LTD.

SECOND QUARTER 2020

27 August 2020

FRONTLINE LTD. REPORTS RESULTS FOR THE SECOND QUARTER ENDED JUNE 30, 2020

Frontline Ltd. (the “Company” or “Frontline”), today reported unaudited results for the three and six months ended June 30, 2020:

Highlights

•	Net income of $199.7 million, or $1.01 per diluted share for the second quarter of 2020.

•	Adjusted net income of $206.1 million, or $1.04 per diluted share for the second quarter of 2020.

•	Declared a cash dividend of $0.50 per share for the second quarter of 2020.

•	Repaid $60 million of its $275.0 million senior unsecured facility in the second quarter of 2020.

•	Reported total operating revenues of $387.1 million for the second quarter of 2020.

•	Reported spot TCEs for VLCCs, Suezmax tankers and LR2 tankers in the second quarter of 2020 were $75,800, $51,100 and $36,900 per day, respectively.

•

For the third quarter of 2020, we estimate spot TCE on a load-to discharge basis of $60,900 contracted for 76% of vessel days for VLCCs, $29,500 contracted for 77% of vessel days for Suezmax tankers and $14,500 contracted for 67% of vessel days for LR2 tankers. We expect the spot TCEs for the full third quarter of 2020 to be lower than the TCEs currently contracted, due to the impact of ballast days at the end of the third quarter as well as current weaker rates.

•	Took delivery of the VLCC newbuilding Front Dynamic and the Suezmax newbuilding Front Cruiser in the second quarter of 2020.

•	Signed a senior secured term loan facility in July 2020 in an amount of up to $328.6 million to refinance an existing loan facility maturing in December 2020.

•	Obtained financing commitment for a senior secured term loan facility in August 2020 in an amount of up to $133.7 million to partially finance the four LR2 tankers under construction, which is subject to final documentation.

Robert Hvide Macleod, Chief Executive Officer of Frontline Management AS commented:

“Our results for the first half of 2020 are the strongest in more than 10 years, and we have paid aggregate cash dividends of $1.20 per share for the same period. While tanker rates have seemingly found support at a lower level in the third quarter, we expect oil demand and demand for transportation to recover gradually. We have good visibility in our third quarter results based on our contracted spot days as well as our charter coverage. We also expect our results to be positively impacted by the modern profile of our fleet and breakeven costs that are very competitive. The large moves in tanker rates during the last 12 months clearly illustrates the tight balance in the market and the fact that it does not take much for the tanker market to rally. Looking ahead to 2021 and beyond, recovering demand for crude oil transportation will coincide with rapidly declining fleet growth, which supports our long term highly constructive market outlook.”

 

Inger M. Klemp, Chief Financial Officer of Frontline Management AS, added:

“In the second quarter of 2020 we refinanced two term loan facilities with total balloon payments of $349.4 million due in December 2020 and in March 2021. We expect to refinance further two term loan facilities with total balloon payments of $320.3 million due in April 2021 and in June 2021 prior to maturity, leaving the Company with no material maturities until 2023. Our strong cash flow in the second quarter enabled us to both repay $60 million of our $275.0 million senior unsecured facility, reducing the amount outstanding to $60 million, and to return nearly $99 million to our shareholders in cash dividends.”

Average daily time charter equivalents ("TCEs")¹

The estimated average daily cash breakeven rates are the daily TCE rates the vessels must earn in order to cover operating expenses including dry docks, repayments of loans, interest on loans, bareboat hire, time charter hire and net general and administrative expenses for the remainder of the year.

Spot estimates are provided on a load-to-discharge basis, whereby the company recognizes revenues over time ratably from commencement of cargo loading until completion of discharge of cargo. The rates reported are for all days up until the last contracted discharge of cargo for each vessel in the quarter. The actual rates to be earned in the third quarter of 2020 will depend on the number of additional days that we can contract, and more importantly the number of additional days that each vessel is laden. Therefore, a high number of ballast days at the end of the quarter will limit the amount of additional revenues to be booked on a load-to-discharge basis. Ballast days are days when a vessel is sailing without cargo and therefore unable to recognize revenues. Furthermore, when a vessel remains uncontracted at the end of the quarter, the Company will recognize certain costs during the uncontracted days up until the period end, whereas if a vessel is contracted, then certain costs can be deferred and recognized over the load-to-discharge period.

The reporting of revenues on a load-to-discharge basis results in revenues being recognized over fewer days, but at a higher rate for those days. Over the life of a voyage there is no difference in the total revenues and costs to be recognized.

When expressing TCE per day for the second quarter of 2020, the Company uses the total available days for the quarter and not just the number of days the vessel is laden.

The Fleet

As of June 30, 2020, the Company’s fleet consisted of 71 vessels, with an aggregate capacity of approximately 13.4 million DWT:

(i)	60 vessels owned by the Company (15 VLCCs, 27 Suezmax tankers, 18 LR2/Aframax tankers);

(ii)	two VLCCs that are under finance leases;

(iii)

two vessels chartered in from an unrelated third party; and

(iv)	seven vessels that are under the Company’s commercial management (three VLCCs, two Suezmax tankers, and two Aframax tankers)

¹ This press release describes Time Charter Equivalent earnings and related per day amounts, which are not measures prepared in accordance with US GAAP (“non-GAAP”). See Appendix 1 for a full description of the measures and reconciliation to the nearest GAAP measure.

In April 2020, the Company sold one VLCC, which was previously recorded as an investment in finance lease and delivered the vessel to its buyers in the second quarter of 2020.

In May 2020, the Company took delivery of the Suezmax tanker Front Cruiser from Hyundai Samho Heavy Industries (“HSHI”).

In June 2020, the Company took delivery of the VLCC Front Dynamic from HSHI.

As of June 30, 2020, the Company had entered into fixed rate time charter-out contracts for five Suezmax tankers to a subsidiary of Trafigura Group Pte Ltd ("Trafigura") on three year time charters commencing in August 2019, at a daily base rate of $28,400 with a 50% profit share above the base rate. The charters have remaining contractual periods of approximately two years.

In the second quarter of 2020, the Company entered into fixed time charter-out contracts for two VLCCs for average duration of 9.5 months at an average daily gross rate of $82,400 and one LR2 tanker for 12 months at a daily gross rate of $40,000. The Company also entered into fixed time charter-out contracts for periods just below six months for three VLCC’s at an average daily gross rate of $91,700 and one Suezmax tanker at a daily gross rate of $52,900. These short term charters are included in the actual and forecast spot TCE rates.

Newbuilding Program

As of June 30, 2020, the Company’s newbuilding program consisted of four LR2 tankers; two are expected to be delivered in January 2021 and February 2021, respectively, and two are expected to be delivered in August 2021.

As of June 30, 2020, total instalments of $28.0 million had been paid in connection with the Company’s current newbuilding program, and remaining commitments amounted to $161.1 million, of which we expect $18.7 million to be paid in 2020 and $142.4 million to be paid in 2021.

In August 2020, the Company obtained a financing commitment for a senior secured term loan facility in an amount of up to $133.7 million from CEXIM and Sinosure to partially finance the remaining cost of $161.1 million for the four LR2 tankers under construction. The facility is subject to final documentation.

Corporate Update

The Board of Directors has decided to declare a cash dividend of $0.50 per share for the second quarter of 2020. The record date for the dividend will be September 11, 2020. The ex-dividend date is expected to be September 10, 2020 and the dividend will be paid on or about September 29, 2020.

The Company had 197,692,321 ordinary shares outstanding as of June 30, 2020. The weighted average number of shares outstanding for the purpose of calculating basic earnings per share for the second quarter was 197,692,321.

Financing Update

In April 2020, the Company repaid $60.0 million of its $275.0 million senior unsecured facility agreement with an affiliate of Hemen Holding Ltd., the Company's largest shareholder (“Hemen”). Up to $215.0 million remains available under the facility following this repayment.

In May 2020, the Company signed a restated and amended senior secured term loan facility with Nordea in an amount of up to $50.0 million to refinance an existing loan facility maturing in March 2021. The new facility matures in March 2023, carries an interest rate of LIBOR plus a margin of 190 basis points and has an amortization profile of 20 years. The facility was fully drawn down in July 2020, and $39.0 million of the refinanced facility has been recorded as long-term debt as of June 30, 2020.

In May 2020, the Company drew down $42.9 million under its senior secured term loan facility with Credit Suisse, entered into in November 2019, to partially finance the delivery of the Suezmax tanker Front Cruiser from HSHI. The facility matures five years after the vessel's delivery date, carries an interest rate of LIBOR plus a margin of 190 basis points and has an amortization profile of 18 years.

In June 2020, the Company drew down $62.5 million under its senior secured term loan facility with Crédit Agricole, entered into in May 2020, to partially finance the delivery of the VLCC Front Dynamic from HSHI. The facility matures five years after the vessel's delivery date, carries an interest rate of LIBOR plus a margin of 190 basis points and has an amortization profile of 18 years.

In July 2020, the Company entered into a senior secured term loan facility with a number of banks in an amount of up to $328.6 million to refinance an existing loan facility maturing in December 2020. The new facility matures in February 2023, carries an interest rate of LIBOR plus a margin of 190 basis points and has an amortization profile of 18 years counting as from delivery date from yard. The facility was fully drawn down in July 2020 and $300.1 million of the refinanced facility has been recorded as long-term debt as at June 30, 2020.

In August 2020, the Company obtained a financing commitment for a senior secured term loan facility in an amount of up to $133.7 million from CEXIM and Sinosure to partially finance the remaining cost of $161.1 million for four LR2 tankers under construction. The facility will have a tenor of 12 years, carry an interest rate of LIBOR plus a margin in line with the Company's other loan facilities and will have an amortization profile of 17 years. The facility is subject to final documentation.

Second Quarter 2020 Results

The Company reports net income attributable to the Company of $199.7 million for the second quarter of 2020 compared with net income of $165.3 million in the previous quarter. The adjusted net income attributable to the Company² was $206.1 million for the second quarter of 2020. The adjustments consist of, a $5.9 million loss on derivatives, a $2.7 million share of losses of associated companies, $1.3 million amortization of acquired time charters and a $0.9 million unrealized gain on marketable securities. The increase was driven primarily by an increase in our time charter equivalent earnings of $296.3 million compared to $279.4 million in the first quarter due to higher rates achieved on our VLCCs and LR2 tankers, along with a gain of $12.4 million as a result of the sale of one VLCC previously recorded as an investment in finance lease.

² This press release describes adjusted net income and related per share amounts, which are not measures prepared in accordance with US GAAP (“non-GAAP”). See Appendix 1 for a reconciliation to the nearest GAAP measure.

Tanker Market Update

The first six months of 2020 brought dramatic crude oil demand correction the likes of which we have never seen. The demand shock brought on by COVID-19 was so large and sudden that global commercial inventories quickly surged to record levels, effectively utilizing all available land-based capacity. At the same time, the crude oil market went into contango, encouraging traders to store oil on tankers and driving demand for short-term charters of tankers. This in turn resulted in exceptionally strong tanker rates, which are reflected in our results for the second quarter of 2020.

The freight market has since receded, and rates have declined to lower levels. Although signs of a recovery are evident, as economies have begun to re-open, the recovery in demand is unlikely to be linear and the extent and duration of the impact of COVID-19 is difficult to gauge. It is highly likely that demand will take some time to fully recover, and we shouldn’t expect seasonal strength in the winter months simply based on historical trends. Invariably, global oil demand looks to be significantly lower at the end of 2020, relative to year-end 2019.

The demand shock is likely behind us, but there is also significant month-to-month volatility in the demand forecast. In the second quarter of 2020, global oil demand fell by 16.4 mb/d compared to 2019, a previously unimaginable decline. The IEA forecasts that world oil demand will decline by 7.9 mb/d in 2020 before recovering by 5.3 mb/d to 97.4 mb/d, in 2021, a figure the IEA concedes is highly uncertain. Supply also fell to a nine-year low of 86.9 mb/d in the second quarter of 2020, primarily due to production cuts from OPEC+, the United States and Canada. Forecasts suggest that a significant portion of this cut could return in the next coming quarters as the Northern Hemisphere moves toward winter.

The vessel supply side of the equation continues to improve which is very positive. The orderbook as a percent of the total fleet is at the lowest level since 1997 with only 69 VLCCs on order. At the same time the average age of the VLCC fleet as of the end of the second quarter of 2020, was at the highest level since September 2002. By the end of 2021, there will be 65 vessels that are older than 20 years and an additional 85 that are older than 17.5 years. While a pandemic like COVID-19 was virtually impossible to imagine, such a positive outlook for fleet supply growth defies historical convention. The effect of slowing fleet supply growth will be pushed out to 2021 or 2022, but it should be material and lead to a sustained period of higher rates.

In the short-term, Frontline has secured sufficient charter coverage to reduce the effective breakeven levels for our vessels trading in the spot market and lessen the impact of market volatility. The Company is also well-positioned to generate significant cash on the back of an improving market outlook. Although we acknowledge the uncertainty of current economic conditions, we believe that over the long term, global stimulus measures will drive increased commodity demand at a time when fleet growth has begun to slow significantly.

COVID-19 Update

Frontline has maintained its specific Frontline guide-lines for the ship managers to follow in addition to its robust emergency management plan adopted in early January in response to the COVID-19 pandemic in order to ensure the health and safety of our employees while maintaining business operations as efficiently as possible. All crewing managers continue to follow the guidance issued by the World Health Organization and the International Chamber of Shipping to ensure that the proper protocols are in place on board our vessels. Our technical department is hosting regular meetings with all crewing managers across all business segments to discuss and handle any issues, in particular challenges facing our crew and safe operations, as they arise. To date, issues have primarily related to crew transfers.

Presentation materials and a webcast of the conference call may be accessed on the Company’s website, www.frontline.bm, under the ‘Webcast’ link.

A replay of the conference call will be available for seven days following the live call. The following numbers may be used to access the telephonic replay:

Participant information required: Full name & company

Forward-Looking Statements

Matters discussed in this report may constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements, which include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts.

Frontline Ltd. and its subsidiaries, or the Company, desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection with this safe harbor legislation. This report and any other written or oral statements made by us or on our behalf may include forward-looking statements, which reflect our current views with respect to future events and financial performance and are not intended to give any assurance as to future results. When used in this document, the words "believe," "anticipate," "intend," "estimate," "forecast," "project," "plan," "potential," "will," "may," "should," "expect" and similar expressions, terms or phrases may identify forward-looking statements.

The forward-looking statements in this report are based upon various assumptions, including without limitation, management's examination of historical operating trends, data contained in our records and data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

In addition to these important factors and matters discussed elsewhere herein, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the strength of world economies, fluctuations in currencies and interest rates, general market conditions, including fluctuations in charter hire rates and vessel values, changes in the supply and demand for vessels comparable to ours, changes in world wide oil production and consumption and storage, changes in the Company's operating expenses, including bunker prices, dry docking and insurance costs, the market for the Company's vessels, availability of financing and refinancing, our ability to obtain financing and comply with the restrictions and other covenants in our financing arrangements, availability of skilled workers and the related labor costs, compliance with governmental, tax, environmental and safety regulation, any non-compliance with the U.S. Foreign Corrupt Practices Act of 1977 (FCPA) or other applicable regulations relating to bribery, general economic conditions and conditions in the oil industry, effects of new products and new technology in our industry, the failure of counter parties to fully perform their contracts with us, our dependence on key personnel, adequacy of insurance coverage, our ability to obtain indemnities from customers, changes in laws, treaties or regulations, the volatility of the price of our ordinary shares; our incorporation under the laws of Bermuda and the different rights to relief that may be available compared to other countries, including the United States, 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, political events or acts by terrorists, and other important factors described from time to time in the reports filed by the Company with the Securities and Exchange Commission or Commission.

We caution readers of this report not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are no guarantee of our future performance, and actual results and future developments may vary materially from those projected in the forward-looking statements.

The Board of Directors

Frontline Ltd.

Hamilton, Bermuda

August 26, 2020

Questions should be directed to:

Robert Hvide Macleod: Chief Executive Officer, Frontline Management AS

+47 23 11 40 84

Inger M. Klemp: Chief Financial Officer, Frontline Management AS

+47 23 11 40 76

INTERIM FINANCIAL INFORMATION

SECOND QUARTER 2020

Index

CONDENSED CONSOLIDATED INCOME STATEMENTS

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