UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO
RULE 13A-16 OR 15D-16 UNDER THE SECURITIES
EXCHANGE ACT OF 1934
For the nine months ended September 30, 2023
Commission File Number: 001-16601
FRONTLINE PLC
(Translation of registrant's name into English)
John Kennedy, 8 Iris Building, 7th Floor, Flat/Office 740B, 3106, Limassol
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F [ X ] Form 40-F [ ]
INFORMATION CONTAINED IN THIS FORM 6-K REPORT
Attached hereto as Exhibit 1 to this Report on Form 6-K are the Unaudited Condensed Consolidated Interim Financial Statements and related Management’s Discussion and Analysis of Financial Condition and Results of Operations of Frontline plc (the “Company”) for the nine months ended September 30, 2023.
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 authorized.
FRONTLINE PLC (registrant) | |||||||||||
| Dated: December 13, 2023 | By: | /s/ Inger M. Klemp | |||||||||
| Name: Inger M. Klemp | |||||||||||
| Title: Principal Financial Officer | |||||||||||
EXHIBIT 1
FRONTLINE plc
As used herein, "we," "us," "our", "Frontline" and "the Company" all refer to Frontline plc. This management's discussion and analysis of financial condition and results of operations should be read together with the discussion included in the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2022.
Management's Discussion and Analysis of Financial Condition and Results of Operations for the Nine Months Ended September 30, 2023.
General
As of September 30, 2023, the Company’s fleet consisted of 65 vessels owned by the Company (22 VLCCs, 25 Suezmax tankers, 18 LR2/Aframax tankers), with an aggregate capacity of approximately 12.6 million DWT.
The Company took delivery of the VLCC newbuildings, Front Orkla and Front Tyne in January 2023 following which, there were no remaining vessels in the Company's newbuilding program.
In January 2023, the Company sold the 2009-built VLCC, Front Eminence, and the 2009-built Suezmax tanker, Front Balder, for gross proceeds of $61.0 million and $39.5 million, respectively. The vessels were delivered to new owners in January and February 2023, respectively. After repayment of existing debt on the vessels, the transactions generated net cash proceeds of $63.6 million, and the Company recorded a gain on sale of $9.9 million and $2.8 million, respectively, in the nine months ended September 30, 2023.
In May 2023, the Company sold the 2010-built Suezmax tanker, Front Njord, for gross proceeds of $44.5 million. The vessel was delivered to the new owners in June 2023. After repayment of existing debt on the vessel, the transaction generated net cash proceeds of $28.2 million, and the Company recorded a gain on sale of $9.3 million in the nine months ended September 30, 2023.
As of September 30, 2023, the Company’s fleet included 42 exhaust gas cleaning system ("EGCS" or "scrubber") fitted vessels (20 VLCCs, 18 Suezmax tankers and four LR2/Aframax tankers).
In April and May 2023, the Company entered into two fixed rate time charter-out contracts for two LR2/Aframax tankers to third parties on two-year time charters, both at a daily base rate of $46,500.
In January 2023, the Company terminated a combination agreement (the “Combination Agreement”) for a stock-for-stock combination with Euronav NV ("Euronav") based on an exchange ratio of 1.45 Frontline shares for every 1.0 Euronav share, as certain conditions and assumptions under the Agreement were not met. On January 18, 2023 Frontline received from Euronav an emergency arbitration request for urgent interim and conservatory measures. On February 7, 2023 the emergency arbitration claims filed by Euronav were fully dismissed by the Emergency Arbitrator and Euronav was ordered to reimburse all costs incurred by Frontline.
On January 28, 2023, the Company received from Euronav an arbitration request for proceedings on the merits of the termination. The Company continues to maintain that its decision to terminate the Combination Agreement was entirely valid and lawful.
On October 9, 2023, Frontline entered into a Framework Agreement (the “Framework Agreement”) with Euronav NV (“Euronav”). Pursuant to the Framework Agreement, the Company agreed to purchase 24 VLCCs with an average age of 5.3 years, for an aggregate purchase price of $2,350.0 million from Euronav (the “Acquisition”).
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All of the agreements relating to the Acquisition came into effect in November 2023. A majority of the vessels are expected to be delivered in the fourth quarter of 2023 and the balance of the vessels are expected to be delivered in the first quarter of 2024. As of the date of this report six vessels have been delivered for an aggregate purchase price of $553.0 million. The Company drew down $331.8 million under its senior secured term loan facility in an amount of up to $1,410.0 million with a group of our relationship banks to partly finance the deliveries.
In connection with the Acquisition, Frontline and Famatown Finance Limited, a company related to Hemen, (“Famatown”) had agreed to sell all their shares in Euronav (representing in aggregate 26.12% of Euronav’s issued shares) to Compagnie Maritime Belge NV ("CMB") at a price of $18.43 per share (the “Share Sale”).
In November 2023, all conditions precedent to the Share Sale, including approval of the inter-conditionality of the Share Sale and the Acquisition by the Euronav shareholders and receipt of anti-trust approvals, were fulfilled. The Share Sale has successfully closed and Frontline and Famatown are no longer shareholders in Euronav. The Company's proceeds of $252.0 million from the Share Sale will be used to partly finance the Acquisition.
As part of the overall agreements, the arbitration action filed by Euronav in January 2023 following Frontline’s withdrawal from their combination agreement has also been effectively terminated, against nil cash consideration.
Fleet changes1
| (number of vessels) | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 | Year ended December 31, 2022 | ||||||||
| VLCCs | |||||||||||
| At start of period | 21 | 19 | 19 | ||||||||
| Newbuilding deliveries | 2 | 3 | 4 | ||||||||
| Disposals/lease terminations | (1) | (2) | (2) | ||||||||
| At end of period | 22 | 20 | 21 | ||||||||
| Suezmax tankers | |||||||||||
| At start of period | 27 | 27 | 27 | ||||||||
| Disposals | (2) | — | — | ||||||||
| At end of period | 25 | 27 | 27 | ||||||||
| LR2/Aframax tankers | |||||||||||
| At start of period | 18 | 20 | 20 | ||||||||
| Disposals | — | (2) | (2) | ||||||||
| At end of period | 18 | 18 | 18 | ||||||||
| Total | |||||||||||
| At start of period | 66 | 66 | 66 | ||||||||
| Newbuilding deliveries | 2 | 3 | 4 | ||||||||
| Disposals/lease terminations | (3) | (4) | (4) | ||||||||
| At end of period | 65 | 65 | 66 | ||||||||
Tanker Market Update
Global oil consumption averaged 100.8 million barrels per day ("mbpd") in the nine months ended September 30, 2023 according to the Energy Information Administration (“EIA”), 1.7 mbpd higher as compared to the nine months ended September 30, 2022. China led the way in the nine months ended September 30, 2023 with an estimated
1 Table excludes vessels commercially managed on behalf of third parties and related parties.
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increase in consumption of 0.8 mbpd as compared to the nine months ended September 30, 2022. European consumption growth was somewhat muted slipping by 0.1 mbpd according to the same data. Chinese imports remained high throughout the nine months ended September 30, 2023 estimated at 10.6 mbpd by industry sources, 1.5 mbpd above the same period last year.
Global oil supply remained stable in the nine months ended September 30, 2023, averaging 101.4 mbpd. Global oil supply and consumption is now seemingly balanced according to EIA, and global inventories remained relatively flat in the nine months ended September 30, 2023. The Organization of the Petroleum Exporting Countries ("OPEC") have maintained their cuts, with the addition of Saudi Arabia voluntarily reducing production by 1.0 mbpd and Russia voluntarily reducing exports by 0.3 mbpd, respectively. In total, OPEC+ are currently restricting supply by 3.7 mbpd, equating to 3.6% of estimated global consumption. On November 30, 2023, OPEC announced voluntary cuts of 2.2 mbpd up until March 31, 2024.
As the above supply and consumption balance indicates, this has not affected the overall volume available to the market as, according to the EIA, OPEC supply is down 0.5 mbpd in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, whilst non-OPEC producers have increased supply, with the U.S. contributing more than half of the growth, countering the shortfall from OPEC. This continues to support tanker fundamentals, and especially VLCC freight which offers the most compelling economies of scale in transporting crude over large distances. According to industry sources, stricter enforcement of the price cap on Russian crude oil has caused exports of Russian crude oil to fall by an average of 0.5 mbpd in the three months ended September 30, 2023, and the dynamics of the trade to change. It is reported that Russian crude oil trade has fallen causing the available fleet supply growth in the non-Russia market to increase pressure on the Suezmax and Aframax tanker asset classes.The conflict in the Gaza strip has increased the political risk for shipping significantly due to the proximity both physically and politically to the largest oil exporting region in the world. We have yet to see this affect the day-to-day operation of tankers, but safety of the crew and operational risk in general are high on all ship owners’ agendas.
Considering the asset classes that Frontline is directly exposed to, the overall tanker orderbook has grown over the nine months ended September 30, 2023, predominantly for Suezmax and LR2 tankers. For VLCCs there are only 16 vessels confirmed on order, representing 1.8% of the overall orderbook. For Suezmax tankers 50 vessels are on order, representing 8% of the existing fleet. In the LR2 segment the orderbook continues to grow with 91 vessels on order, equating to 21% of the existing fleet. The growth in the orderbooks is predominantly scheduled for delivery in 2026 and 2027 and is not expected to affect the overall outlook of the tanker fleet in the near-term due to the general age profile.
Results of Operations
Amounts included in the following discussion are derived from our Unaudited Condensed Consolidated Interim Financial Statements for the nine months ended September 30, 2023 and September 30, 2022.
Total revenues, voyage expenses and commissions
| (in thousands of $) | 2023 | 2022 | ||||||
| Time charter revenues | 48,780 | 65,018 | ||||||
| Voyage charter revenues | 1,326,888 | 825,586 | ||||||
| Administrative income | 11,512 | 9,463 | ||||||
| Total revenues | 1,387,180 | 900,067 | ||||||
| Voyage expenses and commissions | 460,488 | 428,249 | ||||||
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Time charter revenues decreased by $16.2 million in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 due to the net decrease in the number of vessels on long-term and short-term time charters since January 1, 2022.
Voyage charter revenues increased by $501.3 million in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 primarily due to the increase in market freight rates, the delivery of six newbuildings onto voyage charters since January 1, 2022 and the net decrease in the number of vessels on long-term and short-term time charters since January 1, 2022. These factors were partially offset by the sale of two LR2 tankers, one VLCC and two Suezmax tankers and the redelivery of two VLCCs chartered-in under leases since January 1, 2022.
Administrative income primarily comprises the income earned from the technical and commercial management of related party vessels, newbuilding supervision fees derived from related parties and administrative services provided to related parties. The increase in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 was mainly due to an increase in technical management fees and newbuilding supervision fees as a result of an increase in the number of vessels under supervision.
Voyage expenses and commissions increased by $32.2 million in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, due to the delivery of six newbuildings onto voyage charters and the net decrease in the number of vessels on long-term and short-term time charters since January 1, 2022. These factors were partially offset by the sale of two LR2 tankers, one VLCC and two Suezmax tankers and the redelivery of two VLCCs chartered-in under leases since January 1, 2022.
Other operating income
| (in thousands of $) | 2023 | 2022 | ||||||
| Loss on termination of vessel leases | — | (431) | ||||||
| Gain on sale of vessels | 21,959 | 4,618 | ||||||
| Gain on settlement of claim | 397 | 3,998 | ||||||
| Gain (loss) on pool arrangements | 1,683 | (613) | ||||||
| Other gains | 41 | 17 | ||||||
| Total other operating income | 24,080 | 7,589 | ||||||
In November 2021, the Company announced that it had entered into an agreement to sell four of its scrubber fitted LR2 tankers built in 2014 and 2015 for an aggregate sale price of $160.0 million to SFL Tanker Holding Ltd., a subsidiary of SFL Corporation Ltd. (“SFL”), a company related to Hemen Holding Limited (“Hemen”), the Company’s largest shareholder. Two vessels were delivered to the new owners in December 2021 and the remaining two vessels were delivered to the new owners in January 2022. After repayment of debt on the vessels, the transaction generated total net cash proceeds of $68.6 million, with net cash proceeds of $35.1 million recorded in the nine months ended September 30, 2022. The Company recorded a gain on sale in relation to the second two vessels of $4.6 million in the nine months ended September 30, 2022.
In April 2022, the Company announced that its subsidiary Frontline Shipping Limited has agreed with SFL to terminate the long-term charters for the 2004-built VLCCs, Front Force and Front Energy, upon the sale and delivery of the vessels by SFL to an unrelated third party. Frontline agreed to a total compensation payment to SFL of $4.5 million for the termination of the current charters. The charters terminated and the vessels were delivered to the new owners in April 2022. The Company recorded a loss on termination of $0.4 million, including the termination payment, in the nine months ended September 30, 2022.
In January 2023, the Company sold the 2009-built VLCC, Front Eminence, and the 2009-built Suezmax tanker, Front Balder, for gross proceeds of $61.0 million and $39.5 million, respectively. The vessels were delivered to new owners in January and February 2023, respectively. After repayment of existing debt on the vessels, the transactions
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generated net cash proceeds of $63.6 million, and the Company recorded a gain on sale of $9.9 million and $2.8 million, respectively, in the nine months ended September 30, 2023.
In May 2023, the Company sold the 2010-built Suezmax tanker, Front Njord, for gross proceeds of $44.5 million. The vessel was delivered to the new owners in June 2023. After repayment of existing debt on the vessel, the transaction generated net cash proceeds of $28.2 million, and the Company recorded a gain on sale of $9.3 million in the nine months ended September 30, 2023.
In the nine months ended September 30, 2023, the Company recorded a gain on pool arrangements of $1.7 million (2022: loss of $0.6 million). In the nine months ended September 30, 2023, the Company recorded a gain related to an arbitration award of $0.4 million (2022: gain of $2.5 million) in relation to the failed sale of Dewi Maeswara. In the nine months ended September 30, 2022, the Company recorded a $1.5 million gain on the settlement of insurance claims for Front Altair.
Ship operating expenses
| (in thousands of $) | 2023 | 2022 | ||||||
| Ship operating expenses | 131,592 | 128,312 | ||||||
Ship operating expenses are the direct costs associated with running a vessel and include crew costs, vessel supplies, repairs and maintenance, lubricating oils and insurances. The technical management of our vessels is provided by third party ship management companies.
Ship operating expenses increased by $3.3 million in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 primarily due to the delivery of six newbuildings since January 1, 2022. This increase was partially offset by the sale of two LR2 tankers, one VLCC and two Suezmax tankers and the redelivery of two VLCCs chartered-in under leases since January 1, 2022.
Administrative expenses
| (in thousands of $) | 2023 | 2022 | ||||||
| Administrative expenses | 39,637 | 29,218 | ||||||
Administrative expenses increased by $10.4 million in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 primarily due to an increase in employee and related costs (including synthetic share option expense) and an increase in costs incurred in the management of vessels, partially offset by decrease in professional fees.
Depreciation
| (in thousands of $) | 2023 | 2022 | ||||||
| Depreciation | 170,924 | 122,288 | ||||||
Depreciation increased in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 primarily due to the change in the estimated useful lives of the Company's vessels from 25 years to 20 years from January 1, 2023, in addition to the delivery of six newbuildings since January 1, 2022, and depreciation on additional EGCS and Ballast Water Treatment Systems ("BWTS") installed on our vessels. These increases were partially offset by a decrease in depreciation due to the sale of two LR2 tankers, one VLCC and two Suezmax tankers and the redelivery of two VLCCs chartered-in under leases since January 1, 2022.
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Finance Income
| (in thousands of $) | 2023 | 2022 | ||||||
| Interest income | 11,130 | 386 | ||||||
| Foreign currency exchange gain | 398 | 24 | ||||||
| Total finance income | 11,528 | 410 | ||||||
Interest income increased in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 primarily due to an increase in interest received on bank deposits due to higher interest rates and cash on hand.
Finance expense
| (in thousands of $) | 2023 | 2022 | ||||||
| Interest expense | (130,441) | (62,855) | ||||||
| Foreign currency exchange loss | (335) | (28) | ||||||
| Gain on interest rate swaps | 14,967 | 51,042 | ||||||
| Other financial expenses | (108) | (71) | ||||||
| Total finance expense | (115,917) | (11,912) | ||||||
Finance expense increased by $104.0 million in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 primarily due to the increase in market interest rates, the decrease in gain on interest rate swaps and additional interest expense due to the drawdown of term loan facilities in relation to six newbuildings delivered since January 1, 2022. The increase was partially offset by the scheduled repayment of outstanding debt, a reduction due to the sale of one VLCC, two Suezmax tankers and the redelivery of two VLCC vessels chartered-in under leases since January 1, 2022.
Foreign currency exchange differences relate to movements in the U.S. dollar against other currencies used in day-to-day transactions.
Share of results of associated company
| (in thousands of $) | 2023 | 2022 | ||||||
| Share of results of associated company | 3,265 | 11,611 | ||||||
A share of profits of TFG Marine Pte. Ltd. (“TFG Marine”) of $2.6 million was recognized in the nine months ended September 30, 2023 (2022: $12.2 million).
A share of profits of FMS Holdco of $0.6 million was recognized in the nine months ended September 30, 2023 (2022: loss of $0.6 million).
Gain (loss) on marketable securities
| (in thousands of $) | 2023 | 2022 | ||||||
| Gain (loss) on marketable securities | (6,085) | 35,336 | ||||||
In the nine months ended September 30, 2023, the Company recognized an unrealized loss of $6.1 million in relation to the marketable securities held at the reporting date (2022: gain of $35.3 million), primarily related to the 13,664,613 shares held in Euronav.
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In the nine months ended September 30, 2022, the Company acquired 13,664,613 shares in Euronav as a result of privately negotiated share exchange transactions with certain shareholders of Euronav. The acquired shares were initially recognized at their fair value of $167.7 million and the Company recorded a realized loss of $7.8 million in the nine months ended September 30, 2022, being the difference between the transaction price to acquire these shares and their fair value as of the transaction dates. The transaction price paid to acquire these shares was $175.5 million, which was the fair value of Frontline's shares as of the transaction dates. Based on the Euronav share price as of September 30, 2022, the fair value of the shares held in Euronav was $210.3 million as of this date which resulted in a subsequent unrealized gain of $42.6 million in the nine months ended September 30, 2022. The Company recognized an unrealized gain of $0.5 million in the nine months ended September 30, 2022 on other marketable securities owned by the Company.
Dividends received
| (in thousands of $) | 2023 | 2022 | ||||||
| Dividends received | 36,612 | 1,037 | ||||||
The dividends received relate to receipts of dividends from investments in marketable securities and in the nine months ended September 30, 2023 primarily relate to the shares held in Euronav.
Liquidity and Capital Resources
We operate in a capital intensive industry and have historically financed our purchase of tankers and other capital expenditures through a combination of cash generated from operations, equity capital and borrowings from commercial banks. Our ability to generate adequate cash flows on a short and medium-term basis depends substantially on the trading performance of our vessels in the market. Historically, market rates for charters of our vessels have been volatile. Periodic adjustments to the supply of and demand for oil and product tankers causes the industry to be cyclical in nature. We expect continued volatility in market rates for our vessels in the foreseeable future with a consequent effect on our short and medium-term liquidity.
Our funding and treasury activities are conducted within corporate policies to increase investment returns while maintaining appropriate liquidity for our requirements. Cash and cash equivalents are held primarily in U.S. Dollars with some balances held in British Pounds, Euros, Norwegian Kroner and Singapore Dollars.
Our short-term liquidity requirements relate to payment of operating costs (including drydocking), funding working capital requirements, repayment of debt financing (including interest), payment of upgrading costs in relation to EGCS and BWTS, and maintaining cash reserves against fluctuations in operating cash flows. Sources of short-term liquidity include cash balances, short-term investments and receipts from our customers. Revenues from time charters are generally received monthly or fortnightly in advance while revenues from voyage charters are generally received upon completion of the voyage.
As of September 30, 2023 and December 31, 2022, we had cash and cash equivalents of $285.4 million and $254.6 million, respectively. As of September 30, 2023 and December 31, 2022, cash and cash equivalents includes cash balances of $109.8 million (December 31, 2022: $54.4 million), which represents 100% (December 2022: 50%) of the cash required to be maintained by the financial covenants in our loan agreements. The Company is permitted to satisfy up to 50% of the cash requirement by maintaining a committed undrawn credit facility with a remaining availability of greater than 12 months. The Company did not satisfy any of the minimum cash requirements with a committed undrawn credit facility as of September 30, 2023 because the Company's senior unsecured facility agreement with an entity related to Hemen was repayable in May 2024.
Our medium and long-term liquidity requirements include funding the equity portion of investments in new or replacement vessels and repayment of bank loans. Additional sources of funding for our medium and long-term liquidity requirements include new loans, refinancing of existing arrangements, equity issues, public and private debt offerings, vessel sales, sale and leaseback arrangements and asset sales.
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Newbuildings
As of September 30, 2023, there are no remaining vessels in the Company’s newbuilding program and there are no remaining commitments.
Vessel disposals
In January 2023, the Company sold the 2009-built VLCC, Front Eminence, and the 2009-built Suezmax tanker, Front Balder, for gross proceeds of $61.0 million and $39.5 million, respectively. The vessels were delivered to new owners in January and February 2023, respectively. After repayment of existing debt on the vessels, the transactions generated net cash proceeds of $63.6 million, and the Company recorded a gain on sale of $9.9 million and $2.8 million, respectively, in the nine months ended September 30, 2023.
In May 2023, the Company sold the 2010-built Suezmax tanker, Front Njord, for gross proceeds of $44.5 million. The vessel was delivered to the new owner in June 2023. After repayment of existing debt on the vessel, the transaction generated net cash proceeds of $28.2 million, and the Company recorded a gain on sale of $9.3 million in the nine months ended September 30, 2023.
Share Sale
In connection with the Acquisition, Frontline and Famatown had agreed to sell all their shares in Euronav (representing in aggregate 26.12% of Euronav’s issued shares) to CMB at a price of $18.43 per share.
In November 2023, all conditions precedent to the Share Sale, including approval of the inter-conditionality of the Share Sale and the Acquisition by the Euronav shareholders and receipt of anti-trust approvals, were fulfilled. The Share Sale has successfully closed and Frontline and Famatown are no longer shareholders in Euronav. The Company's proceeds of $252.0 million from the Share Sale will be used to partly finance the Acquisition.
Financing
In January 2023, the Company drew down $65.0 million under its senior secured term loan facility with Crédit Agricole to partially finance the delivery of the 2023 built VLCC Front Orkla. The facility has a tenor of five years, carries an interest rate of the Secured Overnight Financing Rate ("SOFR") plus Credit Adjustment Spread ("CAS") and a margin of 170 basis points and has an amortization profile of 18 years commencing on the delivery date from the yard. The facility was fully drawn down in January 2023.
In January 2023, the Company drew down $65.0 million under its senior secured term loan facility with KFW to partially finance the delivery of the 2023 built VLCC Front Tyne. The facility has a tenor of five years, carries an interest rate of SOFR plus CAS and a margin of 170 basis points and has an amortization profile of 20 years commencing on the delivery date from the yard. The facility was fully drawn down in January 2023.
In May 2023, the Company entered into a senior secured term loan facility in an amount of up to $129.4 million from ING to refinance an existing term loan facility with total balloon payments of $80.1 million due in August 2023. The new facility has a tenor of five years, carries an interest rate of SOFR plus a margin of 180 basis points and has an amortization profile of 18 years commencing on the delivery date from the yard. The facility includes a sustainability margin adjustment linked to the fleet sustainability score. The existing facility carried an interest rate of London Interbank Offered Rate ("LIBOR") plus a margin of 190 basis points. The facility was fully drawn down in June 2023.
In February and June 2023, the Company repaid $60.0 million and $74.4 million, respectively, of its $275.0 million senior unsecured credit facility with an affiliate of Hemen. Up to $199.7 million remains available to be drawn following the repayment.
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Due to the discontinuance of LIBOR after June 30, 2023, the Company has entered into amendments to existing loan agreements with an aggregate outstanding principal of $1,755.8 million as of September 30, 2023, for the transition from LIBOR to SOFR. The weighted average CAS of these amendment agreements is 16 basis points based on a three-month interest period. The amendments to our loan agreements, which are measured at amortized cost using the effective interest method, were accounted for as an adjustment to the effective interest rate which did not have a significant effect on the carrying amount of the loans. The reference rate for our interest rate swaps, which are measured at fair value through profit or loss, has also been transitioned from LIBOR to SOFR plus a CAS of 26 basis points which did not affect the accounting for these derivatives.
In October 2023, the Company extended its $275.0 million senior unsecured revolving credit facility with an affiliate of Hemen, the Company's largest shareholder, by 20 months to January 4, 2026, at an interest rate of 10.0% and otherwise on existing terms. Up to $199.7 million remains available to be drawn as per September 30, 2023 and the Company has drawn $99.7 million in December 2023 to partly finance the Acquisition.
In November 2023, the Company entered into two senior secured term loan facilities in an amount of up to $124.1 million with Deka Bank to refinance an existing term loan facility with total balloon payments of $89.0 million due in January 2024. The new facilities have a tenor of four and six years, respectively, carry an interest rate of the SOFR plus a margin of 171 basis points and have an amortization profile of 18 years commencing on the delivery year from the yard. The Company intends to use the expected net cash proceeds from the refinancing of $33.7 million to partly finance the Acquisition.
In November 2023, the Company entered into a senior secured term loan facility in an amount of up to $1,410.0 million with a group of our relationship banks to partly finance the Acquisition. The new facility has a tenor of five years, carries an interest rate of SOFR plus a margin in line with the Company’s existing loan facilities and has an amortization profile of 20 years commencing on the delivery date from the yard.
In November 2023, the Company entered into a subordinated unsecured shareholder loan in an amount of up to $539.9 million with Hemen to partly finance the Acquisition. The facility has a tenor of five years and carries an interest rate of SOFR plus a margin equal to the $1,410.0 million facility, in line with the Company’s existing loan facilities.
Cash Flows
The following summarizes our cash flows from operating, investing and financing activities for the nine months ended September 30, 2023.
Net cash provided by operating activities
Net cash provided by operating activities in the nine months ended September 30, 2023 was $755.7 million compared to $163.2 million in the nine months ended September 30, 2022.
The increase was primarily due to (i) the increase in total operating revenues of $488.6 million due to the increase in market freight rates and delivery of six newbuildings since January 1, 2022; (ii) the movement in other operating assets and liabilities which increased the cash generated from operating activities by $138.7 million. The movement in working capital balances are impacted by the timing of voyages and in particular the timing of the billing and receipt of freights, and also by the timing of fueling and consumption of fuel on board our vessels; (iii) the receipt of dividends of $35.6 million from our investments in marketable securities and $7.3 million from our investment in TFG Marine; and (iv) an increase in interest received of $27.4 million as a result of increased market interest rates on our cash balances and favorable settlements under our interest rate swap arrangements.
The increase in cash provided by operating activities was partially offset by (i) an increase in voyage and ship operating expenses by $32.2 million and $3.3 million, respectively, mainly due to the increase in bunker costs and the net increase in the fleet; and (ii) the increase in net finance costs paid of $66.5 million as a result the increase in market interest rates and the additional debt drawdowns since January 1, 2022.
9
Our reliance on the spot market contributes to fluctuations in cash flows from operating activities as a result of its exposure to highly cyclical tanker rates. Any increase or decrease in the average freight rates earned by our vessels in periods subsequent to September 30, 2023, compared with the actual freight rates achieved during the nine months ended September 30, 2023, will have a positive or negative comparative impact, respectively, on the amount of cash provided by operating activities. We estimate that average daily cash break-even TCE rates for the remainder of 2023 will be approximately $28,200, $25,700 and $17,100 for our owned VLCCs, Suezmax tankers, and LR2/Aframax tankers, respectively. The estimated rates exclude the impact of the 24 VLCCs acquired from Euronav in the Acquisition. These are the daily rates our vessels must earn to cover budgeted operating expenses including dry dock expenses, estimated interest expenses, scheduled loan principal repayments, bareboat hire, time charter hire and net general and administrative expenses. These rates do not take into account capital expenditures.
Net cash used in investing activities
Net cash used in investing activities of $9.4 million in the nine months ended September 30, 2023 comprised mainly of capitalized additions of $153.5 million, primarily in respect of the additions related to the two newbuildings delivered in the nine months ended September 30, 2023, along with EGCS and BWTS upgrade costs. The cash used in investing activities was partially offset by the proceeds of $142.7 million from the sale of one VLCC and two Suezmax tankers in the period; and a $1.4 million cash inflow on repayment of a loan issued to TFG Marine.
Net cash provided by financing activities
Net cash used in financing activities of $715.4 million in the nine months ended September 30, 2023 was primarily due to debt repayments of $402.0 million and $572.1 million of cash dividends paid, partially offset by debt drawdowns of $259.4 million.
Debt restrictions
The Company's loan agreements contain loan-to-value clauses, which could require the Company to post additional collateral or prepay a portion of the outstanding borrowings should the value of the vessels securing borrowings under each of such agreements decrease below required levels. In addition, the loan agreements contain certain financial covenants, including the requirement to maintain a certain level of free cash, positive working capital and a value adjusted equity covenant. The Company is permitted to satisfy up to 50% of the cash requirement by maintaining a committed undrawn credit facility with a remaining availability of greater than 12 months. The Company did not satisfy any of the minimum cash requirement with a committed undrawn credit facility as of September 30, 2023 because the Company's senior unsecured facility agreement with an entity related to Hemen was repayable in May 2024.
Failure to comply with any of the covenants in the loan agreements could result in a default, which would permit the lender to accelerate the maturity of the debt and to foreclose upon any collateral securing the debt. If the lender were to take such actions, the Company might not have sufficient funds or other resources to satisfy its obligations. The Company was in compliance with all of the financial covenants contained in the Company's loan agreements as of September 30, 2023.
We believe that cash on hand and borrowings under our current and committed credit facilities, along with cash generated from operating activities will be sufficient to fund our requirements for, at least, the twelve months from the date of this interim report.
Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
The Company is exposed to the impact of interest rate changes primarily through its floating-rate borrowings that require the Company to make interest payments based on SOFR. Significant increases in interest rates could adversely affect operating margins, results of operations and ability to service debt. The Company uses interest rate swaps to reduce its exposure to market risk from changes in interest rates. The principal objective of these contracts
10
is to minimize the risks and costs associated with its floating-rate debt. The Company is exposed to the risk of credit loss in the event of non-performance by the counterparty to the interest rate swap agreements.
As of September 30, 2023, the Company's outstanding debt, which was at variable interest rates, net of the amount subject to interest rate swap agreements, was $1,654.1 million. Based on this, a one percentage point increase in annual interest rates would increase its annual interest expense by approximately $16.5 million, excluding the effects of capitalization of interest.
Foreign Currency Risk
The majority of the Company's transactions, assets and liabilities are denominated in U.S. dollars, its functional currency. Certain of its subsidiaries report in British pounds, Norwegian kroner or Singapore dollars and risks of two kinds arise as a result: a transaction risk, that is, the risk that currency fluctuations will have an effect on the value of cash flows; and a translation risk, which is the impact of currency fluctuations in the translation of foreign operations and foreign assets and liabilities into U.S. dollars in the condensed consolidated interim financial statements.
Inflation
Significant global inflationary pressures (such as the war between Russia and the Ukraine) increase operating, voyage, general and administrative, and financing costs. Historically, shipping companies are accustomed to navigating in shipping downturns, coping with inflationary pressures and monitoring costs to preserve liquidity, as they typically encourage suppliers and service providers to lower rates and prices.
Price Risk
Our exposure to equity securities price risk arises from marketable securities held by the Company which are listed equity securities and are carried at fair value through profit or loss ("FVTPL").
Interest Rate Swap Agreements
In February 2016, the Company entered into an interest rate swap with DNB whereby the floating interest on notional debt of $150.0 million was switched to a fixed rate, with a forward start date of February 2019. In March 2020, the Company entered into three interest rate swaps with DNB whereby the floating interest rate on notional debt totaling $250.0 million was switched to a fixed rate. In April 2020, the Company entered into two interest rate swaps with Nordea Bank Norge ("Nordea") whereby the floating interest rate on notional debt totaling $150.0 million was switched to a fixed rate. The reference rate for our interest rate swaps is SOFR. The aggregate fair value of these swaps as of September 30, 2023 was an asset of $52.3 million (December 2022: $54.0 million) and a payable of nil (December 2022: nil). Credit risk exists to the extent that the counterparty is unable to perform under the contracts, but this risk is considered remote as the counterparty is a bank, which participates in the loan facility to which the interest rate swaps are related. The Company recorded a gain on these interest swaps of $15.0 million in the nine months ended September 30, 2023 (2022: gain of $51.0 million).
11
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Matters discussed in this report and the documents incorporated by reference 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 plc. 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 documents, 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 and in the documents incorporated by reference 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, including central bank policies intended to combat overall inflation and rising interest rates and foreign exchange rates;
•general market conditions, including fluctuations in charter hire rates and vessel values;
•changes in the supply and demand for vessels comparable to ours and the number of newbuildings under construction;
•the highly cyclical nature of the industry that we operate in;
•the loss of a large customer or significant business relationship;
•changes in worldwide oil production and consumption and storage;
•changes in the Company's operating expenses, including bunker prices, dry docking, crew costs and insurance costs;
•planned, pending or recent acquisitions, business strategy and expected capital spending or operating expenses, including dry docking, surveys and upgrades;
•risks associated with any future vessel construction;
•our expectations regarding the availability of vessel acquisitions and our ability to complete acquisition transactions planned;
•our ability to successfully compete for and enter into new time charters or other employment arrangements for our existing vessels after our current time charters expire and our ability to earn income in the spot market;
•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 crew members other employees and the related labor costs;
•work stoppages or other labor disruptions by our employees or the employees of other companies in related industries;
•compliance with governmental, tax, environmental and safety regulation, any non-compliance with U.S. regulations;
12
•the impact of increasing scrutiny and changing expectations from investors, lenders and other market participants with respect to our Environmental, Social and Governance, or ESG, policies;
•Foreign Corrupt Practices Act of 1977, or 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, including the potential for technological innovation to reduce the value of our vessels and charter income derived therefrom;
•new environmental regulations and restrictions, whether at a global level stipulated by the International Maritime Organization, and/or imposed by regional or national authorities such as the European Union or individual countries;
•vessel breakdowns and instances of off-hire;
•the impact of an interruption in or failure of our information technology and communications systems, including the impact of cyber-attacks, upon our ability to operate;
•potential conflicts of interest involving members of our board of directors and senior management;
•the failure of counter parties to fully perform their contracts with us;
•changes in credit risk with respect to our counterparties on contracts;
•our dependence on key personnel and our ability to attract, retain and motivate key employees;
•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 Cyprus 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;
•government requisition of our vessels during a period of war or emergency;
•potential liability from pending or future litigation and potential costs due to environmental damage and vessel collisions;
•the arrest of our vessels by maritime claimants;
•general domestic and international political conditions or events, including “trade wars”;
•any further changes in U.S. trade policy that could trigger retaliatory actions by the affected countries;
•potential disruption of shipping routes due to accidents, environmental factors, political events, public health threats, international hostilities including the ongoing developments in the Ukraine region and the development in the Middle East, including the armed conflict in Israel and the Gaza Strip, acts by terrorists or acts of piracy on ocean-going vessels;
•the impact of adverse weather and natural disasters;
•the length and severity of epidemics and pandemics and their impacts on the demand for seaborne transportation of crude oil and refined products;
•the impact of port or canal congestion;
•the ability of the Company to complete the acquisition of 24 VLCCs from Euronav;
•business disruptions due to natural disasters or other disasters outside our control; and
•other important factors described from time to time in the reports filed by the Company with the Securities and Exchange Commission, or the 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 not guarantees of our future performance, and actual results and future developments may vary materially from those projected in the forward looking statements. Please see our Risk Factors in Item 3 of the Company's Annual Report on Form 20-F for the year ended December 31, 2022, filed with the Commission on April 28, 2023 for a more complete discussion of these and other risks and uncertainties.
13
Frontline plc
INDEX TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
| Page | |||||
Condensed Consolidated Statements of Profit or Loss for the nine and three months ended September 30, 2023 and September 30, 2022 (unaudited) | |||||
Condensed Consolidated Statements of Comprehensive Income for the nine and three months ended September 30, 2023 and September 30, 2022 (unaudited) | |||||
Condensed Consolidated Statements of Financial Position as of September 30, 2023 and December 31, 2022 (unaudited) | |||||
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and September 30, 2022 (unaudited) | |||||
Condensed Consolidated Statements of Changes in Equity for the nine months ended September 30, 2023 and September 30, 2022 (unaudited) | |||||
| Notes to the Unaudited Condensed Consolidated Interim Financial Statements | |||||
14
Frontline plc
Condensed Consolidated Statements of Profit or Loss for the nine and three months ended September 30, 2023 and September 30, 2022
(in thousands of $, except per share data)
| Nine months ended September 30 | Three months ended September 30 | ||||||||||||||||||||||
| Note | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Revenues and other operating income | |||||||||||||||||||||||
| Revenues | 5 | 1,387,180 | 900,067 | 377,085 | 382,186 | ||||||||||||||||||
| Other operating income | 5 | 24,080 | 7,589 | 400 | 1,944 | ||||||||||||||||||
| Total revenues and other operating income | 1,411,260 | 907,656 | 377,485 | 384,130 | |||||||||||||||||||
| Voyage expenses and commission | 460,488 | 428,249 | 145,051 | 173,343 | |||||||||||||||||||
| Ship operating expenses | 131,592 | 128,312 | 44,102 | 43,445 | |||||||||||||||||||
| Administrative expenses | 39,637 | 29,218 | 15,298 | 13,451 | |||||||||||||||||||
| Depreciation | 7 | 170,924 | 122,288 | 58,282 | 41,508 | ||||||||||||||||||
| Contingent rental income | — | (623) | — | — | |||||||||||||||||||
| Total operating expenses | 802,641 | 707,444 | 262,733 | 271,747 | |||||||||||||||||||
| Net operating income | 608,619 | 200,212 | 114,752 | 112,383 | |||||||||||||||||||
| Other income (expenses) | |||||||||||||||||||||||
| Finance income | 11,528 | 410 | 3,800 | 211 | |||||||||||||||||||
| Finance expense | (115,917) | (11,912) | (38,110) | (9,739) | |||||||||||||||||||
| Gain (loss) on marketable securities | 6 | (6,085) | 35,336 | 17,883 | 47,072 | ||||||||||||||||||
| Share of results of associated companies | 11 | 3,265 | 11,611 | (1,690) | 5,652 | ||||||||||||||||||
| Dividends received | 6 | 36,612 | 1,037 | 11,112 | 866 | ||||||||||||||||||
| Net other expenses | (70,597) | 36,482 | (7,005) | 44,062 | |||||||||||||||||||
| Profit before income taxes | 538,022 | 236,694 | 107,747 | 156,445 | |||||||||||||||||||
| Income tax benefit (expense) | 21 | (210) | (4) | (204) | |||||||||||||||||||
| Profit for the period | 538,043 | 236,484 | 107,743 | 156,241 | |||||||||||||||||||
| Basic and diluted earnings per share | 4 | $ | 2.42 | $ | 1.12 | $ | 0.48 | $ | 0.70 | ||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
15
Frontline plc
Condensed Consolidated Statements of Comprehensive Income for the nine and three months ended September 30, 2023 and September 30, 2022
(in thousands of $)
| Nine months ended September 30 | Three months ended September 30 | ||||||||||||||||||||||
| Note | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||
| Profit for the period | 538,043 | 236,484 | 107,743 | 156,241 | |||||||||||||||||||
| Items that may be reclassified to profit or loss: | |||||||||||||||||||||||
| Foreign currency translation gain (loss) | 79 | 268 | (52) | 72 | |||||||||||||||||||
| Other comprehensive income | 79 | 268 | (52) | 72 | |||||||||||||||||||
| Comprehensive income | 538,122 | 236,752 | 107,691 | 156,313 | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
16
Frontline plc
Condensed Consolidated Statements of Financial Position as of September 30, 2023 and December 31, 2022
(in thousands of $)
| Note | 2023 | 2022 | ||||||||||||
| ASSETS | ||||||||||||||
| Current assets | ||||||||||||||
| Cash and cash equivalents | 10 | 285,384 | 254,525 | |||||||||||
| Marketable securities | 6, 10 | 230,196 | 236,281 | |||||||||||
| Trade and other receivables | 10 | 145,276 | 139,467 | |||||||||||
| Related party receivables | 11 | 16,855 | 13,485 | |||||||||||
| Inventories | 106,086 | 107,114 | ||||||||||||
| Voyages in progress | 50,316 | 110,638 | ||||||||||||
| Prepaid expenses and accrued income | 15,319 | 14,255 | ||||||||||||
| Other current assets | 6,373 | 5,285 | ||||||||||||
| Total current assets | 855,805 | 881,050 | ||||||||||||
| Non-current assets | ||||||||||||||
| Newbuildings | 7 | — | 47,991 | |||||||||||
| Vessels and equipment | 7 | 3,564,317 | 3,650,652 | |||||||||||
| Right-of-use assets | 2,462 | 3,108 | ||||||||||||
| Goodwill | 112,452 | 112,452 | ||||||||||||
| Derivative instruments receivable | 10 | 52,329 | 53,993 | |||||||||||
| Investment in associated companies | 11 | 12,269 | 16,302 | |||||||||||
| Loan notes receivable | 10 | — | 1,388 | |||||||||||
| Other non-current assets | 381 | 1,507 | ||||||||||||
| Total assets | 4,600,015 | 4,768,443 | ||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| Current liabilities | ||||||||||||||
| Short-term debt and current portion of long-term debt | 9 | 365,035 | 277,854 | |||||||||||
| Current portion of obligations under leases | 8 | 1,090 | 1,024 | |||||||||||
| Related party payables | 11 | 46,608 | 31,248 | |||||||||||
| Trade and other payables | 10 | 64,208 | 81,533 | |||||||||||
| Total current liabilities | 476,941 | 391,659 | ||||||||||||
| Non-current liabilities | ||||||||||||||
| Long-term debt | 9 | 1,890,141 | 2,112,460 | |||||||||||
| Obligations under leases | 8 | 1,675 | 2,372 | |||||||||||
| Other non-current payables | 5,378 | 2,053 | ||||||||||||
| Total liabilities | 2,374,135 | 2,508,544 | ||||||||||||
| Equity | ||||||||||||||
Share capital (222,622,889 shares. 2022: 222,622,889. Par value $1.00) | 4 | 222,623 | 222,623 | |||||||||||
| Additional paid in capital | 604,687 | 604,687 | ||||||||||||
| Contributed surplus | 1,004,094 | 1,004,094 | ||||||||||||
| Accumulated other reserves | 533 | 454 | ||||||||||||
| Retained earnings | 394,415 | 428,513 | ||||||||||||
| Total equity attributable to the shareholders of the Company | 2,226,352 | 2,260,371 | ||||||||||||
| Non-controlling interest | (472) | (472) | ||||||||||||
| Total equity | 2,225,880 | 2,259,899 | ||||||||||||
| Total liabilities and equity | 4,600,015 | 4,768,443 | ||||||||||||
17
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
18
Frontline plc
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and September 30, 2022
(in thousands of $)
| Note | 2023 | 2022 | ||||||||||||
| Net cash provided by operating activities | 755,686 | 163,173 | ||||||||||||
| Additions to newbuildings, vessels and equipment | 7 | (153,516) | (253,931) | |||||||||||
| Proceeds from sale of vessels | 5 | 142,740 | 80,000 | |||||||||||
| Investment in associated company | — | (1,505) | ||||||||||||
| Cash inflow on repayment of loan to associated company | 11 | 1,388 | — | |||||||||||
| Net cash used in investing activities | (9,388) | (175,436) | ||||||||||||
| Proceeds from issuance of debt | 9 | 259,375 | 551,433 | |||||||||||
| Repayment of debt | 9 | (402,042) | (518,546) | |||||||||||
| Repayment of obligations under leases | (631) | (1,885) | ||||||||||||
| Lease termination payments | — | (4,456) | ||||||||||||
| Cash dividends paid | 4 | (572,141) | — | |||||||||||
| Net cash provided by (used in) financing activities | (715,439) | 26,546 | ||||||||||||
| Net change in cash and cash equivalents | 30,859 | 14,283 | ||||||||||||
| Cash and cash equivalents at beginning of period | 254,525 | 113,073 | ||||||||||||
| Cash and cash equivalents at end of period | 285,384 | 127,356 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
19
Frontline plc
Condensed Consolidated Statements of Changes in Equity for the nine months ended September 30, 2023 and September 30, 2022
(in thousands of $, except number of shares)
| Note | 2023 | 2022 | ||||||||||||
| Number of shares outstanding | ||||||||||||||
| Balance at beginning of the period | 222,622,889 | 203,530,979 | ||||||||||||
| Shares issued in connection with Euronav share acquisition | — | 19,091,910 | ||||||||||||
| Balance at end of the period | 4 | 222,622.889 | 222,622.889 | |||||||||||
| Share capital | ||||||||||||||
| Balance at beginning of the period | 222,623 | 203,531 | ||||||||||||
| Shares issued in connection with Euronav share acquisition | — | 19,092 | ||||||||||||
| Balance at end of the period | 4 | 222,623 | 222,623 | |||||||||||
| Additional paid in capital | ||||||||||||||
| Balance at beginning of the period | 604,687 | 448,291 | ||||||||||||
| Shares issued in connection with Euronav share acquisition | — | 156,396 | ||||||||||||
| Balance at end of the period | 604,687 | 604,687 | ||||||||||||
| Contributed surplus | ||||||||||||||
| Balance at beginning and end of the period | 1,004,094 | 1,004,094 | ||||||||||||
| Accumulated other reserves | ||||||||||||||
| Balance at beginning of the period | 454 | 228 | ||||||||||||
| Other comprehensive income | 79 | 268 | ||||||||||||
| Balance at end of the period | 533 | 496 | ||||||||||||
| Retained earnings (deficit) | ||||||||||||||
| Balance at beginning of the period | 428,513 | (13,631) | ||||||||||||
| Profit for the period | 538,043 | 236,484 | ||||||||||||
| Cash dividends | 4 | (572,141) | (33,393) | |||||||||||
| Balance at end of the period | 394,415 | 189,460 | ||||||||||||
| Total equity attributable to the shareholders of the Company | 2,226,352 | 2,021,360 | ||||||||||||
| Non-controlling interest | ||||||||||||||
| Balance at beginning and end of the period | (472) | (472) | ||||||||||||
| Total equity | 2,225,880 | 2,020,888 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
20
Frontline plc
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
1. BASIS OF PREPARATION
The Unaudited Condensed Consolidated Interim Financial Statements of Frontline plc (“Frontline” or the “Company”) have been prepared on the same basis as the Company’s Audited Consolidated Financial Statements and should be read in conjunction with the Annual Consolidated Financial Statements and accompanying Notes included in the Annual Report on Form 20-F for the year ended December 31, 2022, filed with the Securities and Exchange Commission on April 28, 2023. The results of operations for the interim period ended September 30, 2023 are not necessarily indicative of the results for the year ending December 31, 2023.
The Unaudited Condensed Consolidated Interim Financial Statements are prepared in accordance with IAS 34 Interim Financial Reporting. The Unaudited Condensed Consolidated Interim Financial Statements include the assets and liabilities of the Company and its subsidiaries.
These Unaudited Condensed Consolidated Interim Financial Statements were authorized for issue by the Board of Directors on December 12, 2023.
2. USE OF JUDGEMENTS AND ESTIMATES
The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.
The significant judgements made by management in applying the Company's accounting policies and the key sources of estimation uncertainty were the same as those described in the last annual financial statements.
Change in useful life of vessels
Historically the Company has applied a 25 year useful economic life to its vessels. The Company reviews estimated useful lives and residual values each year. Estimated useful lives may change due to changed end user requirements, costs related to maintenance and upgrades, technological development and competition as well as industry, environmental and legal requirements. Specifically, the Company has noted that many of our customers apply stringent vetting requirements to vessels to ensure that the most rigorous technical standards are adhered to in their value chain. As a result, many customers apply age criteria to the vessels they are willing to charter. In recent years, the Company has noted a two-tier market forming, with vessels under 20 years of age, or lower, favored by top tier charterers, and vessels over 20 years being considered candidates for recycling, or being utilized in markets other than the spot market in which we primarily compete. Furthermore, as a result of the increased focus on environmental factors for both owners and investors it is expected that the competitive age threshold for a vessel may decrease as costs to comply with upcoming regulations may increase moving forward. As of December 31, 2022, the Company revised the estimated useful life of its vessels from 25 years to 20 years as a result of its analysis of the aforementioned factors. This change in estimate was applied prospectively from January 1, 2023 and did not result in any restatement to the prior year consolidated financial statements. The change in estimated useful life increased depreciation expense by approximately $44.1 million in the nine months ended September 30, 2023.
3. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES
The Unaudited Condensed Consolidated Interim Financial Statements are prepared in accordance with the accounting policies, which are described in the Company's Annual Report on Form 20-F for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission on April 28, 2023.
New standards and interpretations adopted
21
During the current financial period, the Company has adopted all the new and revised Standards and Interpretations issued by the IASB and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB and effective for the accounting year starting on January 1, 2023. The Company has not applied or early adopted any new IFRS requirements that are not yet effective as per September 30, 2023.
The following new Standards, Interpretations and Amendments issued by the IASB and the IFRIC are effective for the current financial year end:
•IAS 8 Accounting policies, Changes in Accounting Estimates and Errors - Amendments regarding the definition of accounting estimates.
•IAS 1 Presentation of Financial Statements – Amendments regarding the disclosure of accounting policies and IFRS Practice Statement 2.
The adoption of these new standards, interpretations and amendments had no material effect on the financial statements.
4. EARNINGS PER SHARE
The authorized share capital of the Company as of September 30, 2023 is $600,000,000 divided into 600,000,000 shares of $1.00 par value each, of which 222,622,889 shares (December 31, 2022: 222,622,889 shares) of $1.00 par value each are in issue and fully paid.
The components of the numerator and the denominator in the calculation of basic and diluted earnings per share are as follows for the nine months ended September 30, 2023 and September 30, 2022:
| (in thousands of $) | 2023 | 2022 | ||||||
| Profit attributable to the shareholders of the Company | 538,043 | 236,484 | ||||||
| (in thousands) | ||||||||
| Weighted average number of basic and diluted shares | 222,623 | 211,109 | ||||||
| Cash dividends paid per share | $2.57 | — | ||||||
The components of the numerator and the denominator in the calculation of basic and diluted earnings per share are as follows for the three months ended September 30, 2023 and September 30, 2022:
| (in thousands of $) | 2023 | 2022 | ||||||
| Profit attributable to the shareholders of the Company | 107,743 | 156,241 | ||||||
| (in thousands) | ||||||||
| Weighted average number of basic and diluted shares | 222,623 | 222,623 | ||||||
| Cash dividends paid per share | $0.80 | — | ||||||
5. REVENUE AND OTHER OPERATING INCOME
The lease and non-lease components of our revenues in the nine months ended September 30, 2023 were as follows:
22
| (in thousands of $) | Lease | Non-lease | Total | ||||||||
| Time charter revenues | 38,527 | 10,253 | 48,780 | ||||||||
| Voyage charter revenues | 776,857 | 550,031 | 1,326,888 | ||||||||
| Administrative income | — | 11,512 | 11,512 | ||||||||
| Total revenues | 815,384 | 571,796 | 1,387,180 | ||||||||
The lease and non-lease components of our revenues in the nine months ended September 30, 2022 were as follows:
| (in thousands of $) | Lease | Non-lease | Total | ||||||||
| Time charter revenues | 40,528 | 24,490 | 65,018 | ||||||||
| Voyage charter revenues | 321,916 | 503,670 | 825,586 | ||||||||
| Administrative income | — | 9,463 | 9,463 | ||||||||
| Total revenues | 362,444 | 537,623 | 900,067 | ||||||||
The lease and non-lease components of our revenues in the three months ended September 30, 2023 were as follows:
| (in thousands of $) | Lease | Non-lease | Total | ||||||||
| Time charter revenues | 14,153 | 3,719 | 17,872 | ||||||||
| Voyage charter revenues | 185,154 | 170,685 | 355,839 | ||||||||
| Administrative income | — | 3,374 | 3,374 | ||||||||
| Total revenues | 199,307 | 177,778 | 377,085 | ||||||||
The lease and non-lease components of our revenues in the three months ended September 30, 2022 were as follows:
| (in thousands of $) | Lease | Non-lease | Total | ||||||||
| Time charter revenues | 12,039 | 4,528 | 16,567 | ||||||||
| Voyage charter revenues | 160,618 | 201,773 | 362,391 | ||||||||
| Administrative income | — | 3,228 | 3,228 | ||||||||
| Total revenues | 172,657 | 209,529 | 382,186 | ||||||||
Other operating income for the nine months ended September 30, 2023 and September 30, 2022 were as follows:
| (in thousands of $) | 2023 | 2022 | ||||||
| Loss on termination of vessel lease | — | (431) | ||||||
| Gain on sale of vessels | 21,959 | 4,618 | ||||||
| Gain on settlement of claim | 397 | 3,998 | ||||||
| Gain (loss) on pool arrangements | 1,683 | (613) | ||||||
| Other gains | 41 | 17 | ||||||
| Total other operating income | 24,080 | 7,589 | ||||||
Other operating income for the three months ended September 30, 2023 and September 30, 2022 were as follows:
23
| (in thousands of $) | 2023 | 2022 | ||||||
| Gain on settlement of claim | — | 2,796 | ||||||
| Gain (loss) on pool arrangements | 400 | (861) | ||||||
| Other gains | — | 9 | ||||||
| Total other operating income | 400 | 1,944 | ||||||
In January 2023, the Company sold the 2009-built VLCC, Front Eminence, and the 2009-built Suezmax tanker, Front Balder, for gross proceeds of $61.0 million and $39.5 million, respectively. The vessels were delivered to new owners in January and February 2023, respectively. After repayment of existing debt on the vessels, the transactions generated net cash proceeds of $63.6 million, and the Company recorded a gain on sale of $9.9 million and $2.8 million, respectively, in the nine months ended September 30, 2023.
In May 2023, the Company sold the 2010-built Suezmax tanker, Front Njord, for gross proceeds of $44.5 million. The vessel was delivered to the new owner in June 2023. After repayment of existing debt on the vessel, the transaction generated net cash proceeds of $28.2 million, and the Company recorded a gain on sale of $9.3 million in the nine months ended September 30, 2023.
In the nine months ended September 30, 2023, the Company recorded a gain on pool arrangements of $1.7 million (2022: loss of $0.6 million). In the nine months ended September 30, 2023, the Company recorded a gain related to an arbitration award of $0.4 million gain (2022: $2.5 million) in relation to the failed sale of Dewi Maeswara. In the nine months ended September 30, 2022, the Company recorded a $1.5 million gain on the settlement of insurance claims for Front Altair.
6. MARKETABLE SECURITIES
A summary of the movements in marketable securities for the nine months ended September 30, 2023 and the year ended December 31, 2022 is presented in the table below:
| (in thousands of $) | 2023 | 2022 | ||||||
| Balance at beginning of period | 236,281 | 2,435 | ||||||
| Marketable securities acquired | — | 167,709 | ||||||
| Unrealized gain (loss) on marketable securities held at period end | (6,085) | 66,137 | ||||||
| Balance at end of period | 230,196 | 236,281 | ||||||
Avance Gas
As of September 30, 2023, the Company held 442,384 shares in Avance Gas Holdings Ltd ("Avance Gas"). In the nine months ended September 30, 2023, the Company recognized an unrealized gain of $2.1 million in relation to these shares.
SFL
As of September 30, 2023, the Company held 73,165 shares in SFL Corporation Ltd. (“SFL”). In the nine months ended September 30, 2023, the Company recognized an unrealized gain of $0.1 million in relation to these shares.
Golden Ocean
As of September 30, 2023, the Company held 10,299 shares in Golden Ocean Group Limited ("Golden Ocean").
Euronav
As of September 30, 2023, the Company held 13,664,613 shares in Euronav. In the nine months ended September 30, 2023, the Company recognized an unrealized loss of $8.3 million in relation to these shares. The Company received dividends of $35.9 million from Euronav in the nine months ended September 30, 2023.
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7. VESSELS AND EQUIPMENT
Movements in the nine months ended September 30, 2023 are summarized as follows;
| (in thousands of $) | Vessels and equipment | Drydock component | Net Carrying Value | ||||||||
| Cost | |||||||||||
| Balance at January 1, 2023 | 4,390,718 | 126,437 | 4,517,155 | ||||||||
| Additions | 5,172 | 5,429 | 10,601 | ||||||||
| Transferred from newbuildings | 191,133 | 2,756 | 193,889 | ||||||||
| Disposals | (230,194) | (7,641) | (237,835) | ||||||||
| Balance at September 30, 2023 | 4,356,829 | 126,981 | 4,483,810 | ||||||||
| Accumulated depreciation | |||||||||||
| Balance at January 1, 2023 | (790,346) | (76,157) | (866,503) | ||||||||
| Charge for the period | (157,149) | (13,130) | (170,279) | ||||||||
| Disposals | 111,518 | 5,771 | 117,289 | ||||||||
| Balance at September 30, 2023 | (835,977) | (83,516) | (919,493) | ||||||||
| Net book value | |||||||||||
| Balance at September 30, 2023 | 3,520,852 | 43,465 | 3,564,317 | ||||||||
In the nine months ended September 30, 2023, the Company sold one VLCC tanker, Front Eminence, two Suezmax tankers, Front Balder and Front Njord and took delivery of two VLCC newbuildings, Front Orkla and Front Tyne. The Company also completed the installation of Exhaust Gas Cleaning Systems on two vessels in the period and three vessels underwent drydock surveys.
8. LEASES
The Company is committed to make rental payments under leases for office premises. Certain of these leases include variable lease elements linked to inflation indices. Such variable payments have been estimated at the time of recognition on the index at that time and are included in the minimum lease payments.
Rental expense
The future minimum rental payments under the Company's leases as of September 30, 2023 are as follows:
| (in thousands of $) | ||||||||
| Year 1 | 1,146 | |||||||
| Year 2 | 1,364 | |||||||
| Year 3 | 339 | |||||||
| Total minimum lease payments | 2,849 | |||||||
| Less: Imputed interest | (84) | |||||||
| Present value of obligations under leases | 2,765 | |||||||
The future minimum rental payments under the Company's leases as of December 31, 2022 are as follows:
25
| (in thousands of $) | ||||||||
| 2023 | 1,103 | |||||||
| 2024 | 1,206 | |||||||
| 2025 | 1,237 | |||||||
| Total minimum lease payments | 3,546 | |||||||
| Less: Imputed interest | (150) | |||||||
| Present value of obligations under leases | 3,396 | |||||||
Rental income
Four LR2 tankers were on fixed rate time charters as of September 30, 2023, two of which commenced in the nine months ended September 30, 2023. The minimum future revenues to be received under the fixed rate element of our contracts as of September 30, 2023 are as follows:
| (in thousands of $) | ||||||||
| Year 1 | 58,194 | |||||||
| Year 2 | 43,529 | |||||||
| Year 3 | 1,994 | |||||||
| Total minimum lease payments | 103,717 | |||||||
Two of the LR2 tankers on fixed rate time charter as of September 30, 2023 have an option for a 1 year extension.
The cost and accumulated depreciation of vessels leased to third parties under time charters as of September 30, 2023 were $206.1 million and $33.6 million, respectively, and as of December 31, 2022 were $100.1 million and $3.9 million, respectively.
9. INTEREST BEARING LOANS AND BORROWINGS
Movements in the nine months ended September 30, 2023 are summarized as follows:
| (in thousands of $) | December 31, 2022 | Proceeds | Repayments | September 30, 2023 | ||||||||||||||||||||||
| Total U.S. dollar denominated floating rate debt | 2,184,228 | 259,375 | (267,642) | 2,175,965 | ||||||||||||||||||||||
| Total U.S. dollar denominated fixed rate debt | 209,700 | — | (134,400) | 75,300 | ||||||||||||||||||||||
Debt issuance costs | (23,113) | (20,277) | ||||||||||||||||||||||||
| Accrued interest expense | 19,499 | 24,188 | ||||||||||||||||||||||||
| Total debt | 2,390,314 | 259,375 | (402,042) | 2,255,176 | ||||||||||||||||||||||
| Short-term debt and current portion of long-term debt | 277,854 | 365,035 | ||||||||||||||||||||||||
| Long-term portion of debt | 2,112,460 | 259,375 | (402,042) | 1,890,141 | ||||||||||||||||||||||
In January 2023, the Company drew down $65.0 million under its senior secured term loan facility with Credit Agricole to partially of the 2023 built VLCC Front Orkla. The facility has a tenor of five years, carries an interest rate of the Secured Overnight Financing Rate ("SOFR") plus Credit Adjustment Spread ("CAS") and a margin of 170 basis points and has an amortization profile of 18 years commencing on the delivery date from the yard. The facility was fully drawn down in January 2023.
In January 2023, the Company drew down $65.0 million under its senior secured term loan facility with KFW to partially finance the delivery of the 2023 built VLCC Front Tyne. The facility has a tenor of five years, carries an
26
interest rate of SOFR plus CAS and a margin of 170 basis points and has an amortization profile of 20 years commencing on the delivery date from the yard. The facility was fully drawn in January 2023.
In May 2023, the Company entered into a senior secured term loan facility in an amount of up to $129.4 million from ING to refinance an existing term loan facility with total balloon payments of $80.1 million due in August 2023. The new facility has a tenor of five years, carries an interest rate of SOFR plus a margin of 180 basis points, and has an amortization profile of 18 years commencing on the delivery date from the yard. The facility includes sustainability margin adjustment linked to the fleet sustainability score. The existing facility carried an interest rate of London Interbank Offered Rate ("LIBOR") plus a margin of 190 basis points. The facility was fully drawn down in June 2023.
In February and June 2023, the Company repaid $60.0 million and $74.4 million, respectively, of its $275.0 million senior unsecured credit facility with an affiliate of Hemen. Up to $199.7 million remains available to be drawn following the repayment.
Due to the discontinuance of LIBOR after June 30, 2023, the Company has entered into amendments to existing loan agreements with an aggregate outstanding principal of $1,755.8 million as of September 30, 2023, for the transition from LIBOR to SOFR. The weighted average CAS of these amendment agreements is 16 basis points based on a three-month interest period. The amendments to our loan agreements, which are measured at amortized cost using the effective interest method, were accounted for as an adjustment to the effective interest rate which did not have a significant effect on the carrying amount of the loans.
Debt issuance costs
The Company has recorded debt issuance costs of $20.3 million as of September 30, 2023 (December 31, 2022: $23.1 million) as a deduction from the carrying amount of the related debt.
Debt restriction
The Company's loan agreements contain loan-to-value clauses, which could require the Company to post additional collateral or prepay a portion of the outstanding borrowings should the value of the vessels securing borrowings under each of such agreements decrease below required levels. In addition, the loan agreements contain certain financial covenants, including the requirement to maintain a certain level of free cash, positive working capital and a value adjusted equity covenant.
The Company was in compliance with all of the financial covenants contained in the Company's loan agreements as of September 30, 2023 and December 31, 2022.
Assets pledged
| (in thousands of $) | September 30, 2023 | December 31, 2022 | ||||||
| Vessels | 3,564,048 | 3,650,325 | ||||||
10. FINANCIAL INSTRUMENTS - FAIR VALUES AND RISK MANAGEMENT
Interest rate swap agreements
In February 2016, the Company entered into an interest rate swap with DNB whereby the floating interest on notional debt of $150.0 million was switched to a fixed rate. The contract had a forward start date of February 2019.
In March 2020, the Company entered into three interest rate swaps with DNB whereby the floating interest rate on notional debt totaling $250.0 million was switched to a fixed rate.
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In April 2020, the Company entered into two interest rate swaps with Nordea whereby the floating interest rate on notional debt totaling $150.0 million was switched to a fixed rate.
Due to the discontinuance of LIBOR after June 30, 2023, the reference rate for our interest rate swaps, which are measured at fair value through profit or loss, has been transitioned from LIBOR to SOFR plus a CAS of 26 basis points which did not affect the accounting for these derivatives.
As of September 30, 2023, the Company recorded a derivative instruments receivable of $52.3 million (December 31, 2022: $54.0 million) and no derivative instrument payable (December 31, 2022: nil) in relation to these agreements. The Company recorded a gain on derivatives of $15.0 million in the nine months ended September 30, 2023 (2022: gain of $51.0 million) in relation to these agreements.
The interest rate swaps are not designated as hedges and are summarized as of September 30, 2023 as follows:
| Notional Amount | Inception Date | Maturity Date | Fixed Interest Rate | ||||||||
| ($000s) | |||||||||||
| 150,000 | February 2016 | February 2026 | 2.1970 | % | |||||||
| 100,000 | March 2020 | March 2027 | 0.9750 | % | |||||||
| 50,000 | March 2020 | March 2027 | 0.6000 | % | |||||||
| 100,000 | March 2020 | March 2025 | 0.9000 | % | |||||||
| 100,000 | April 2020 | April 2027 | 0.5970 | % | |||||||
| 50,000 | April 2020 | April 2025 | 0.5000 | % | |||||||
| 550,000 | |||||||||||
Fair Values
The carrying value and estimated fair value of the Company's financial assets and liabilities as of September 30, 2023 and December 31, 2022 are as follows:
| 2023 | 2022 | ||||||||||||||||
(in thousands of $) | Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
| Financial assets measured at fair value through profit or loss | |||||||||||||||||
| Derivative instruments receivable - non-current | 52,329 | 52,329 | 53,993 | 53,993 | |||||||||||||
| Marketable securities | 230,196 | 230,196 | 236,281 | 236,281 | |||||||||||||
| Financial assets not measured at fair value | |||||||||||||||||
| Cash and cash equivalents | 285,384 | 285,384 | 254,525 | 254,525 | |||||||||||||
| Receivables | 145,276 | 145,276 | 139,467 | 139,467 | |||||||||||||
| Loan notes receivable | — | — | 1,388 | 1,388 | |||||||||||||
| Financial liabilities not measured at fair value | |||||||||||||||||
| Trade and other payables | 64,208 | 64,208 | 81,533 | 81,533 | |||||||||||||
| Floating rate debt | 2,199,088 | 2,199,088 | 2,201,543 | 2,201,543 | |||||||||||||
| Fixed rate debt | 76,367 | 76,775 | 211,884 | 212,203 | |||||||||||||
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The estimated fair value of financial assets and liabilities as of September 30, 2023 are as follows:
(in thousands of $) | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Financial assets measured at fair value through profit or loss | |||||||||||||||||
| Derivative instruments receivable - non-current | 52,329 | — | 52,329 | — | |||||||||||||
| Marketable securities | 230,196 | 230,196 | — | — | |||||||||||||
| Financial assets not measured at fair value | |||||||||||||||||
| Cash and cash equivalents | 285,384 | 285,384 | — | — | |||||||||||||
| Financial liabilities not measured at fair value | |||||||||||||||||
| Floating rate debt | 2,199,088 | — | 2,199,088 | — | |||||||||||||
| Fixed rate debt | 76,775 | — | — | 76,775 | |||||||||||||
The estimated fair value of financial assets and liabilities as of December 31, 2022 are as follows:
(in thousands of $) | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Financial assets measured at fair value through profit or loss | |||||||||||||||||
| Derivative instruments receivable - non-current | 53,993 | — | 53,993 | — | |||||||||||||
| Marketable securities | 236,281 | 236,281 | — | — | |||||||||||||
| Financial assets not measured at fair value | |||||||||||||||||
| Cash and cash equivalents | 254,525 | 254,525 | — | — | |||||||||||||
| Loan notes receivable | 1,388 | — | 1,388 | — | |||||||||||||
| Financial liabilities not measured at fair value | |||||||||||||||||
| Floating rate debt | 2,201,543 | — | 2,201,543 | — | |||||||||||||
| Fixed rate debt | 212,203 | — | — | 212,203 | |||||||||||||
Measurement of fair values
Valuation techniques and significant unobservable inputs
The following tables show the valuation techniques used in measuring Level 1, Level 2 and Level 3 fair values, as well as the significant unobservable inputs that were used.
| Financial instruments measured at fair value | |||||||||||
| Type | Valuation Techniques | Significant unobservable inputs | |||||||||
| Interest rate swaps | Fair value was determined based on the market value. | Not applicable. | |||||||||
| Marketable securities | Fair value was determined based on the quoted price of the securities. | Not applicable. | |||||||||
| Financial instruments not measured at fair value | |||||||||||
| Type | Valuation Techniques | Significant unobservable inputs | |||||||||
| Floating rate debt | Discounted cash flow. | Not applicable. | |||||||||
| Fixed rate debt | Discounted cash flow. | Discount rate. | |||||||||
Assets Measured at Fair Value on a Recurring Basis
29
The fair value (level 2) of interest rate swaps is the present value of the estimated future cash flows that the Company would receive or pay to terminate the agreements at the statement of financial position date, taking into account, as applicable, fixed interest rates on interest rate swaps, current interest rates, forward rate curves and the credit worthiness of both the Company and the derivative counterparty.
Marketable securities are listed equity securities for which the fair value as of the statement of financial position date is the aggregate market value based on quoted market prices (level 1).
There were no transfers between these levels in 2023 and 2022.
Financial risk management
In the course of its normal business, the Company is exposed to the following risks:
•Credit risk
•Liquidity risk
•Market risk (interest rate risk, foreign currency risk, and price risk)
The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Company's risk management framework.
Capital management
We operate in a capital intensive industry and have historically financed our purchase of tankers and other capital expenditures through a combination of cash generated from operations, equity capital and borrowings from commercial banks. Our ability to generate adequate cash flows on a short and medium term basis depends substantially on the trading performance of our vessels in the market. Our funding and treasury activities are conducted within corporate policies to increase investment returns while maintaining appropriate liquidity for our requirements.
The Company’s objectives when managing capital are to:
•safeguard our ability to continue as a going concern, so that we can continue to provide returns for shareholders and benefits for other stakeholders, and
•maintain an optimal capital structure to reduce the cost of capital.
The Company's loan agreements contain loan-to-value clauses, which could require the Company to post additional collateral or prepay a portion of the outstanding borrowings should the value of the vessels securing borrowings under each of such agreements decrease below required levels. In addition, the loan agreements contain certain financial covenants, including the requirement to maintain a certain level of free cash, positive working capital and a value adjusted equity covenant. Failure to comply with any of the covenants in the loan agreements could result in a default, which would permit the lender to accelerate the maturity of the debt and to foreclose upon any collateral securing the debt.
11. RELATED PARTY TRANSACTIONS AND AFFILIATED COMPANIES
We transact business with the following related parties and affiliated companies, being companies in which Hemen and companies associated with Hemen have a significant interest: SFL, Seatankers Management Norway AS, Seatankers Management Co. Ltd, Golden Ocean, Alta Trading UK Limited, Archer Limited, Flex LNG Ltd, Avance Gas and Front Ocean Management AS. We also own interests in TFG Marine and Clean Marine AS (through our interest in FMS Holdco) which are accounted for as equity method investments.
SFL Transactions
30
In January 2014, the Company commenced a pooling arrangement with SFL, between two of its Suezmax tankers Front Odin and Front Njord and two SFL vessels Glorycrown and Everbright. The Company recognized a gain of $1.7 million in the nine months ended September 30, 2023 in relation to this pooling arrangement (2022: loss of $0.6 million).
As of September 30, 2023, Front Njord, Glorycrown and Everbright have been sold and redelivered to their respective new owners resulting in the termination of the pooling arrangement.
Transactions with associated companies
A share of profits of TFG Marine of $2.6 million was recognized in the nine months ended September 30, 2023. (2022: profit of $12.2 million). The Company also entered into a bunker supply arrangement with TFG Marine, under which it has paid $284.5 million to TFG Marine in the nine months ended September 30, 2023 and $24.1 million remained due as of September 30, 2023. In the nine months ended September 30, 2023 the Company received $1.4 million in loan repayment and $7.3 million in dividends from TFG Marine.
A share of profits of FMS Holdco of $0.6 million was recognized in the nine months ended September 30, 2023 (2022: loss of $0.6 million).
Transactions with other entities related to Hemen
The Company recognized interest expense of $10.3 million in the nine months ended September 30, 2023 (2022: $9.9 million) in relation to senior unsecured revolving credit facility of up to $275.0 million with an entity related to Hemen. $199.7 million remains available and undrawn under this facility as of September 30, 2023.
A summary of income (expenses) from related party transactions for the nine months ended September 30, 2023 and September 30, 2022 are as follows:
| (in thousands of $) | 2023 | 2022 | ||||||
| Seatankers Management Co. Ltd | 1,034 | 463 | ||||||
| SFL | 1,607 | 2,125 | ||||||
| Golden Ocean | 3,267 | 2,302 | ||||||
| Flex LNG Ltd | 1,088 | 960 | ||||||
| Seatankers Management Norway AS | (713) | (405) | ||||||
| Avance Gas | 1,543 | 1,632 | ||||||
| TFG Marine | 828 | 607 | ||||||
| Front Ocean Management | (1,824) | (1,467) | ||||||
| Other related parties | 6 | 9 | ||||||
A summary of income (expenses) from related party transactions for the three months ended September 30, 2023 and September 30, 2022 are as follows:
31
| (in thousands of $) | 2023 | 2022 | ||||||
| Seatankers Management Co. Ltd | 220 | 150 | ||||||
| SFL | 621 | 262 | ||||||
| Golden Ocean | 1,009 | 709 | ||||||
| Flex LNG Ltd | 253 | 273 | ||||||
| Seatankers Management Norway AS | (162) | (120) | ||||||
| Avance Gas | 501 | 522 | ||||||
| TFG Marine | 186 | 190 | ||||||
| Front Ocean Management | (552) | (513) | ||||||
Amounts earned from related parties comprise office rental income, technical and commercial management fees, newbuilding supervision fees, freights, administrative services and interest income. Amounts paid to related parties comprise primarily rental for office space, support staff costs, and corporate administration fees.
Related party balances
A summary of balances due from related parties as of September 30, 2023 and December 31, 2022 is as follows:
| (in thousands of $) | 2023 | 2022 | ||||||
| SFL | 4,433 | 3,505 | ||||||
| Seatankers Management Co. Ltd | 417 | 1,368 | ||||||
| Alta Trading UK Limited | — | 60 | ||||||
| Golden Ocean | 10,129 | 6,964 | ||||||
| Flex LNG Ltd | 305 | 303 | ||||||
| Avance Gas | 634 | 695 | ||||||
| TFG Marine | 842 | 28 | ||||||
| Front Ocean Management | — | 473 | ||||||
| Other related parties | 95 | 89 | ||||||
| 16,855 | 13,485 | |||||||
A summary of balances due to related parties as of September 30, 2023 and December 31, 2022 is as follows:
| (in thousands of $) | 2023 | 2022 | ||||||
| SFL | 7,158 | 6,702 | ||||||
| Seatankers Management Co. Ltd | 655 | 351 | ||||||
| Avance Gas | 866 | 450 | ||||||
| Flex LNG Ltd | 693 | 158 | ||||||
| Golden Ocean | 13,100 | 8,470 | ||||||
| TFG Marine | 24,126 | 14,831 | ||||||
| Front Ocean Management | 10 | 286 | ||||||
| 46,608 | 31,248 | |||||||
See Notes 6, 9 and 12 for details regarding other related party transactions and balances.
32
12. COMMITMENTS AND CONTINGENCIES
The Company insures the legal liability risks for its shipping activities with mutual protection and indemnity associations, who are members of the International Group of P&I Clubs. As a member of these mutual associations, the Company is subject to calls payable to the associations based on the Company's claims record in addition to the claims records of all other members of the associations. A contingent liability exists to the extent that the claims records of the members of the associations in the aggregate show significant deterioration, which result in additional calls on the members.
The Company is a party, as plaintiff or defendant, to several lawsuits in various jurisdictions for unpaid charter hire, demurrage, damages, off-hire and other claims and commercial disputes arising from the operation of its vessels, in the ordinary course of business or in connection with its acquisition activities. The Company believes that the resolution of such claims will not have a material adverse effect on the Company's operations, cash flows or financial condition individually and in the aggregate.
As of September 30, 2023, the Company has agreed to provide a $60.0 million guarantee in respect of the performance of its subsidiaries, and two subsidiaries of an affiliate of Hemen, under a bunker supply arrangement with TFG Marine. As of September 30, 2023, there are no amounts payable under this guarantee. In addition, should TFG Marine be required to provide a parent company guarantee to its bunker suppliers or finance providers then for any guarantee that is provided by the Trafigura Group and becomes payable, Frontline shall pay a pro rata amount based on its share of the equity in TFG Marine. The maximum liability under this guarantee is $6.0 million and there are no amounts payable under this guarantee as of September 30, 2023.
The Company has entered into forward bunker purchase arrangements with TFG Marine, a related party, which obligate the Company to purchase and take delivery of minimum quantities of low sulfur and high sulfur bunker fuel, at fixed prices, over the period from January 2023 to December 2024. As of September 30, 2023, the total remaining commitment amounted to $38.3 million, $9.4 million of which is expected to be paid in 2023 and $28.9 million of which is expected to be paid in 2024.
As of September 30, 2023, there are no remaining vessels in the Company’s newbuilding program and there are no remaining commitments.
13. SUBSEQUENT EVENTS
On October 9, 2023, Frontline entered into a Framework Agreement with Euronav (the "Acquisition"). Pursuant to the Framework Agreement, the Company agreed to purchase 24 VLCCs with an average age of 5.3 years, for an aggregate purchase price of $2,350.0 million from Euronav. All of the agreements relating to the Acquisition came into effect in November 2023. A majority of the vessels are expected to be delivered in the fourth quarter of 2023 and the balance of the vessels are expected to be delivered in the first quarter of 2024. As of the date of this report six vessels have been delivered for an aggregate purchase price of $553.0 million. The Company drew down $331.8 million under its senior secured term loan facility in an amount of up to $1,410.0 million with a group of our relationship banks to partly finance the deliveries.
On October 9, 2023, Frontline announced that it had agreed on an integrated solution to the strategic and structural deadlock in Euronav, where Frontline entered into agreements with Euronav for the Acquisition. In connection with the Acquisition, Frontline and Famatown Finance Limited, a company related to Hemen, (“Famatown”) had agreed to sell all their shares in Euronav (representing in aggregate 26.12% of Euronav’s issued shares) to CMB at a price of $18.43 per share.
In November 2023, all conditions precedent to the Share Sale, including approval of the inter-conditionality of the Share Sale and the Acquisition by the Euronav shareholders and receipt of anti-trust approvals, were fulfilled. The Share Sale has successfully closed and Frontline and Famatown are no longer shareholders in Euronav. The Company's proceeds of $252.0 million from the Share Sale will be used to partly finance the Acquisition.
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As part of the overall agreements, the arbitration action filed by Euronav in January 2023 following Frontline’s withdrawal from their combination agreement has also been effectively terminated, against nil cash consideration.
In October 2023, the Company extended its $275.0 million senior unsecured revolving credit facility with an affiliate of Hemen, the Company's largest shareholder, by 20 months to January 4, 2026, at an interest rate of 10.0% and otherwise on existing terms. Up to $199.7 million remains available to be drawn as per September 30, 2023 and the Company has drawn $99.7 million in December 2023 to partly finance the Acquisition.
In November 2023, the Company entered into two senior secured term loan facilities in an amount of up to $124.1 million with Deka Bank to refinance an existing term loan facility with total balloon payments of $89.0 million due in January 2024. The new facilities have a tenor of four and six years, respectively, carry an interest rate of the SOFR plus a margin of 171 basis points and have an amortization profile of 18 years commencing on the delivery year from the yard. The Company intends to use the expected net cash proceeds from the refinancing of $33.7 million to partly finance the Acquisition.
In November 2023, the Company entered into a senior secured term loan facility in an amount of up to $1,410.0 million with a group of our relationship banks to partly finance the Acquisition. The new facility has a tenor of five years, carries an interest rate of SOFR plus a margin in line with the Company’s existing loan facilities and has an amortization profile of 20 years commencing on the delivery date from the yard.
In November 2023, the Company entered into a subordinated unsecured shareholder loan in an amount of up to $539.9 million with Hemen to partly finance the Acquisition. The facility has a tenor of five years and carries an interest rate of SOFR plus a margin equal to the $1,410.0 million facility, in line with the Company’s existing loan facilities.
The Board of Directors declared a dividend of $0.30 per share for the third quarter of 2023. The record date for the dividend will be December 15, 2023, the ex-dividend date is expected to be December 14, 2023 and the dividend is scheduled to be paid on or about December 29, 2023.
In November and December 2023, the Company entered into additional forward bunker purchase agreements with TFG Marine, a related party, which obligate the Company to purchase and take delivery of minimum quantities of low sulfur and high sulfur bunker fuel, at fixed prices, over the period from January 2024 to December 2024. The total commitment amounted to $24.6 million which is expected to be paid in 2024.
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