Frontline plc — 2022 Annual Report (Form 20-F)
Reporting period: Fiscal year ended December 31, 2022; filed April 28, 2023. This is an annual report, not a standalone 2022 fourth-quarter report. Financial statements are prepared under IFRS as issued by the IASB; 2021 comparatives were recast for the company’s first-time IFRS adoption.
Business context
Frontline owns and operates crude oil and refined-product tankers. At year-end it owned 66 vessels (21 VLCCs, 27 Suezmax and 18 LR2/Aframax) and commercially managed four more. Of the owned fleet, 64 vessels were in the spot market or on short-term/variable-rate charters and two LR2 tankers were on fixed-rate time charters. The company redomiciled from Bermuda to Cyprus in December 2022; its shares continued trading as FRO on the NYSE and Oslo Stock Exchange.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Operating revenues | $1,430.2 million | $749.4 million |
| Net operating income | $445.6 million | $8.5 million |
| Profit (loss) for the year | $475.5 million | $(15.0) million |
| Basic and diluted EPS | $2.22 | $(0.08) |
| Net cash from operating activities | $385.3 million | $85.3 million |
| Cash and cash equivalents at year-end | $254.5 million | $113.1 million |
- Revenue rose 90.9%, principally as tanker market rates strengthened and more vessels traded on voyages rather than lower-rate time charters. Voyage charter revenue increased 102.7% to $1,346.0 million; voyage expenses rose 54.2% to $605.5 million, including higher bunker costs.
- Net operating margin was approximately 31.2% of operating revenue, compared with approximately 1.1% in 2021. Net profit margin was approximately 33.3%; both figures are calculated from reported revenue and income.
- Finance expense was $45.3 million, versus $44.2 million, despite higher interest expense, as gains on interest-rate swaps increased to $53.6 million. A 1 percentage-point increase in LIBOR/SOFR on net unhedged variable-rate debt was estimated to add about $16.3 million to annual interest expense.
- Net cash used in investing was $257.3 million, mainly reflecting $335.8 million of vessel, newbuilding and equipment additions, offset in part by $80.0 million of vessel-sale proceeds. Net cash from financing was $13.4 million; debt drawdowns of $651.2 million were largely offset by $597.8 million of repayments and $33.4 million of dividends paid.
- Year-end total debt on the balance sheet was $2,390.3 million, including accrued interest and net of debt issuance costs; cash less this amount was approximately $2,135.8 million. Total equity was $2,259.9 million. Current assets were $881.1 million and current liabilities $391.7 million.
- The company reported $236.3 million of marketable securities, primarily Euronav shares, and a $54.0 million interest-rate-swap asset. Its reported profit included a $58.4 million gain on marketable securities and $14.2 million of share-of-results income from associates.
Changes, outlook and material matters
- Improved tanker rates drove the sharp year-over-year earnings and operating-cash-flow recovery. Estimated average 2022 spot TCE rates cited for standard routes increased to $16,900/day for VLCCs, $29,000/day for Suezmax and $33,800/day for LR2, from $(520), $3,500 and $5,900, respectively, in 2021.
- Management described tanker rates as volatile and expected continued market volatility. The filing gives no specific company earnings or rate guidance. Management believed cash on hand, committed facilities and operating cash flow would fund requirements for at least 12 months from the report date.
- The company shortened its estimated vessel useful life from 25 to 20 years prospectively from January 1, 2023. It expects this estimate change to increase 2023 depreciation by approximately $59 million; no prior-year restatement was made.
- Two scrubber-fitted VLCC newbuildings were delivered in January 2023. Two older vessels were sold in January/February 2023 for gross proceeds of approximately $100.5 million in total; estimated net proceeds after debt repayment were $63.6 million, with expected gains of $9.7 million and $2.0 million.
- Frontline terminated its proposed stock-for-stock combination with Euronav in January 2023. Euronav’s emergency arbitration claims were dismissed in February, but arbitration on the merits of the termination remained pending as of the report date. Frontline held 13.7 million Euronav shares at year-end.
- Russia-related sanctions and redirected oil trade affected shipping routes and ton-miles; the company noted uncertainty about future market effects. Other significant risks include spot-rate and vessel-value volatility, fuel and operating costs, counterparty performance, floating interest rates and LIBOR transition, covenant compliance, sanctions, environmental rules and climate-related costs.
- The company was in compliance with its debt financial covenants at year-end. Loan agreements include vessel-value, free-cash, working-capital and value-adjusted-equity requirements; falling vessel values could require additional collateral or repayment.
- The board declared dividends after year-end of $0.30/share for 2022 Q3 and $0.77/share for Q4; it had also declared $0.15/share for Q2. Future dividends are discretionary and depend on earnings, cash, legal restrictions and other factors.
Important facts for investors to verify
- Underlying operating earnings and cash generation relative to the unusually strong tanker-rate environment, including the heavy spot-market exposure.
- How much reported profit depended on fair-value gains, swap gains and associate income, and how those items may change.
- Debt maturities, variable-rate exposure, refinancing availability and covenant headroom; also the effect of the 2023 useful-life change on depreciation and earnings.
- Status and potential financial impact of the Euronav arbitration, and valuation and liquidity risks associated with the Euronav shareholding.
- Related-party arrangements, including the Hemen-affiliated credit facility, vessel sales, and bunker commitments or guarantees involving TFG Marine.
- Whether declared dividends are sustainable through weaker freight markets and subject to subsidiary distribution restrictions.