Robert Macleod - CEO Inger Klemp- CFO

Jon Chappell - Evercore Mike Webber - Wells Fargo Greg Lewis - Credit Suisse Fotis Giannakoulis - Morgan Stanley

Good day and welcome to the Q4 2016 Frontline Ltd. Earnings Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mr. Robert Macleod. Please go ahead sir.

Good morning and good afternoon everyone. Thank you for dialing in to Frontline’s earnings call for the fourth quarter of 2016. I will start this call by briefly going through the highlights of the quarter and the subsequent events. Following that, Inger will run us through the financials. I will then update you on our offer to acquire DHT and our rationale behind the transaction. We will then look at Q4 earnings segment-by-segment, and I will guide you on our Q1 earnings and time charter cover. We will then move on to the current market conditions, the clear time for order books and a brief conclusion slide. The call will be concluded by taking your questions. Let's get started please and look at the company highlights. Our earnings in the fourth quarter were reasonably good after an improvement in spot rates compared to Q3, mainly due to seasonal effect, but also due to increased OPEC volumes ahead of the January 1 cusp. We achieved net income of $34.5 million or $0.22 per share, adjusted for non-cash items. For the full year, we came in at $188.9 million or $1.20 per share. Our resource underscores both the benefits of our low cash breakeven levels, as well as Frontline’s earnings potential. As previously announced, we cancelled our four VLCC new buildings from STX. We signed a financing facility for our [JNU] contracts at $110.5 million. We also completed a public offering with gross proceeds of $100 million. Front Century’s charter was terminated; Inger will touch on this later in the call. Subsequent to the Q4 events, we acquired two VLCC new buildings from Daewoo. The contracts are done at $77.5 million, a level we find highly attractive and the ships are delivering in Q4 this year. Frontline declares a dividend of $0.15 for the fourth quarter. We took delivery of four vessels during the quarter. Frontline and its affiliates filed a 16.4% ownership stake in DHT in January. We also approached DHT with an all-share proposal to acquire a company. I will update you on this later in the presentation. Inger, please can you take us through the financials in more detail.

Thanks Robert and good morning and good afternoon, ladies and gentlemen. Moving then to slide 2 financial highlights, Frontline achieved total operating revenues net of voyage expenses of 128 million in the fourth quarter. EBITDA came in at 52.1 million and net income at 18.3 million equivalent of earnings per share of $0.12. In the fourth quarter, we recorded certain non-cash items. These non-cash items consisted of an impairment loss of 27.3 million relating to VLCC Front Century. This lease with Ship Finance is expected to terminate in the first quarter 2017, at which time a lease termination gain of 20.3 million will be recorded. Then other non-cash items where a provision on collectible receivables of 4 million and also a gain on derivative of 15.1 million. So after adjusting for these non-cash items, we showed EBITDA of 83.4 million and a net income from operation of 34.5 million in the fourth quarter, equivalent to $0.22 per share. In the year ended December 31, 2016, Frontline achieved total operating revenues and net of voyage expenses of $593 million, EBITDA came in at 319 million and net income at 117 million, which is equivalent to earnings per share of $0.75. Again after adjusting for non-cash items, we showed EBITDA of 307 million for the full year and a net income from operation of 188.9 million equivalent to $1.20 per share. Frontline declared a dividend of $0.15 per share in the fourth quarter. In total for 2016, we have paid and declared dividend of $0.85 a share, reserving $0.35 of adjusting earnings for growth. Moving on to slide 3, income statement; Frontline achieved net income adjusted for certain non-cash items in the fourth quarter of 34.5 million that was against 16.5 million in the third quarter. The increase in results from operation in the fourth quarter of 18 million is mainly explained by an increase in sales on time charter basis of 12.3 million due to the higher spot rate achieved in this quarter compared to the third quarter. We also had an increase in [admin] income of 2.7 million, a contingent rental income by 1.6 million in the third quarter. The contingent rental income was 8.8 million and in the fourth quarter we had 7.2 million. The contingent rental income in the fourth quarter is due to the fact that the actual profit share of 6.8 million was 7.2 million less than the amount accrued in the lease obligation table when the lease were recorded at fair value at the time of the merger of Frontline with Frontline 2012. We also had a decrease in running expense of 1 million, primarily due to delivery of six MR tankers to the buyers in the third and the fourth quarter, and we also had a decrease in other expenses by 0.6 million. Moving then to slide 4, cash breakeven rate and OpEx. We estimate the average cash breakeven rate for the remainder of 2017 of approximately $22,300 per day for VLCC, $17,300 per day for food expenses, and $15,500 per day for LR2 tankers. These rates are the all-in daily rates that owned and leased vessels must earn to cover budgeted operating cost and drydock estimated interest expenses, bareboat hire, installments on loan and G&A expenses. While we have competitive running expenses and earnings expenses, the low cash breakeven base are to a large extent explained by the long term debt-to-amortization profile and low interest cost on new and existing debts. We are currently in the (inaudible) bank to finance the two newly acquired resale VLCC and are confident that we will be able to secure financing at attractive terms in line with our low cash breakeven base. Every $1,000 per day lower cash breakeven base means approximately $20 million net income per year or $0.12 per share which shows the high importance of maintaining the low cash breakeven rate. The OpEx per day in the fourth quarter was $8300 for VLCC, $7800 for Suezmax tankers and 6900 for LR2 tankers. No vessels for drydock in the fourth quarter. In the first quarter, one VLCC is scheduled for drydock and we plan to drydock five VLCCs and two Suezmax tankers in total in 2017. Moving then to slide 5, balance sheet ended December 31, 2016 from end of September 30, our total decrease in balance sheet valued approximately 43 million. The changes in asset are mainly related to an increase in cash and current assets of 97 million; an increase in new buildings worth 34 million, which is the net of 77.8 million new building from (inaudible), offshores 43.5 received in refund of new building due to cancellation of the four STX VLCC new building. We also had a decrease in vessels by 61 million due to depreciation by 34 million and 27 million due to impairment of Front Century. And we had a decrease in other long term assets by 27 million due to delivery of the Front Arrow. Total liabilities are down with 69 million, which mainly relates to ordinary loan repayment of 50 million and 19 million in relation to Front Arrow, along with a reduction in capital leases with 17.7 million and a reduction in other current assets with 7 million. Equity has increased with 102.4 million, mainly explained by net proceeds from equity rates and net income in the quarter currently offset with 60 million in dividend payments in this quarter. With this I’ll leave the word to Robert again.

Thank you very much Inger. Let’s turn to slide 6 please and look at the DHT proposal. Frontline believes in consultation of the tank industry. A combination of DHT and Frontline would have been expected to create the largest publicly traded tanker company in the world by fleet size, market cap and trading liquidity and could have seen larger institutional investors enter this space. DHT shareholders would have been expected to benefit from a substantially lower G&A cost per vessel and capitalized on synergy values as well as the superior access to the debt and equity markets. This would have been expected to enhance free cash flow generation further maximizing value for both sects of shareholders. On January 27, Frontline made an initial proposal to DHT Holdings of 0.725 Frontline shares for every DHT share. The initial offer implies $5.09 per share based on Frontline’s under disturbed closing price on the 27th of January. This initial proposal was declined by DHT’s Board stating that the proposal is wholly inadequate and not in the best interest of DHT or its shareholders. On February 23, Frontline made a revised proposal of 0.8 Frontline shares for every DHT share, implying $5.62 per share based on Frontline’s closing price on the 27 of January and $5.38 per share based on Frontline’s closing price on the 27 February. The revised proposal implies a 32% premium to the closing price of DHT for 27 January and a 44% to the 60 trading day vwap up to and including the 27 of January. This proposal was decline as well. We are obviously disappointed by the decision made by the Board of Directors of DHT, as we firmly believe that transaction would have been in the best interest of the shareholders of both companies. As the shareholders in DHT, we are concerned about this unwillingness to engage. At present, Frontline is DHT’s largest single shareholder. In evaluating our investment in DHT, we will take in to consideration other potential uses of capital that maybe more beneficial to our shareholders, as well as the possibility that DHT will decide to engage with us constructively in the future. We will keep our shareholders closely informed of any decisions we make with regards to our stake in DHT. Please turn to slide 7, the spot earnings in Q4 improved from Q3 and we believe the quarter generated satisfactory returns given the market conditions. The spot earnings for the quarter were just over 32,000 on VLCCs, a little under 22,000 in Suezmax’s and 18,800 on our LR2s. Our VLCC earnings for 2016 were 43,100. For Q1, we have locked in 74% of the VLCC trading days at $38,000; on the Suezmax’s, we have fixed 71% of our trading days at $23,000; on the LR2s the number is about $19,000 and 60% is covered. These levels are all of course well above our cash breakeven levels. Let’s move on to our time charter coverage please on page 8. In 2016, 29% of our fleet was chartered out at relatively attractive rates as we capture the strength of the markets going into 2016. We started this year with 28% coverage and by the end of 2017 the cover is down to 18%. The net cash effect of our TC relapse is about $40 million for 2017. Our TC cover reduces our exposure to market weakness by lowering our cash breakeven levels for the vessels in our fleet trading spots. We will continue to pursue TC cover if it is in the best interest of the company’s shareholders. Let’s move to the current market please on slide 9. The market began to recover from a 24 months low and showed signs of improvement towards the end of the third quarter of 2016. This strength carried through in to January of this year. The pace of new buildings delivering from Europe and Asia slowed towards the end of 2016, but picked up again in January and put pressure on rates in February as expected. The winter has traditionally been strong from the tanker market, and this year was no exception, but earnings are well below last year’s winter period. We believe this is down to the VLCC fleet increasing by about 10% for the period from 650 to 710 vessels. Demand for crude oil remains robust and import volumes in to Asia, especially India and China continues to grow. The US energy information agency has forecasted average demand growth of just over 1.5 million barrels per day per year through 2018. Should the OPEC and non-OPEC production caps remain in force, we expect trade routes to continue to trend towards long-haul voyages from the Atlantic to Asia. Any such scenario will develop over time, but we are cautious in the (inaudible). Please move to slide 10 and we’ll have a look at the order book. New building deliveries accelerated in 2016, with 47 VLCC and 26 Suezmax’s delivering. However, the market was pretty resilient despite the historically high delivery pace and the other factors discussed earlier. A similar number of VLCC are expected to deliver this year, for Suezmax’s the number is increasing to 60. This is expected in periods, to put pressure on the tanker market, and we therefore believe earnings will be lower this year than what we saw in 2016. As for new orders, there was a dramatic slowdown in 2016. Although we have some activity lately, we expect the slowing trend to continue given the expected contraction in global shipyard capacity and a limited availability of capital to finance new orders. We expect vessel scraping to begin to pick up as we progress through 2017, particularly in light of the implementation of the ballast water treatment convention later this year. Frontline is well-positioned for this. We believe that the market will begin to tighten 2018 after delivery of new buildings vessels slows and vessels are retired from the global fleets. Let’s move to the summary slide. We believe that our performance in the fourth quarter highlights Frontline’s competitive position in the market as well as our efficient operation. We have positive loans on (inaudible) tanker market, as we expect the tanker market to balance as vessels are absorbed in to the global fleet and older vessel retire. At the same time, as I’ll just conclude, crude oil demand is forecasted to grow. In the meantime, we believe that periods of market weakness will create attractive opportunities to acquire assets at historically low prices. However, purchase of two VLCC from DSME is one example. We are in a unique position to grow our fleet and continue to generate substantial returns to our shareholders in a strong market and a healthy return in a more muted market like we saw during the period of 2016 and what we expect we will see more of in 2017. Our large commercial scale, low breakeven levels and access to capital are important factors which supports our leading position in the tanker market. With that I would like to conclude this presentation and move to your questions.

[Operator Instructions] We will now take our first question comes from Jon Chappell from Evercore. Please go ahead. Your line is open.

Robert I understand the DHT situations’ probably a bit sensitive and there are certain things you can or cannot say about it. But two questions I want to ask on that, first of all, why DHT to begin with, there are clearly cheaper alternatives out there at least from a NAV perspective and also bigger and newer fleets. So what was it about DHT transactions specifically that attracted you to go after them?

Looking at DHT, I think the company has done really well, building up a good fleet that made a lot of right calls, they’ve got very good financing in place, they’ve got decent time charter cover. I think it’s a very solid company and I think it’s a company that is a great fit to Frontline. The organization would fit straight nicely together and I think now it’s all about financing, it’s all about the cash breakeven levels and that is the healthiness of both companies on their own and combined even more so when you get the synergies going, you get the G&A down and that’s in short the reason why we found it attractive. And at the time when we started looking at it, the pricing was attractive for an investment front.

That’s make sense. And then you kind of laid out some of your alternatives, but it seems like it’s not a dead deal at least from your tone. You are hopeful that they’ll maybe reconsider, but also with the poison pill in place, can’t really add any more shares. So what are next steps for you as far as your consolidation initiatives, do you just tend to sit there and hope that there is a change of interchange of plans from their side or do you pursue other options.

In terms of options, actually there’s plenty of options in the market. We have a fleet including new buildings of 70 ship, and we are just done the DSME deal, there are other things we can do and we’re looking at. So we’re not sitting here and only sort of putting all our eggs in the basket of doing this deal. At the same time, I think with the offer we’ve given, we are surprised and disappointed that it’s been turned down. I feel that we’ve given a very, very good offer and let’s see we will consider our options and see if there’s something back and obviously we have various options in terms of the investment and so forth. So we’ll see what the next step for us will be.

The other question I wanted to ask you is just related to the timing, as you laid out a pretty consistent view on the market this year difficult tightening in 2018, you are able to scoop up some VLCC resales at prices that we haven’t seen in heck of a long time. So do you feel like the window is kind of closing for that kind of a one-off opportunity to get a prompt delivery from a great yard at a great price or do you think that given the outlook for ’17, there’s still a little bit more downward potential pressure on prices that will enable you to use the new found liquidity to be more aggressive.

I think in terms of DSME deal it shows clearly here with the Frontline’s ability to move quickly and get on with things. It’s an advantage and with the network with the yards and the connection - the relationship we have with the yards, we have great access to deals. But when it comes to deals in general, this sort of deal, the window is there, but it’s not a window where there’s lots and lots of opportunity. So I wouldn’t be surprised if this deal we’ve done here could well define the bottom of other prices. But we’ve been surprised before and we’ve been on a downward spiral for quite some time. But let’s see, there is not that much out there. So I think it’s the right move for us and we’ll keep looking for similar deals. As for the vessel balance, I touched on it in the presentation, its going the VLCC fleet is growing from 650 to 710 here in the last 12 months. You put in the rise in scrap value, you put down the decrease in ship values including the old ones obviously and then you include the ballast water treatment and then you’re obviously also put in to [here] that our customers they are more and more targeting the newer tonnage. The older tonnage is more difficult to trade and I think the sum of all this is that the likelihood of scrapping is increasing a lot, and I think in terms of the VLCC fleet, we’ve gone from 650 to 710, and we could well be peaking at 735, 740. So we’ve taken in two-thirds of the new buildings in to the fleet now that taking in, even if it is so relatively well, demand increasing, but we will (inaudible). I think 2017 will be tougher, but going in to 2018, it’s probably going to be a (inaudible) in 2018, but you can have a more balanced fleet. And I think it will be a turning point at some point during that year. In the meantime, I don’t think the best of values will move that much. If they will do anything, I think it will be a slight uptick. So as I said, we could actually be seeing a bottom now. In general, that hasn’t moved that much of in the last six months.

We will now take our next question from Mike Webber from Wells Fargo. Please go ahead.

Robert just wanted to dig back in on DHT, and it’s a bit of an oddity, but there’s a published DHT NAV that they’ve put out, that’s say comes to about 570 per share. It’s certainly well more than our number. And I’m just curious; in terms of maybe some color those conversations and those negotiations. Is there literally just a bogie that you guys have been unable to hit in terms of a meeting whether expected to be based on NAV or is it more of a may be kind of a theoretical conversation on what the right premium is to a more reasonable number. I’m just trying to get a sense on maybe how far away would some sort of solution be and/or is there a really kind of an unrealistic bogie that’s just kind of hanging out there that’s going to be tough to get to.

So far it’s been a pretty flat decline and as I’ve said it’s surprising to us. We do ought to know that the NAV has been public, (inaudible) of which we also have our own figures and they don’t match. And I think the consensus last time we checked, the consensus amongst the analyst was that they were just south of $5 and I think somewhere realizing but down this morning. So there has not been much - there’s been some conversations there, but no negotiations. It’s been declined and that’s where we stand.

And that is a standing offer (inaudible)?

The offer that we gave has been decline, so there’s offer on the table at the moment.

And just wanted to talk on Jon’s question around retail value and at 77 million (inaudible) obviously kind of catches the eye. It’s tough to tag where the bottom might be, but it certainly seems like in the high 70s or at or near. Certainly the inflation is just at all-time low and touching on approaching recent most. I’m just curious with that kind of a deal, can you may be characterize how many (inaudible) at the capital are chasing that kind of a deal and are you one of the few guys that are out there really picking over deals at $77 million and what would be first signs you would look for to think okay this might actually mark an inflection point. I remember thinking that we might to close to 84 million last summer on the Metrostar deal. So maybe just what you would look for specifically?

There are just probably four, five, six folks out there looking for deals. Some are looking with where they need time, they need some (inaudible) again and so forth. So I think the fields full of IPO, they are not easy to find at the moment. So we are very pleased with the 77.5 and as I say it shows the relationship we have with certain yards and certain yards they appreciate our approach and our ability to move fast.

Our next question comes from Greg Lewis from Credit Suisse. Please go ahead. Your line is open.

Robert you made some comments about how surprises and I mean clearly on the higher end or the newer tonnage it sounds like you kind of feel like we’ve kind of hit the bottom. What about on some of the older vessels, like when we start looking at 10 year old type vessels, just given the near term rate outlook and just thinking about shipyards wanting to place more water, and there’s been talk about VLCC new builds coming in to the market. Are your comments more focused on the modern tonnage or are you sort of looking across various ages when you make those common statements about as the prices are kind of bottoming?

We are very much focused on I’ll say up to five years. If a seven year old or six year old ship comes up at a great price, obviously we’ll consider it. But up to five years which will then be the eco tonnage and the semi-eco. So we seem the five year olds they’ve come up with this piece, they’ve last been here at 57 which is a bit higher than what we expected. But this range very much depends on the yard and the spec and delivery positions and so forth. When it comes to the yard capacity, I think looking for VLCC to China actually, there’s actually (inaudible) is very limited. But Korea and I think Japan, you wouldn’t carry 2018 stocks and you might get some Korea. But it’s getting relatively slim in terms of opportunities. And this boils down to the yards are keeping their core work force going. The capacity of the yards if they can extend that for getting workers and so forth. But at these prices, we believe they are making lots, they are taking in orders to keep things running. And for the capacity to actually come back on, I think you need to see a rise in the value. So I’m hoping that we will endeavor ourselves to focus on virtually ships on the water or resales and not at the order book.

You mentioned the ability or the wanting of customers to sort of discriminate against some older tonnage. When you’re having conversations with your customers, what is that, is that a - when we think about that line or that range are they looking for that modern sub-10 year tonnage. Is it 15 years, is it 20 years just as we think about, but the walking range of vessel ages out there, are there certain customers that just simply just don’t want vessels under the age of 15 years or is there more flexibility around?

You have a number of customers that have a strong preference towards 15 and that kind of thing. So there’s definitely the increase. The Chinese, for example, have that preference and it is more difficult to get that 15 plus through. Still possible, but it gets limited and now for example we focus our 15 plus ships and keep them in Asia and so try and take them to the west. So that’s a trend that, I’m talking about this every quarter. But it’s a trend that continues, I can’t see that stopping and I think this is a trend that will definitely contribute to stronger market in to ’18 and’19.

We’ll now take our next question comes from Fotis Giannakoulis from Morgan Stanley. Please go ahead.

Just wanted to follow-up on the previous questions about your investment in DHT. I was wondering if you still have engaged financial advisors on this potential acquisition or you have terminated any engagement. When did you make the decision to invest in DHT? What made you feel confident that this investment can be beneficial for you, given the fact that it seems that the management and the other Board of DHT is not open to engage in discussion.

Yes, we have an advisor on this. We went in to what we thought was an attractive level. It’s certainly very attractive to where the share price is now. So that’s where it’s perfect and we were with the expectation that this would be something DHT would welcome. It would enroll the consultation that I think we all agree that the tanker space would benefit from, and that’s where I was surprised about the offer that we feel is a very good offer. But they rejected, but that’s where we are. So I think in a sense of more detail, I’ve given a lot of detail now and also through the slide. I think it’s all out in the open.

And Robert I want to understand a little bit, the process of this kind of potential transaction. How easy it is for you to unwind, start an investment? What are the requirements and is there any chance that this offer or any potential new offer would have to go to the shareholders Board? And if this potential transaction ends up to go nowhere, where do you plan to invest the proceeds of the disposal of the DHT shares? Is there any other publicly listed target or any other private fleet or potential new building orders that you might decide to use this capital?

Can I have close look, can I have a page to this. Your question was about ’13, can you start again please with the initial question?

The first thing is that if you believe or what are the requirements from the Board of those companies? If there is third offer to go to the shareholders vote?

So where we are in terms of opposition in terms of unwinding the position, in terms of the liquidity relatively given the company, the (inaudible) is in place and we have various offers at this stage. If we decide to go selling any of the shares, then the final requirement is that we will file for every percent or more.

And in terms of a potential use of this capital, if it’s not DHT, are there any other publicly listed target that you might be considering or you might use this to have vessels - this capital to order additional new building.

Let’s call it a higher power of cash. This equates to less or around 20% of the cash. So this is one of many offers we are looking at. And as I’ve said before, we’re not relating to this basket and we’re looking at other opportunities and obviously there are quite a few opportunities out there.

[Operator Instructions]. We’ll now take our next question from John Reardon from [Western] International. Please go ahead. Your line is open.

I read with interest your chart on the new builds coming in. It looks like we’re kind of half way through getting the take through the snake. But the other thing that caught my eye is your comment at older vessels owners having trouble trading their ships. And I wanted to ask, do you mean that they have to take haircut on the rates they get or are they actually being rejected by some customers. No we won’t ship with you because your fleets too old. I’d like some feedback on that.

It’s in terms of the order book. As you pointed out, I was touching on briefly earlier, we are more than half way through the sort of 12 months we’ve run (inaudible) 10% and then with the expected structuring that we see, I think with another 5% we might be hitting. They are not [talking] obviously so we might be hitting the peak for now. In terms of the older ship in a good market you will be down to a discount and you will also be limited even if - even if I have a good market you will be limited geographically. So for example, we focus our pre-2000 ships they are in Asia and obviously for sale as well. So then the challenge with the old ship is when the market becomes poor because then average (inaudible) will prefer the newer tonnage and then you’re not taking a discount, you’re taking idle time and you’re fishing off the (inaudible).

Okay, and just as a follow-up, are quite a bit of the older fleet coming up for survey in this spring?

This year we have some of them come -- some of the one or the two of the older and then we have four or five on them are modern. So we are drydocking quite a few ships this year, we are doing five VLCC and two Suezmax's. So going back to trading of cash breakeven take us earlier that is the reason they are slightly higher than they were in our last presentation.

Thank you. We have no further questions at this time. I’d like to turn the program back to the speaker for any additional or closing remarks.

Thank you very much. I would like to applaud everyone at Frontline for their great efforts and thank you everyone for calling in to this presentation. All the best.

Thank you. This concludes today’s conference call. Thank you for your participation ladies and gentlemen. You may now disconnect.