Q2 2022 SFL Corporation Ltd Earnings Call
approximately 6.6 million in the second quarter compared to approximately 3.5 million in the first quarter. Furthermore, the company expects the recent announcements with Max Tankers on charters to cost to have full cash flow effect from early in the fourth quarter with an estimated EBITDA contribution of 7.5 million per quarter. The company had 16 drywall carriers of which 10 were employed on long-term charters during the quarter. SFL generated approximately 31 million in gross charter hire from the drywall fleet in the second quarter including 1.4 million of profit share. Five households were employed in the spot and short-term market and contributed approximately 13.4 million in the charter hire during the second quarter compared to approximately 8 million in the previous quarter. SFL owns two drilling rigs which have been charted out the subsidiaries of serial on variable terms. In the second quarter the company received a charter hire of approximately 10 million from the rigs. This summarizes an adjusted EBITDA of approximately 124 million for the second quarter compared to 119 million in the first quarter. We then move on to the profit and loss statement as reported on the US scan. As we had described in previous earnings calls our accounting statements are different from those of the traditional shipping company. And that's our business strategy focuses on long-term charter contracts. A large part of our activities are classified as capital leasing. Therefore a significant portion of our chart revenues are excluded from US GAAP operating revenues.
This includes repayment of investment in sales types, direct financing leases and leaseback assets, and revenues from entities classified as investments in sole-states for accounting purposes. So for second quarter, report total operating revenues according to US GAAP of approximately 153 million, which is less than approximately 165 million of charter hire actually received for reasons just mentioned.
The company recorded again approximately 13.2 million following the sale of the C.D. container vessel, MCLDS, and the two front-end vessels during the quarter.
Also, the company recorded profit share income of approximately 1.4 million from our eight Cape-sized drybok vessels, in addition to approximately 3.8 million from fuel saving arrangements or some of our large containers.
Furthermore, the company recorded a 3.7 million gain related to positive mark-to-mark market effects related to interest rates.
At quarter-end, approximately 75% of our debt was swapped or fixed.
Based on our assumptions, we estimate that a 1% increase in interest rates from current levels equals approximately 2 cents per share in lower distributable cash flow per quarter and vice versa.
The majority of our corporate debt is fixed.
When evaluating new investment opportunities, we take a conservative approach when assuming the interest rate cost during the life of the project. The general seek to fix the interest rate back to back if the fixed charter duration or include an interest rate adjustment in the charter rates.
Also, the company recorded a 1.2 million gain related to positive market market effects related to equity and debt investments, a gain from redemption of bonds of 1.4 million and a decrease of 900,000 in credit loss provisions.
So overall and according to US GAAS, the company reported a net profit of approximately $57.4 million or 45 cents per share.
Moving on to the balance sheet. With core trend, SSL has approx. 224 million of cash and cash equivalents.
In addition, we also expect to free up approximately 50 million from the refinancing of 10 dry-glow vessels during the third quarter.
Furthermore, the company had multiple securities of approximately 21 million, based on market prices at the end of the quarter.
The CompNet for these three vessels at core trends is a combined chart-free value of approximately 74.5 million with average broker appraisals.
The approximately 240 million of remaining capex on a four car carrier under construction is expected to be financed by senior debt facilities, similar to SFL's other assets Prof. Simonan Am homework looking for quantum
and expect the senior bank financing for the recently announced SUSMAX tankers, which are just the subsidiaries of COQ Industries, will conclude during the fourth quarter.
Based on Q2 numbers, the company had a book X-G ratio of approximately 29.1%.
Then to compute.
The Board has declared a cash dividend of $0.33 per share for the quarter.
before consecutive dividends increase and over the past 12 months the dividend has been increased at more than 50%.
The recent save...
Of the two last ULCs, Sartre and Frontland represent the milestone for the company that this was our first and sole customer and all our vessels recruit oil tankers.
Today we have diversified fleet of modern assets or long-term routers to multiple industry-leading counter-parties.
Through recent acquisitions we have established new business relationships with elusive customers such as Raffi Gira, Harper Gloed, Kunkel Phillips and most recently Koch Industries.
The recent transactions also confirm our commitment to continuously improve the quality of the fleet by sourcing of older less economical assets and reinvest in modern and more fuel efficient assets.
Holding our recent investments and short-run instruments this year, we have added more than 1.3 billion to the fixed short-rate backlog, which now stands at 3.7 billion, providing a strong visibility on future cash flow, debt service and continued distribution capacity.
And with a strong balance sheet and significant investment capacity, SFL is very well positioned to execute on new equity investments as we continue to create shareholder value.
Finally, we have seen a strong recovery in the offshore drilling market since the beginning of this year.
and our two harsh environment drilling rigs are well positioned to benefit from the increased activity level in the sector.
One rig is employed on a long-term market adjusted chart rate, while the other rig is available for new constructs in 2023.
With that, I give the word back to the operator who will open the line for questions.
Thank you. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. These will take a few moments.
Now we're going to take our first question.
And the first question comes from Lan of Leamburg from B Riley Financial. Your line is open, please ask your question.
Yes, thank you. Asset values in certain vessel classes are exceedingly high. You mentioned low order books in some sectors. Are there any particular assets that you see would be attractive sales to raise additional cash?
Well, you know, we as we say, you know, here, every everything's for sale at the right price. Of course, our main focus is long term charters and of course, to service those long term charters unique to keep those assets.
We do have some assets with shorter charters and also some assets that are currently trading in the spot market. We, for instance, have five supermax bulkers that have been on long-term charter and has come back from those. The last one was delivered earlier this year. We have two chemical carriers that also came off a charter earlier this year. So we have some assets from time to time.
But of course it's all about timing and getting sort of the right bang for the box. So we evaluate that all the time. And just when I joined as a fellow, it's 16 years ago now, we had around 50 vessels. In the meantime, and right now we have 75, but in the meantime, we have purchased 125 vessels and sold 100 vessels. So I would say this is sort of a natural part of the business. And of course, our focus is to reinvest then in new or more...
When you're looking at on the acquisition side, you mentioned that the tanker cycle is looking very attractive there. Would that be more where you would want to invest in the in the larger VLCCs or Suezmaxes, vis-a-vis where the purchase of a container vessel might, where they are in the cycle, be less attractive?
Well, you could say academically, you know, we would invest in any sector. It's all about how you structure the transaction, how you manage risk. So you could say we would still look at container ships, but it's got to be with very strong counterparties and structured so we can effectively amortize it over the charter period.
to a more of a mid-cycle depreciated value. So, you know, that all goes into that, you know, equation before we decide on how we're, you know, how we're going to go forward with an acquisition or not. So, you know, we look at all segments at any one time. And I think, you know, from our side, we believe that's a strength, you know, having a diversified, you know, asset approach or market approach..
Because what we have seen over time is that companies that are in one segment only are almost programmed to go bankrupt almost. Because what we see is that typically when the capital markets are open and when the banks are eager to lend money, that's typically at the top of the market. So while when you're lower in the cycle in a segment, there is no way you can raise equity and banks are reluctant.
So it's so tempting to take the money at the top of the market and reinvest in the wrong assets. So what we do instead, we look at all these segments at the same time and therefore try to, if we think that things are running a little bit too fast in one segment, we switch our attention to other segments. But still, even if we are high in the cycle, then we will try to be very, very focused on risk mitigation factors.
before we decide to invest despite, call it, the normal cycle movements than the others. Than if we believe we are lower in the cycle. But you're back to your point.
You know, we think tanker market looks interesting. We wouldn't mind, you know, do more on the tanker side. But you know, it has to be in combination with the right asset, with the right counterparty, with the right charter, you know, rate structure, where we can, again, depreciate it down to the right level. So we look at that all the time.
Great. Thank you very much.
Thanks a lot.
Thank you.
The speakers are on for the questions and I would like to hand it back to Oleg Yashtakie for closing remarks.
Yes, then I would like to thank everyone for participating in this conference call and also thank the SFL teams on board the vessels and on shore for their continued efforts in delivering value for our stakeholders. If you do have any follow-up questions, there are contact details in the press release or you can get in touch with us through the contact pages on our webpage www.sflcorp.com. Thank you.
That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day.
The conference will begin shortly. To raise your hand during Q&A, you can dial star 11. The conference will begin shortly. To raise your hand during Q&A, you can dial star 11.
That.
The conference will begin shortly. To raise your hand during Q&A, you can dial star 11. two. The conference will begin shortly. To raise your hand during Q&A, you can dial star 11. ART vidéulations The conference will begin shortly. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. to raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. To raise your hand during Q&A you can dial star 11. The conference will begin. Good day and thank you for standing by. Welcome to the second quarter 2022 at FL Corporation earnings conference call. At this time, we will talk about the recent only mode. To ask a question during the session you will need to press star 11 on your telephone. Please be advised that the conference is being recorded. Thank you and welcome everyone to our second quarter conference call. I will start the call by briefly going through the highlights of the quarter. Following that our CFO Excel will take us through the financials. Then the call will be concluded with opening up for questions. Chief Operating Officer Trim Shirley will also be present for the Q&A session. Before we begin our presentation I would like to note that this conference call will contain forward looking statements within the meaning of the US private securities litigation reform act of 1995. Words such as expects, anticipates, intends, estimates or similar expressions are intended to identify these forward looking statements. Forward looking statements are not guarantees of future performance. These statements are based on our current plans and expectations and are inherently subject to risks and uncertainties that could cause future activities and results or operations to be materially different from those that forth in the last quarter. The important factors that could cause actual results to differ include but are not limited to conditions in the shipping offshore and credit markets. You should therefore not place undue reliance on these forward looking statements. Please refer to a fileings with the Securities and Exchange Commission for more detailed discussions on our risks and uncertainties, which may have a direct bearing on our operating results and our financial condition. We have a revenue center quarter where 165 million dollars with the vast majority of vessels on long-term charters and only 17% for vessels employed on short-term charters or in the spot market. The EBDA equivalent cash flow in the quarter was approximately $124 million and over the last 12 months the EBDA equivalent has been approximately $476 million. This includes a gain on sale of vessels of $13 million in the quarter and also positive market on interest rates, whoops and equity in sweatsheds. The announced dividend of $23 per share is an increase of 4.5% over last quarter's dividend and represents a dividend yield of around 8.7% based on closing price yesterday. This is our 74th quarterly dividend.