Q3 2024 SFL Corporation Ltd Earnings Call
The
9.95.
Words such as expects, anticipates, intends, estimates or similar expressions are intended to identify these forward-looking statements.
Ford licon statements are not guarantees of future performance. These statements are based on our firm plans and expectations in our currently subject to risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the Ford licon statements.
and Ford Infactors that can cause extra resources to differ, include what I'm not limited to, due conditions in the shipping offshore credit markets. You should therefore not place under your alliance on these Ford-Littic statements.
Please refer to our fileings within the Security's and Exchange Commission for a more detailed discussion of risk and uncertainties, which may have a direct bearing on operating results and our financial conditions.
Speaker Change: Then I will leave the word over to our CEO, Ole Hjertaker with highlights for the third quarter.
Ole Hjertaker: Thank you, Sander. We are now announcing our A.D. Third dividend and continue building our unique profile as a maritime infrastructure company with a diversified fleet.
Ole Hjertaker: We reported revenues of more than $260 million this quarter and the EBTA equivalent cash flow in the quarter was approximately $160 million, which is significantly up from the second quarter.
Ole Hjertaker: Over the last 12 months, the A bit the A.A. equivalent has been $580 million.
To net income, can mean that around 45 million dollars in the quarter or 34 cents per share.
Ole Hjertaker: and we had positive contributions relating to profit share on tapes as bulkers and fuel cost savings or $4.2 million in the quarter offset by approximately $5.6 million in negative loan cash mark to market and one of items.
Ole Hjertaker: Due to U.S. Catholic counting rules, the revenue and expense in the quarter for the drilling rig Herkles also includes the mobilization period that started in the second quarter. Our CFO auxelolesen will give more details on this when it goes through the numbers for the quarter.
Ole Hjertaker: or fixary back loan stands at approximately $4.7 billion and importantly, 2-3rds of this is to customers with investment and great rating giving us a unique cash flow visibility.
Ole Hjertaker: This Pack-look figure excludes revenues from the vessels trading in the short term market and also excludes revenues on the new dual fuel chemical carrier that will operate in the pool with stalled tankers.
Ole Hjertaker: It also excludes future, profit, your optionality, which we have seen can contribute significantly to our net income.
Ole Hjertaker: And in line with our commitment to return value to shareholders, we are paying a quarter dividend of 27 cents per share, or around 10% dividend yield.
Ole Hjertaker: Most of our vessels are on long-term traitors and we have over the last 10 years, completed transform the company's operating model, making us relevant for large and users like Merisk, Volkswagen Group and Vittal.
Ole Hjertaker: We have been busy renewing and extending multiple existing charters, and I've also recently ordered five large container vessels in combination with 10-year time charters, adding $1.2 billion in that transaction alone.
Ole Hjertaker: In addition, we have taken delivery of seven new vessels so far this year, including four vessels during the third quarter. We are also in the process of upgrading several other vessels and our Chief Operating Officer, Trim Sjlie, will talk more about this later.
Ole Hjertaker: During the quarter, we raised another unsecured bond loan, the 16th in a row. This was issued as a floating rate note in Norwegian kroner, and we have swapped it to US dollars at approximately 6.45% fixed interest.
Ole Hjertaker: This was primarily used to refinance a bond loan that was due to expire in early 2025.
Ole Hjertaker: It has also been a busy quarter from a financing perspective, where we have effectively addressed virtually all short-term asset debt maturities, matching funding with charter tenors.
Speaker Change: And with that, I will give the word over to our COO, Trim Sjlie.
Trim Sjlie: Thank you, Ola.
Trim Sjlie: When including our new building program as well as the six vessels delivered this year, we have 81 maritime assets in our portfolio, and our backlog from owned and managed shipping assets stands at $4.7 billion.
Trim Sjlie: The current fleet is made up of 15 dry bulk vessels, 39 container ships, 18 tankers, 7 car carriers and 2 drilling rigs.
Trim Sjlie: In addition to fixed rate charter revenues, we have had significant contribution to cash flow from profit share arrangements over time, both relating to charter rates and cost savings on fuel. In Q3, profits with arrangements have contributed about $4.3 million.
Trim Sjlie: Aksel Olesen, Sander Borgli, Unknown Executive, Aksel Olesen, Ole Hjertaker
Trim Sjlie: Out of the 81 vessels and rigs, we have 11 container ships on bare boat type contracts and the rest of the fleet on time charter or spot trading. Our operation is quite complex with vessels across multiple sectors and we have our own commercial operation out of Oslo and operational and technical management out of Singapore and Stavanger.
Trim Sjlie: In Q3, we had about 6,700 operating days, defined as calendar day, less technical or fire and dry dockings. Three vessels have been in dry dock in the quarter, and our overall utilization across the fleet in Q3 was about 99%.
Trim Sjlie: The charter revenue from our fleet was $263 million in Q3, which is up from Q2, mainly due to the drilling rig liners being back in operation end of July after a special periodic survey.
Trim Sjlie: The drilling rig Hercules entered a contract in Canada end of October and is currently on a way across the Atlantic to the west coast of Norway.
Trim Sjlie: Aksel Olesen, Sander Borgli, Unknown Executive, Aksel Olesen, Ole Hjertaker
Trim Sjlie: As part of our decarbonization and commercial strategy, we continue to invest in new vessels as well as upgrades to our existing fleet. Our fleet has lately been enhanced by 11 LNG dual fuel vessels and 3 LR2 tankers.
Trim Sjlie: It's four new buildings, 7,000 CEU car carriers have already been delivered to Chartreuse, Volkswagen and K-Line.
Trim Sjlie: And two 33,000 Denway Tom LNG dual-fuel stainless steel chemical tankers have been delivered and are in service to stall tankers.
Trim Sjlie: Five 16,800 TU Container Vessel new builds are to be delivered in 2028 and by October all three of our new building LR2s have been delivered to VTOL.
Trim Sjlie: Such investments and cooperation with our charters is important as a way to grow our relationship and increase backlog from existing vessels.
Trim Sjlie: Earlier this year, we increased the backlog to MERS with new five-year charters for seven of our large container vessels, which is a result of our close relationship and cooperation on vessel upgrades and performance enhancements.
Trim Sjlie: The first four 8700 TEU vessels will dock from December onwards, and the upgrades include energy-saving devices and increased cargo intake, boosting cargo capacity to about 9500 TEU, while also reducing fuel consumption.
Trim Sjlie: On the Hapag-Lloyd charters, the remaining three vessels out of six will be completed in Q4 before delivery to Hapag-Lloyd on the new five-year time charters.
Trim Sjlie: A key tool in delivering on the various projects is a strong operations, technical, and new building team who can work in close contact with our charters, create renewal and upgrades, improves energy and operational efficiency of our vessels.
Trim Sjlie: This is increasingly important in a new world of ever-tightening environmental regulations, both regionally and globally.
Trim Sjlie: Aksel Olesen, Sander Borgli, Unknown Executive, Aksel Olesen, Ole Hjertaker
Ole Hjertaker: I will now give the word over to our CFO, Aksel Olesen, who will take us through the financial highlights of the quarter.
Aksel Olesen: Thank you, Trim. On this slide, we are showing a Proforma illustration of cash flows for the third quarter. Please note that this is only a guideline to assess the company's performance, and it's not in accordance with US GAAP and also a net of extraordinary and non-cash items.
Trim Sjlie: The company generated a gross charter hire of approximately $263 million during the third quarter, with approximately $89 million coming from our container fleet.
Trim Sjlie: This includes approximately 2.4 million in profit share related to fuel savings on seven of our large container vessels.
Trim Sjlie: Aksel Olesen, Sander Borgli, Unknown Executive, Aksel Olesen, Ole Hjertaker
Trim Sjlie: The car carrier fleet generated approximately 26 million of gross charter hire in the quarter, including profit share from fuel savings.
Trim Sjlie: Our tanker fleet generated approximately 37 million in gross charter hire, up from approximately 30 million in the previous quarter, following the delivery of three tanker vessels during the quarter.
Trim Sjlie: SSL has 15 drybook vessels of which 8 are employed on long-term charters.
Trim Sjlie: The vessels generated approximately 25 million in gross charter hire, including approximately 1.7 million profit share generated from our eight Cape Scythe vessels on long-term charters to Golden Orpheum.
Trim Sjlie: The seven vessels employed in the spot and short fur market contributed with approximately 8.4 million in net charter hire compared to approximately 8.2 in the second quarter.
Trim Sjlie: In the third quarter, our energy assets generated approximately 86 million in contract revenues, compared to approximately 29 million in the second quarter. Linus is under a long-term contract to ConocoFields in Norway until May 2029.
Trim Sjlie: During the quarter, revenues from the rig was approximately $16 million compared to approximately $10 million in the second quarter, as the rig resumed operations in late July after finalizing its 10-year special survey.
Trim Sjlie: As of November 1st, the RIGS contract rate has been adjusted upwards to approximately $224,000 per day under the market adjustment rate mechanism.
Trim Sjlie: During the third quarter, the Hercules commenced its drilling contract with Equinor in Canada.
Trim Sjlie: Revenue and costs associated with drilling contracts are recorded in accordance with USGAP, which specifies that mobilization and demobilization fees and associated mobilization costs are to be recorded over a day spent drilling during a contract.
Trim Sjlie: For the third quarter, we recorded approximately $70 million in contract revenue, compared to approximately $19 million in the second quarter.
Trim Sjlie: Operating costs increased to approximately $32 million, from approximately $11 million in the second quarter, as the rig recorded full operating costs from early July, plus amortized mobilization costs deferred from the second quarter as per the accounting standards just mentioned.
Trim Sjlie: Our operating and G&A expenses for the quarter was approximately $99 million, compared to approximately $70 million in the second quarter, mainly due to the Hercules being back on the contract for most of the quarter.
Trim Sjlie: This summarizes the adjusted EBITDA for approximately $167 million compared to $131 million in the previous quarter.
Speaker Change: I've got to go. I've got a meeting. I've got to go. Bye. Bye. Bye. Bye.
Speaker Change: Aksel Olesen, Sander Borgli, Unknown Executive, Aksel Olesen, Ole Hjertaker
Speaker Change: Then we move on to the Profit and Loss Statement as reported under US GAAP.
Speaker Change: As we have described in previous earnings calls, our accounting statements are different from those of a traditional shipping company. And that's where business strategy focuses on long-term charter contracts.
Speaker Change: Some parts of our activities are classified as capital leasing.
Speaker Change: Therefore, a portion of our charter revenues are excluded from U.S. GAAP operating revenues.
Speaker Change: This includes repayment of investment in sales-type direct financing leases and DSTAC assets, and revenues from entities classified as investment in sole states for accounting purposes.
Speaker Change: So for the third quarter report total operating revenues according to US GAAP of approximately 255 million, which is less than approximately 263 million of charter hire actually received for reasons just mentioned.
Speaker Change: This includes profit-sharing income of approximately 4.2 million from fuel savings from some of our large container vessels, our car carrier, and our eight cape-sized dry bulk vessels on charter to Golden Ocean.
Speaker Change: During the quarter we had an increase in vessel operating expenses, mainly due to new vessel deliveries, scheduled dry-lockings, and the Hercules being back.
Speaker Change: on contract for most of the quarter. We also had an increase in depreciation and tax driven by new vessel deliveries and Hercules operations in Canada, respectively.
Speaker Change: So overall, and according to USGAP, the company reported a net profit of approximately $44.5 million or $0.34 per share, compared to approximately $20.6 million or $0.16 per share in the previous quarter.
Speaker Change: Sander Borgli, Unknown Executive, Aksel Olesen, Ole Hjertaker
Speaker Change: Moving on to the balance sheets. At quarter end, SFL have approximately 164 million of cash and cash equivalents.
Speaker Change: The company also has multiple securities of approximately $4.6 million in addition to debt-free vessels with an estimated market value of approximately $90 million.
Speaker Change: In September, the company issued a new NOC bond of 750 million in the Nordic credit market.
Trim Sjlie: The loan bears a coupon of three and a quarter above the three month NIBR reference rate and the term is five years.
Trim Sjlie: In connection with the new offering, SFL exercised its option to redeem the NOK 600 million bond, which was due in January 2025.
Trim Sjlie: Aksel Olesen, Sander Borgli, Unknown Executive, Aksel Olesen, Ole Hjertaker
Trim Sjlie: The Compton has recently concluded financing arrangements of approximately $1 billion, with approximately $700 million being drawn down during the quarter and the balance subsequent to quarterly rent.
Trim Sjlie: Sander Borgli, Unknown Executive, Aksel Olesen, Ole Hjertaker
Trim Sjlie: During the third quarter, the company paid the first-year installment of 10% relating to a new building order of five 16,800 TU container vessels with delivery in 2028.
Trim Sjlie: Now the 5% is estimated due at the end of the fourth quarter, and the balance is due closer to delivery. We expect this to be financed by pre-delivery and post-delivery loan facilities.
Trim Sjlie: And finally, in July, the company raised $100 million in gross properties from a U.S. public offering by issuing 8 million common shares. So based on the Q3 numbers, the company had a book equity ratio of approximately 28%.
Trim Sjlie: Aksel Olesen, Sander Borgli, Unknown Executive, Aksel Olesen, Ole Hjertaker
Trim Sjlie: And to conclude, the board has declared the 83rd consecutive cash dividend of 27 cents per share, which represents a dividend deal of approximately 10%.
Trim Sjlie: Following recent investment and short renewals, our fixed chart rate backlog currently stands at $4.7 billion, providing us with strong visibility on our cash flows going forward.
Trim Sjlie: And with that, we conclude the presentation and move on to the Q&A session.
Speaker Change: Thank you Aksel. We will now open for a question and answer session. For those of you who are following this presentation through Zoom, please use the raised hand function under reactions in the toolbar to ask a question. When your name is called out, please unmute your speaker to ask your question. Thank you.
Speaker Change: Sander Borgli, Unknown Executive, Aksel Olesen, Ole Hjertaker Unknown Executive, Aksel Olesen, Unknown Executive, Aksel Olesen, Ole Hjertaker
Speaker Change: So our first question from Sheriff Al-Maghrabi.
Speaker Change: Please unmute your speaker and ask your question.
Sheriff Al-Maghrabi: Hi, thanks for taking my questions. Ola, historically some container ships have done some sale and leasebacks to help with fleet management. Do you expect that to happen this year, and is that something that could be an opportunity for SFL?
Speaker Change: Well, we have a significant number of container ships in our fleet and from time to time we have also acquired container ships directly from liner companies.
Speaker Change: We have gone more away from doing more financial, call it, say, leasebacks, which is really a high-levered financing in reality. So we have some legacy assets there, but I would say all the investments we've done over the last five, six years have been long-term time charters, and we think those deals have worked out pretty well.
Speaker Change: you know, having an operational platform like we have built up now, you know, makes us relevant for the likes of MERS and Hapag-Lloyd and Volkswagen and others.
Speaker Change: So we, of course, wouldn't mind doing more business in that segment as we also look for opportunities in all the sectors that we focus on.
Speaker Change: Sander Borgli, Unknown Executive, Aksel Olsen, Ole Hjertaker
Speaker Change: Thanks, and with the Hercules mobilizing to Norway
Speaker Change: How do contracting prospects there shape up versus Canada or Namibia? And just, you know, any color you can provide on how conversations are going with potential charters.
Speaker Change: Oh yes, the rig recently finalized drilling for Equinor in Canada has been working there since July.
Speaker Change: And it's now being moved to Norway. It's a pretty efficient location, you know, given the distance and, you know, you call it maritime traveling distance. That's why we take it to the North Sea.
Speaker Change: There are opportunities in the North Sea and remember this rig has previously worked, you know, during the wintertime up in the Barents Sea and the ultra-harsh environment, so it's a very capable rig.
Speaker Change: And it's managed by Ordfjell, who is, I would say, you know, deemed to be, you know, among the top two or three, you know, operators of the most sophisticated drilling rigs out there. So we are looking for opportunities both in the North Sea and in West Africa, primarily. Near term, we don't see so many opportunities in Canada, but we expect that to come back, you know, later next year or into 2026. So near term, we focus more on North Sea and West Africa. We cannot be specific on discussions and the opportunities we see. But we believe Ordfjell, who also announced their earnings today.
Speaker Change: They had this single, you know, a positive outlook on the market segment.
Speaker Change: Okay, thanks very much for taking my questions.
Speaker Change: Thank you.
Speaker Change: We will take our next question from Clement Mullins.
Speaker Change: Clement, go ahead.
Clement Mullins: Good afternoon. Thank you for taking my questions.
Clement Mullins: I wanted to follow up on Shrief's question on the Hercules. And first of all, I was wondering, do you expect to recognize any revenue on Q4 from the contract with Equinor in Canada?
Speaker Change: Oh, yeah, thank you. Yes, we have, I mean, the rig has been working now, you know, virtually to the end of, you know, you know, October. So there's been a, you know, full month on higher plus, we're also compensated for for moving the rig afterwards. So we are effectively covered for say two out of three months in the fourth quarter.
Speaker Change: And of course, while we wait for the next contract, we will of course adjust and trim expenses along with that. So there will be a decent contribution from the RIG also this quarter.
Speaker Change: Makes sense. Thanks for the color. And this one is more from a modeling perspective, but should the asset remain open throughout part of 2025? Could you provide some commentary on the expenses you would expect, maybe on a daily basis?
Clement Mullins: Sander Borgli, Unknown Executive, Aksel Olesen, Ole Hjertaker
Speaker Change: Yeah, when the rig is working, as it has been both in Namibia and Canada now in two rounds, we have seen operating expenses in the region around $200,000 per day.
Speaker Change: That is, of course, with full marine crew, full operational crew, full drilling activities, ongoing day and night, with that rotation pattern.
Clement Mullins: So when we, in between contracts, we can reduce operating expenses a lot.
Clement Mullins: And then it's really more down to, you know, how do we, how much of the equipment do we want and do we need to run all the time to make sure that it's ready to go, that it's hot and can go straight out and drill on a new contract.
Clement Mullins: So from a modeling perspective, I think if you put in $75,000 to $100,000 per day, you should be pretty safe on the cost side. We will of course manage cost and limit that as much as we can, but our primary objective here is to get the rig out working again.
Clement Mullins: So we generate, you know, positive cash flows from the rate in operations.
Speaker Change: Makes sense. This was kind of like the worst case scenario. That's all for me. Thank you for taking my questions. Thank you.
Clement Mullins: Ltd Ltd Ltd
Clement Mullins: Sander Borgli, Unknown Executive, Aksel Olesen, Ole Hjertaker
Clement Mullins: Sander Borgli, Unknown Executive, Aksel Olesen, Ole Hjertaker
Speaker Change: Next we've received a question on the side here. You've sold a 2005 built container vessel. What are your plans for the other older container vessels in the fleet?
Speaker Change: and you know as we have seen over time now we typically own vessels until we see that we cannot really and you know charter these vessels longer term and typically we sell them own vessels that are older than 20 years
Speaker Change: Sander Borgli, Unknown Executive, Aksel Olesen, Ole Hjertaker
Speaker Change: from that sale.
Speaker Change: We also have some other legacy, older container ships in the fleet. We have seven 4100TU container ships with MSC that's really on a bare boat financing structure. Those vessels will, there are purchase obligations on those vessels, basically early second quarter next year. So those vessels would also then effectively be phased out.
Speaker Change: Sander Borgli, Unknown Executive, Aksel Olesen, Ole Hjertaker
Speaker Change: So we are monitoring that market, of course, very closely. A positive side effect of doing this with these solar vessels is that these are also, from a fuel efficiency perspective, the least efficient vessels in the portfolio. And if you look away from the 7 4100s and then the old 1700 that's remaining,
Speaker Change: All the other vessels are modern eco-designed vessels built from 2013 onwards with eco-engines, etc. So, you know, the effect of that is that we will actually have an improvement in our fuel efficiency ratio.
Clement Mullins: Aksel Olesen, Sander Borgli, Unknown Executive, Aksel Olesen, Ole Hjertaker
Clement Mullins: Thank you all.
Speaker Change: Transcription by CastingWords
Speaker Change: Okay, there are no further questions from the audience. I would like to thank everyone for participating in this conference call.
Clement Mullins: If you have any follow-up questions to the management through contact details or in the press release, or you can get in touch with us through the contact page on our webpage, www.sflcorp.com. Thank you all.
Speaker Change: Music Music Music Music Music Music Music Music Music
Speaker Change: Sander Borgli, Sander Borgli, Unknown Executive, Aksel Olesen, Ole Hjertaker
Speaker Change: Ukulele Symphony Orchestra
Speaker Change: Thanks for watching!