SFL Corp Ltd. Q1 2022 Financial Summary
Business Context and Reporting Period
This Form 6-K filing presents the unaudited condensed interim financial statements for SFL Corporation Ltd. (SFL) for the three months ended March 31, 2022. SFL is a Bermuda-based international ship owning and chartering company with a diverse asset base including dry bulk carriers, container vessels, tankers, car carriers, and offshore drilling rigs. The company operates primarily through medium to long-term bareboat or time charters.
Key Financial Metrics
| Metric (in thousands, except per share) | Q1 2022 | Q1 2021 |
|---|---|---|
| Total Operating Revenues | $152,389 | $109,128 |
| Net Operating Income | $59,328 | $42,065 |
| Net Income | $47,021 | $31,482 |
| Diluted Earnings Per Share | $0.36 | $0.26 |
| Net Cash Provided by Operating Activities | $81,507 | $62,992 |
| Total Debt Principal | $2,039,712 | $1,903,755 |
| Cash and Cash Equivalents | $149,289 | $216,005 |
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased by 39.6% to $152.4 million, driven primarily by vessel acquisitions in 2021 and 2022 and higher bareboat charter revenues from drilling rigs.
- Profitability: Net income rose 49.3% to $47.0 million. Net operating income increased to $59.3 million, aided by higher revenues which outpaced a $16.2 million increase in depreciation expenses.
- Expense Increases: Vessel operating expenses rose $7.2 million due to new acquisitions and higher drydocking costs. Depreciation increased significantly due to the consolidation of the West Hercules drilling unit and new vessel purchases.
- Capital Deployment: Investing activities used $175.1 million, a sharp increase from $8.6 million in Q1 2021, primarily due to $179.1 million spent on vessel acquisitions and capital improvements.
- Debt Profile: Total debt principal increased to $2.04 billion. The company drew down $206.6 million in new debt facilities to fund acquisitions, partially offset by $71.1 million in repayments.
Guidance, Outlook, and Risks
- Seadrill Restructuring: Seadrill emerged from Chapter 11 bankruptcy in February 2022. SFL is transitioning the chartering and management of its drilling rigs (West Hercules and West Linus). West Hercules is expected to be redelivered to SFL in H2 2022, with operational management shifting to Odfjell. West Linus is transitioning to direct charter with ConocoPhillips.
- Dividends: The Board declared a dividend of $0.20 per share for Q1 2022 (paid March 2022) and a subsequent dividend of $0.22 per share (payable June 2022).
- Accounting Changes: SFL adopted ASU 2020-06 on January 1, 2022, reclassifying convertible notes entirely as liabilities, resulting in a $1.6 million net adjustment to equity.
- Risks: Key risks include the cyclical nature of the shipping market, potential disruptions from the Russia-Ukraine conflict, inflationary pressures on operating costs, and the successful execution of the Seadrill charter transitions. The company notes that while current contracts are unaffected by the conflict, future third-party impacts remain uncertain.
Investor Verification Checklist
- Verify the status of regulatory approvals for the assignment of the West Linus drilling contract to SFL and the transition of operational management to Odfjell.
- Monitor the redelivery timeline of the West Hercules rig in H2 2022 and the associated marketing efforts for 2023 charter opportunities.
- Review the impact of rising interest rates (LIBOR/SOFR) on the company's $1.39 billion of U.S. dollar floating rate debt.
- Confirm the execution of the sale of the two VLCCs (Front Energy and Front Force) and the container vessel MSC Alice, which occurred in April 2022 (subsequent to the reporting period).
- Assess the company's compliance with debt covenants, particularly regarding the $83 million corporate guarantee for the West Hercules subsidiary.