Business Context and Reporting Period
Company: Ship Finance International Limited (SFL)
Filing Type: Form 6-K (Preliminary Financial Results)
Reporting Period: Quarter ended September 30, 2013
Filing Date: November 27, 2013
SFL is a Bermuda-based shipping and offshore finance company. The filing announces preliminary third-quarter 2013 results, a quarterly dividend declaration, and updates on fleet operations, including the disposal of two VLCCs and refinancing of an ultra-deepwater drilling rig.
Key Financial Metrics
| Metric | Q3 2013 | Q2 2013 |
|---|---|---|
| Charter Revenues (Non-GAAP) | $157 million | $154 million |
| Total Operating Revenues (GAAP) | $68.1 million | $66.0 million |
| EBITDA (Non-GAAP) | $121 million | $122 million |
| Net Income (GAAP) | $13.5 million | $25.1 million |
| Earnings Per Share (Basic) | $0.14 | $0.29 |
| Net Cash from Operating Activities | $19.8 million | $28.2 million |
| Liquidity Position | $239 million | N/A |
| Cash and Cash Equivalents | $59 million | $41 million |
Debt and Capital: The company refinanced $390 million of bank debt related to the ultra-deepwater drilling rig West Taurus. Total liquidity includes approximately $180 million in available revolving credit facilities.
Material Changes vs. Prior Period
- Net Income Decline: Net income decreased from $25.1 million in Q2 to $13.5 million in Q3. This was primarily due to a non-cash mark-to-market loss on interest rate hedge derivatives and a $1 million non-cash expense related to convertible bond equity costs.
- EBITDA Stability: EBITDA remained relatively flat at $121 million compared to $122 million in the prior quarter.
- Asset Disposal: The company sold two older VLCCs (Front Champion and Golden Victory) in November 2013, receiving approximately $43 million in cash proceeds and $79 million in amortizing notes from Frontline Ltd.
- Charter Termination: Hire-purchase agreements for two Suezmax tankers (Glorycrown and Everbright) were terminated in September 2013 due to charterer non-payment; vessels are now trading in the spot market.
Guidance, Outlook, and Risks
Management Commentary and Outlook
Management maintains a conservative strategy focused on long-term fixed-rate charters. The offshore segment remains a significant contributor to distribution capacity. The company expects positive cash contributions from new investments (four 8,700 TEU container vessels and a harsh environment jack-up rig) starting in 2014.
Dividend
The Board declared a quarterly cash dividend of $0.39 per share, marking 39 consecutive quarters of dividends. Payment is scheduled for December 30, 2013.
Risks and Contingencies
- Market Conditions: Spot markets for VLCCs, Suezmax, and container vessels remain soft. The company does not expect material cash sweep contributions from Frontline vessels in 2013.
- Construction Delays: Four 4,800 TEU container vessels face delays due to shipyard issues, with the first delivery now scheduled for December 2013. The company is monitoring potential charter terminations linked to these delays.
- Early Termination: A tax-lease structure for two 13,800 TEU container vessels is expected to terminate in Q1 2014, requiring capital reinvestment.
Investor Verification Checklist
- Dividend Sustainability: Verify the ability to maintain the $0.39 quarterly dividend given that Q3 net income ($13.5m) was significantly lower than the dividend payout.
- Derivative Exposure: Review the impact of the non-cash mark-to-market loss on interest rate hedges and future volatility risks.
- Newbuilding Progress: Monitor the delivery schedule and chartering status of the delayed 4,800 TEU vessels and the upcoming 8,700 TEU vessels.
- Frontline Transaction: Assess the cash flow implications of the $79 million amortizing notes received from Frontline versus the terminated charters.
- Liquidity Coverage: Confirm the drawdown status of the $180 million revolving credit facility and upcoming capital expenditure requirements for newbuildings in 2014.