SFL Corporation Ltd. Q1 2023 Preliminary Results Summary
Business Context and Reporting Period
This Form 6-K filing, dated May 15, 2023, presents the preliminary unaudited financial results for SFL Corporation Ltd. for the quarter ended March 31, 2023. SFL is a diversified maritime company operating container vessels, car carriers, tankers, dry bulk carriers, and offshore drilling rigs. The company declared its 77th consecutive quarterly dividend of $0.24 per share.
Key Financial Metrics
- Revenue: Total U.S. GAAP operating revenues were $173.3 million. Total charter hire received was $182.4 million, including $4.9 million in profit share.
- Profitability: Net income was $6.3 million ($0.05 per share). Adjusted EBITDA was $102.6 million from consolidated subsidiaries and $7.7 million from associated companies.
- Cash Flow: Net cash provided by operating activities was $81.1 million. Cash and cash equivalents totaled $185.2 million at quarter-end.
- Debt and Liquidity: The company secured over $1 billion in new financing arrangements in 2023. Unencumbered vessels were valued at approximately $202 million.
- Charter Backlog: Estimated fixed-rate charter backlog stands at approximately $3.7 billion with a weighted remaining term of 6.3 years.
Material Changes vs. Prior Period
- Revenue Decline: Operating revenues decreased to $173.3 million from $197.8 million in Q4 2022. This was primarily due to the drilling rig Hercules being out of service for a special survey, generating no revenue in the quarter.
- Net Income Volatility: Net income dropped significantly from $48.5 million in Q4 2022 to $6.3 million in Q1 2023. This was impacted by non-recurring items, including a $7.4 million vessel impairment charge, a $7.2 million net negative mark-to-market on equity investments/swaps, and a $0.5 million loss on bond repurchases. These were partially offset by a $10.1 million gain on the sale of vessels.
- Asset Disposition: The company sold two Suezmax crude oil tankers and one chemical tanker in Q1, with another chemical tanker sale expected in June 2023. This strategy aims to exit the short-term spot market for tankers.
Outlook, Management Commentary, and Risks
Management expects substantial earnings contributions from Q3 2023 onwards following the completion of the Hercules survey and the commencement of new contracts. Key developments include:
- New Contracts: A new contract for the Hercules in Namibia (approx. $50 million) and extensions for car carriers SFL Composer and SFL Conductor (approx. $155 million) have been secured.
- Capital Allocation: The Board authorized a share buyback program of up to $100 million. The company has secured financing for its newbuild program and refinanced near-term debt maturities.
- Risks: Forward-looking statements are subject to risks including global economic strength, currency fluctuations, cyclical market conditions, bunker prices, and potential disruptions to shipping routes due to geopolitical instability or piracy.
Investor Verification Checklist
- Verify the timing and revenue recognition of the new Hercules contracts in Canada and Namibia scheduled for Q3 and Q4 2023.
- Confirm the final sale proceeds and tax implications of the four tankers sold or under contract for sale.
- Monitor the execution of the $100 million share repurchase program and its impact on share count.
- Review the detailed reconciliation of Adjusted EBITDA to Net Income to understand the magnitude of non-cash adjustments.
- Assess the impact of the $100 million capital expenditure for the Hercules survey and upgrades on future cash flows.