SFL Corp Ltd. Form 6-K Summary
Business Context and Reporting Period
This Form 6-K reports the unaudited condensed interim financial results for SFL Corporation Ltd. ("SFL") for the nine months ended September 30, 2023. 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 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 |
|---|---|---|
| Total Operating Revenues | $542.7 million | $472.6 million |
| Net Operating Income | $167.2 million | $201.1 million |
| Net Income | $52.6 million | $154.3 million |
| Diluted Earnings Per Share | $0.41 | $1.16 |
| Operating Cash Flow | $262.2 million | $246.6 million |
| Cash and Cash Equivalents (Sep 30, 2023) | $118.0 million | $188.4 million (Dec 31, 2022) |
| Total Debt Principal | $2,085.2 million | $2,213.6 million (Dec 31, 2022) |
| Finance Lease Liabilities | $433.0 million | $473.0 million (Dec 31, 2022) |
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased 14.8% to $542.7 million, driven primarily by $102.0 million in drilling contract revenues from the Hercules rig (which began operations in July 2023) and increased time charter revenues.
- Profit Decline: Net income decreased significantly by $101.7 million (66%) to $52.6 million. This was caused by a $33.9 million decrease in net operating income and a $44.5 million increase in interest expense due to higher interest rates and new borrowings.
- Asset Disposals: The company recorded a net gain of $18.7 million on the sale of assets, including two Suezmax tankers, two chemical tankers, and one VLCC. A $7.4 million impairment charge was recorded on the chemical tankers prior to their sale.
- Capital Expenditures: Investing cash outflows decreased to $43.7 million from $288.0 million in the prior year, reflecting reduced newbuilding installments and vessel acquisitions compared to 2022, partially offset by $120.2 million in capital upgrades for the Hercules rig.
Guidance, Outlook, and Risks
- Outlook: Management expects continued growth through accretive acquisitions. Two new dual-fuel car carriers are under construction for delivery in 2024, contracted to K Line. The Hercules rig has secured contracts with Galp Energia (commencing Nov 2023) and Equinor (expected Q2 2024).
- Dividends: The Board declared a quarterly dividend of $0.25 per share on November 8, 2023, payable in December 2023. Previous quarters in 2023 saw dividends of $0.24 per share.
- Share Repurchases: Under a $100 million program authorized in May 2023, the company repurchased 1.1 million shares for $10.2 million during the period.
- Risks: Key risks include global inflationary pressures, the impact of the Russian-Ukrainian conflict and Middle East developments on supply chains, volatility in charter rates and vessel values, and the company's ability to service its significant indebtedness in a rising interest rate environment.
Investor Verification Checklist
- Debt Servicing: Verify the impact of rising SOFR rates on the $1.0 billion of floating-rate debt and the company's ability to meet covenants.
- Asset Valuation: Review the $7.4 million impairment charge on chemical tankers and assess potential further impairments given market volatility.
- Drilling Rig Utilization: Confirm the mobilization and revenue commencement dates for the Hercules rig under new contracts with Galp Energia and Equinor.
- Liquidity Position: Monitor the reduction in cash reserves from $188.4 million to $118.0 million against upcoming capital commitments for newbuildings ($135.9 million remaining).
- Related Party Exposure: Note that 11% of net income is derived from the associated company River Box, and significant related party transactions exist with Golden Ocean and Frontline.