SFL Corporation Ltd. - Q4 2021 Preliminary Results Summary
Business Context and Reporting Period
This Form 6-K filing, dated February 16, 2022, presents the preliminary unaudited financial results for SFL Corporation Ltd. for the quarter ended December 31, 2021. SFL is a Bermuda-based shipping company operating a diversified fleet of container vessels, car carriers, tankers, dry bulk carriers, and offshore drilling rigs. The company focuses on long-term time charters to blue-chip customers.
Key Financial Metrics
- Operating Revenue: $152.1 million (U.S. GAAP).
- Net Income: $80.1 million, or $0.63 per share.
- Charter Hire: Approximately $165.8 million received in the quarter, including $7.5 million in profit share.
- Adjusted EBITDA: $113.4 million from consolidated subsidiaries plus $7.9 million from associated companies (Total: $121.3 million).
- Cash Flow: Net cash provided by operating activities was $91.5 million.
- Liquidity: Cash and cash equivalents totaled $145.6 million, with an additional $21.2 million in marketable securities.
- Debt: Total interest-bearing debt (short and long term) was approximately $1.89 billion ($302.8 million short-term + $1.59 billion long-term). The company repaid $145 million of convertible notes in October 2021.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenue increased to $152.1 million from $135.4 million in Q3 2021.
- Profitability Surge: Net income rose significantly to $80.1 million from $33.2 million in Q3 2021, driven largely by a $39.3 million gain on the sale of assets.
- Asset Disposition: The company sold seven Handysize dry bulk vessels for net proceeds of $98 million.
- Dividend Increase: The quarterly cash dividend was increased to $0.20 per share, marking the 72nd consecutive dividend.
Outlook, Management Commentary, and Risks
Management Commentary: CEO Ole B. Hjertaker highlighted strong growth in revenue and EBITDA, noting the deployment of over $1 billion in new investments during 2021. The company ended the year with a fixed charter backlog of approximately $2.8 billion with a weighted remaining term of nearly 7 years. New blue-chip customers include Volkswagen Group, K-Line, and Trafigura.
Strategic Moves: SFL agreed to acquire four LR2 product tankers with 5-year charters to Trafigura and is constructing four dual-fuel car carriers. The company maintains a conservative profile, prioritizing long-term charters.
Risks and Contingencies:
- Seadrill Bankruptcy: Two drilling rigs are chartered to Seadrill subsidiaries, which filed for Chapter 11 bankruptcy. SFL has interim agreements to ensure uninterrupted performance but faces uncertainty regarding post-emergence employment.
- Market Volatility: The tanker spot market remains weak, and dry bulk freight rates softened from October highs, though the outlook remains positive due to port congestion.
- Forward-Looking Risks: Includes global economic strength, currency fluctuations, environmental regulations, and potential disruptions from the ongoing coronavirus outbreak.
Investor Verification Checklist
- Verify the sustainability of the $39.3 million gain on asset sales as a non-recurring item impacting net income.
- Confirm the status of the Seadrill Chapter 11 proceedings and the long-term employment security for the two drilling rigs.
- Review the $430 million in committed capital expenditures for newbuildings and the financing arrangements to fund them.
- Assess the impact of the $13.2 million charter hire excluded from U.S. GAAP operating revenue due to accounting treatment (sales-type leases and associates).
- Monitor the fixed charter backlog of $2.8 billion and the weighted average remaining charter term of 7 years.