SFL Corporation Ltd. Q1 2021 Preliminary Results Summary
Business Context and Reporting Period
This Form 6-K filing, dated May 12, 2021, presents the preliminary unaudited financial results for SFL Corporation Ltd. for the quarter ended March 31, 2021. SFL is a Bermuda-based shipping company operating a diversified fleet of container vessels, car carriers, dry bulk carriers, tankers, and offshore drilling rigs. The company focuses on long-term charter contracts to provide cash flow visibility.
Key Financial Metrics
- Operating Revenue: $109.1 million (U.S. GAAP).
- Net Profit: $31.5 million ($0.27 per share).
- Charter Hire Received: Approximately $135 million (includes $2.6 million profit share).
- Adjusted EBITDA: $83.9 million from consolidated subsidiaries plus $13.8 million from associated companies (Total: $97.7 million).
- Cash Flow: Net cash provided by operating activities was $63.0 million.
- Liquidity: Cash and cash equivalents totaled $216.0 million; marketable securities were $21.2 million.
- Debt: Short-term and current portion of long-term interest-bearing debt was $522.5 million; long-term interest-bearing debt was $1.10 billion.
- Dividend: Declared a quarterly cash dividend of $0.15 per share (69th consecutive).
Material Changes vs. Prior Period
- Revenue: Operating revenue decreased to $109.1 million from $114.9 million in Q4 2020. This decrease is partly due to accounting treatment excluding $15.5 million of charter hire classified as repayment of investment in sales-type leases.
- Profitability: The company returned to profitability with a net income of $31.5 million, compared to a net loss of $165.2 million in Q4 2020. The prior quarter's loss was heavily impacted by a $252.6 million vessel impairment charge, which did not recur in Q1 2021.
- Market Performance: Spot market results improved for dry bulk and tanker segments compared to Q4 2020, driven by increased freight rates and port congestion.
Outlook, Management Commentary, and Risks
Strategy and Growth: Management highlighted a fixed-rate charter backlog of approximately $2.4 billion. Recent strategic moves include an agreement to acquire a 5,300 TEU vessel chartered to Maersk Line and an agreement to build two 7,000 CEU LNG dual-fuel car carriers for the Volkswagen Group, adding over $200 million to the backlog.
Financing: Subsequent to the quarter end, SFL successfully placed $150 million in senior unsecured sustainability-linked bonds due May 2026 at a 7.25% coupon to refinance existing debt.
Risks and Contingencies:
- Seadrill Bankruptcy: Two drilling rigs (West Linus and West Hercules) are chartered to Seadrill subsidiaries, which filed for Chapter 11 protection in February 2021. SFL has interim agreements ensuring 75% of invoiced lease hire to cover debt service, but long-term outcomes remain uncertain.
- Market Volatility: Risks include fluctuations in charter rates, vessel values, global economic strength, and the ongoing impact of the coronavirus pandemic on trade demand.
- Accounting Items: A credit loss provision of $7.8 million was recorded for financial assets under U.S. GAAP.
Investor Verification Checklist
- Verify the sustainability and terms of the interim agreements with Seadrill regarding the two rigs in Chapter 11 proceedings.
- Confirm the delivery timelines and financing arrangements for the newbuild LNG car carriers and the 5,300 TEU vessel acquisition.
- Review the reconciliation of Adjusted EBITDA to Net Income to understand the impact of non-cash items and interest expenses.
- Monitor the utilization rates and spot market performance of the 10 dry bulk vessels and 2 Suezmax tankers trading in the short-term market.
- Assess the impact of the $150 million bond issuance on the company's overall debt maturity profile and interest coverage.