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, 2018
Release Date: November 20, 2018
SFL is a Bermuda-based maritime and offshore asset owner. The company operates a fleet of 84 vessels and rigs, focusing on long-term fixed-rate charters. The filing announces preliminary Q3 2018 results, a quarterly dividend declaration, and significant fleet renewal activities including the acquisition of container vessels and the sale of older tankers and drilling rigs.
Key Financial Metrics
| Metric | Q3 2018 | Q2 2018 |
|---|---|---|
| Total Operating Revenue | $111.0 million | $96.8 million |
| Net Income | $29.7 million | $15.8 million |
| Earnings Per Share (Basic) | $0.28 | $0.15 |
| Adjusted EBITDA (Company) | $85.7 million | Not explicitly stated |
| Adjusted EBITDA (Associates) | $34.8 million | Not explicitly stated |
| Cash and Cash Equivalents | $144.0 million | $144.8 million |
| Marketable Securities | $127.1 million | $113.6 million |
| Total Debt (Short + Long Term) | $1.95 billion | $1.92 billion |
Note: Total debt calculated as Short term interest bearing debt ($604M) + Long term interest bearing debt ($1.35B).
Material Changes vs. Prior Period
- Revenue Growth: Operating revenue increased by approximately 15% compared to Q2 2018, driven by new vessel acquisitions and profit share income.
- Profitability: Net income nearly doubled from $15.8 million in Q2 to $29.7 million in Q3. This was supported by a significant gain on derivatives ($8.2 million) and reduced impairment charges compared to Q2 ($6.8 million vs. $21.8 million).
- Impairment Charges: The company recorded a $6.8 million impairment charge related to the sale of older VLCCs, a decrease from the $21.8 million charge in the prior quarter.
- Derivative Gains: Income related to non-designated derivatives surged to $8.2 million in Q3 from $0.7 million in Q2.
Guidance, Outlook, and Management Commentary
Dividend Declaration
The Board declared a quarterly cash dividend of $0.35 per share, marking the 59th consecutive quarterly dividend. Payment is scheduled for December 28, 2018.
Strategic Updates
- Fleet Renewal: Acquired three 10,600 TEU container vessels with minimum 6-year charters to Maersk Line, adding ~$260 million to the fixed-rate charter backlog. Agreed to sell the jackup rig Soehanah for $84 million (expected gain of ~$8 million).
- Divestments: Sold two older VLCCs subsequent to quarter end and agreed to sell a third. The company aims to reduce exposure to older assets.
- Financing: Issued NOK 600 million (~$73.7 million) in five-year senior unsecured bonds. Secured $400 million in lease financing for four container vessels, freeing up $80 million in cash.
- Outlook: Management expects Q4 charter rates for crude oil tankers to be significantly stronger than Q3. The dry bulk market strengthened in early Q4 but has softened recently.
Risks and Contingencies
- Offshore Support Vessels: Market remains challenging; two vessels (Sea Cheetah and Sea Jaguar) are subject to a restructuring agreement where the company receives only 50% of charter hire until end of 2019.
- Market Volatility: Forward-looking statements are subject to risks including fluctuations in charter rates, vessel values, bunker prices, and geopolitical events.
Investor Verification Checklist
- Dividend Sustainability: Verify the cash flow coverage of the $0.35 dividend given the restructuring on offshore support vessels.
- Asset Sales Execution: Confirm the closing and final proceeds of the Soehanah rig sale and the remaining VLCC divestments to realize expected gains.
- Derivative Exposure: Assess the sustainability of the $8.2 million derivative gain, which significantly boosted Q3 net income.
- Debt Maturity Profile: Review the impact of the new NOK bond issuance and lease financings on the overall debt maturity schedule.
- Offshore Restructuring: Monitor the performance of the offshore support vessel segment under the 50% payment arrangement through 2019.