Business Context and Reporting Period
Company: Ship Finance International Limited (SFL Corp Ltd.)
Filing Type: Form 6-K (Unaudited Condensed Interim Financial Statements)
Reporting Period: Six months ended June 30, 2014
Business Overview: A Bermuda-based global ship-owning company engaged in the ownership, operation, charter, purchase, and sale of vessels and offshore assets. The fleet includes oil tankers, drybulk carriers, container vessels, car carriers, jack-up drilling rigs, ultra-deepwater drilling units, offshore supply vessels, and chemical tankers.
Key Financial Metrics
| Metric (in thousands, except per share) | Six Months Ended June 30, 2014 | Six Months Ended June 30, 2013 |
|---|---|---|
| Total Operating Revenues | $155,656 | $131,078 |
| Net Operating Income | $77,432 | $69,626 |
| Net Income | $63,092 | $57,442 |
| Basic Earnings Per Share | $0.68 | $0.67 |
| Diluted Earnings Per Share | $0.64 | $0.60 |
| Cash Provided by Operating Activities | $57,077 | $96,222 |
| Cash Used in Investing Activities | ($16,024) Net Provided | ($133,031) Net Used |
| Cash Used in Financing Activities | ($82,262) | $17,290 Net Provided |
| Cash and Cash Equivalents (End of Period) | $49,480 | $41,023 |
| Total Debt Outstanding | $1,730,015 | $1,736,879 |
| Available Liquidity (Cash + Securities) | $111,369 | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased 18.8% to $155.7 million, driven primarily by a $14.3 million increase in profit sharing revenues (cash sweep) from Frontline Charterers and the addition of voyage charter revenues ($16.9 million) from two Suezmax tankers operating in the spot market.
- Profitability: Net income rose 9.8% to $63.1 million. This was supported by higher net operating income and interest income, partially offset by a decrease in equity earnings from associated companies ($14.0 million vs. $15.5 million) and higher non-operating expenses.
- Asset Sales and Gains: Gains on sale of assets and termination of charters decreased to $15.2 million from $18.0 million. The current period gain relates to a settlement of claims regarding four Handysize dry bulk carriers redelivered in 2012.
- Operating Expenses: Total operating expenses increased 17.5% to $93.4 million. Increases were due to higher ship operating expenses (related to Suezmax tankers now incurring operating costs) and depreciation (due to nine new container vessels delivered).
- Debt Structure: The company redeemed NOK500 million bonds due in 2014 and issued NOK900 million bonds due in 2019. Total debt remained relatively stable at approximately $1.73 billion.
Guidance, Outlook, and Risks
- Recent Developments:
- Acquisitions: Agreed to acquire two 82,000 dwt Kamsarmax dry-bulk carriers (delivered July/August 2014) and nine second-hand container vessels (delivered by June 2014).
- Newbuildings: Agreed to long-term time charters for four 8,700 TEU newbuilding container vessels under construction in Korea (deliveries expected late 2014 and Q1 2015).
- Disposals: Agreed to sell three 1999-built VLCCs (Front Opalia, Front Comanche, Front Commerce) in July 2014 for approximately $77.5 million in proceeds (cash and amortizing notes).
- Refinancing: In August 2014, refinanced two existing loan facilities ($149M and $77M) and arranged a new $101.4M facility.
- Related Party Concentration: Frontline Ltd. accounted for approximately 38% of consolidated operating revenues in the six months ended June 30, 2014. The company relies heavily on long-term charters with related parties (Frontline, Seadrill, Deep Sea).
- Financial Covenants: The company is in compliance with all financial covenants under its long-term debt facilities as of June 30, 2014.
- Risks: Key risks include fluctuations in charter rates and vessel values, changes in global oil exploration and drybulk demand, bunker price volatility, and potential disruption of shipping routes. The company utilizes interest rate and currency swaps to hedge exposure on NOK-denominated bonds and floating-rate debt.
Investor Verification Checklist
- Related Party Dependence: Verify the stability of the 38% revenue concentration from Frontline and the terms of the "cash sweep" profit-sharing agreements.
- Debt Maturity Profile: Review the repayment schedule, noting $156.3 million due in the remainder of 2014 and $262.9 million due in 2015.
- Equity Method Investments: Assess the performance and debt guarantees ($359 million aggregate) associated with subsidiaries like SFL West Polaris, SFL Deepwater, SFL Hercules, and SFL Linus.
- Asset Valuation: Confirm the carrying value of the three VLCCs agreed for sale in July 2014 against the expected $77.5 million proceeds.
- Liquidity Position: Monitor the $78.9 million available under secured revolving credit facilities and the $19.9 million available under the securities financing facility.