Business Context and Reporting Period
Company: Ship Finance International Limited (SFL Corp Ltd.)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: First Quarter ended March 31, 2011 (Preliminary Results)
Filing Date: May 23, 2011 (Results); May 18, 2011 (Vessel Sale Announcement)
Business Overview: SFL is a major ship owning company with a fleet of 74 vessels and rigs, including crude oil tankers, drybulk carriers, container vessels, and offshore drilling units. The majority of the fleet is employed on long-term fixed-rate charters.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Total Operating Revenues | $72.0 million | $82.6 million |
| Net Operating Income | $38.1 million | $78.9 million |
| Net Income | $32.1 million | $57.0 million |
| Earnings Per Share (Basic) | $0.41 | $0.72 |
| Cash and Cash Equivalents | $90.1 million | $103.6 million |
| Total Available Liquidity | $144 million | Filing text does not provide a clear value |
| Long-term Debt | $1,866.4 million | $1,826.4 million |
| Quarterly Dividend | $0.39 per share | Filing text does not provide a clear value |
Note: Operating revenues exclude $26.3 million classified as repayment of investments in finance leases and $93.8 million earned by assets classified as 'investment in associate'.
Material Changes vs. Prior Period
- Revenue Decline: Total operating revenues decreased by approximately 12.8% compared to Q1 2010, primarily due to the absence of significant gains on asset sales recorded in the prior year ($27.8 million gain in Q1 2010 vs. $0.3 million in Q1 2011).
- Profit Share: Accrued profit share from Frontline charters was $2.3 million ($0.03/share), slightly higher than the $2.0 million in Q4 2010 but below historical averages due to a soft tanker spot market.
- Asset Portfolio: The company sold two single-hull VLCCs in Q1 2011 and agreed to sell two combination carriers (Front Leader and Front Breaker) in Q2 2011, aligning with a strategy to maintain a young, modern fleet.
- Acquisitions: Acquired a jack-up drilling rig (Soehanah) in February 2011 and two container vessels (CMA CGM Magellan and Corte Real) in March/April 2011.
Guidance, Outlook, and Management Commentary
- Dividend Increase: The Board declared an increased quarterly dividend of $0.39 per share, marking the fifth consecutive increase.
- Capital Commitments: Gross estimated remaining capital commitments are approximately $508 million. With $335 million in committed financing, the estimated net capital requirement is $173 million.
- Financing Strategy: The company maintains a conservative financing profile. In Q1 2011, it issued $125 million in senior unsecured convertible notes and extended the maturity of a $167 million VLCC loan facility by six years (to 2018).
- Charter Backlog: As of March 31, 2011, the fixed-rate charter backlog was approximately $7.1 billion with an average remaining term of 8.3 years.
- Outlook: Management expects to secure financing for remaining newbuildings well before delivery. They anticipate taking advantage of potentially softer asset pricing in soft shipping markets for opportunistic acquisitions.
- Risks: Key risks include fluctuations in charter hire rates and vessel values, changes in OPEC production levels, bunker price volatility, and potential disruption of shipping routes due to political events.
Important Facts for Investor Verification
- Accounting Treatment of Associates: Significant assets (four drilling units and one container vessel) are accounted for as "Investment in Associate" rather than consolidated subsidiaries. Their revenues and expenses are not fully reflected in the consolidated income statement but appear as "Results in associate" and "Interest income."
- Deferred Equity: Stockholders' equity excludes $177.9 million of deferred equity related to vessel acquisitions from Frontline, which is amortized over time.
- Upcoming Liquidity Events: Expected sale of the drilling rig West Prospero in June 2011 for $133 million, expected to release approximately $36 million in liquidity.
- Profit Share Volatility: Profit share income from Frontline charters is variable and dependent on spot market rates exceeding base charter rates, which can fluctuate significantly.
- Capital Expenditure Schedule: Verify the timing of the $508 million in capital commitments against the $335 million in committed financing to assess refinancing needs.