Business Context and Reporting Period
This Form 6-K filing by Ship Finance International Limited (SFL) covers the period ending September 30, 2009. The filing primarily serves to distribute the Company's presentation slides regarding its Preliminary Second Quarter 2009 results, which were presented on August 20, 2009. SFL operates as a ship finance company with a fleet of vessels and offshore units, generating revenue through fixed-rate charters and profit-sharing arrangements.
Key Financial Metrics
- Net Income: $53.5 million ($0.72 per share) for 2Q 2009. This figure includes a non-recurring gain on bond repurchases and non-cash asset impairments.
- Profit Share: $8.0 million ($0.11 per share) accumulated in 2Q 2009; $22.5 million accumulated in the first half of 2009.
- EBITDA (Pro-forma): $198.4 million ($2.65 per share) including accumulated profit share. Excluding profit share, EBITDA was $190.4 million ($2.54 per share).
- Dividend: Declared quarterly dividend of $0.30 per share, representing an approximate 10% yield based on the August 19, 2009 share price of $12.15.
- Debt: Consolidated interest-bearing debt of $2.4 billion, including $2.0 billion in bank loans held by subsidiaries accounted for as investments in associates.
- Liquidity: Available cash of $61.6 million as of June 30, 2009.
- Charter Backlog: $7.4 billion in total charter payments with a weighted average term of 13.1 years.
Material Changes and Unusual Items
The reported net income for 2Q 2009 was significantly influenced by non-operating and non-cash items:
- Bond Repurchase Gain: The Company repurchased one-third of its remaining 8.5% Senior Notes (face value $148 million) at a 15.5% discount, recognizing a non-recurring gain of $41.7 million. This was partially financed by $90 million in bank loans and $16.5 million from equity sales.
- Asset Impairment: A non-cash impairment charge of $33.9 million was recorded. This included $26.8 million linked to six single-hull tankers and $7.1 million related to a financial investment in a container vessel owner/operator.
- Asset Sales: The jack-up rig West Ceres was sold for $135 million, yielding $40 million in net cash proceeds after debt repayment. The single-hull VLCC Front Duchess was sold with estimated net proceeds of $2.5 million.
- Operational Performance: Fixed charter hire increased 0.9% quarter-over-quarter to $216.0 million. Offshore charter hire rose to $113.4 million, while container charter hire declined slightly to $11.2 million.
Guidance, Outlook, and Risks
Outlook and Strategy:
- Dividend Policy: The Company maintains a strong dividend capacity supported by a substantial charter backlog. Shareholders may elect to receive dividends in cash or stock (offered at a 5% discount to market price).
- Capital Allocation: The "At the Market" (ATM) equity program was discontinued after utilizing less than 20% of the registered shares. Future capital needs are limited, with scheduled investments of $246 million through 2012 offset by contracted vessel sales of $217 million.
- Refinancing: Management states there are no refinancing needs in the near term and the Company is in compliance with all bank covenants.
Risks and Contingencies:
- Forward-looking statements are subject to risks including global economic strength, currency and interest rate fluctuations, and changes in charter hire rates and vessel values.
- Operational risks include bunker price volatility, drydocking costs, and potential disruptions to shipping routes due to political events or accidents.
- Performance depends on the financial health of major charterers, including Seadrill and Frontline.
Investor Verification Checklist
- Verify the sustainability of the $0.30 quarterly dividend given the significant one-time gain ($41.7m) and impairment charges ($33.9m) impacting 2Q 2009 net income.
- Confirm the status of the remaining single-hull vessel fleet and the timeline for their disposal or replacement, as these assets were subject to impairment.
- Review the terms of the profit-sharing agreements with Frontline and Seadrill to understand the variability of future cash flows beyond fixed charter rates.
- Assess the impact of the discontinued ATM program on future equity financing capabilities.
- Monitor the $2.4 billion debt portfolio for upcoming maturities and covenant compliance, despite management's assertion of no near-term refinancing needs.