SFL Corporation Ltd. Q1 2020 Preliminary Results Summary
Business Context and Reporting Period
This Form 6-K filing, dated May 20, 2020, presents the preliminary unaudited financial results for SFL Corporation Ltd. for the quarter ended March 31, 2020. SFL is a Bermuda-based shipping and offshore energy company operating a fleet of container vessels, tankers, dry bulk carriers, and drilling rigs. The reporting period coincides with the onset of the global COVID-19 pandemic and significant volatility in oil and shipping markets.
Key Financial Metrics
| Metric | Q1 2020 | Q4 2019 |
|---|---|---|
| Operating Revenue (GAAP) | $121.9 million | $119.9 million |
| Charter Hire Received | $161.0 million | Not explicitly stated |
| Net Loss (GAAP) | ($87.1) million | $23.6 million |
| Adjusted EBITDA (Non-GAAP) | $93.7 million (Consolidated) + $26.2 million (Associates) | Not explicitly stated |
| Cash and Cash Equivalents | $206.5 million | $199.5 million |
| Net Cash from Operating Activities | $74.5 million | $58.4 million |
| Fixed Rate Charter Backlog | $3.6 billion | Not explicitly stated |
Debt and Liquidity: The company held approximately $217 million in cash and cash equivalents (including non-consolidated subsidiaries) and $60.2 million in marketable securities. Total interest-bearing debt and finance lease liabilities were significant, with the company actively refinancing maturing debt at attractive rates.
Material Changes vs. Prior Period
- Net Loss vs. Profit: The company reported a net loss of $87.1 million compared to a net income of $23.6 million in Q4 2019. This reversal was driven primarily by non-cash items.
- Impairment Charges: A non-cash impairment charge of approximately $80.5 million was recorded, mainly relating to seven Handysize bulk carriers due to market conditions.
- Derivative and Investment Losses: The company recorded a $23.2 million non-cash loss on non-designated hedging derivatives and a $13.6 million unrealized loss on marketable securities due to extreme market volatility.
- Revenue Stability: Despite market headwinds, GAAP operating revenue increased slightly to $121.9 million from $119.9 million, supported by a high percentage of long-term fixed-rate charters.
Guidance, Outlook, and Management Commentary
Management Commentary: CEO Ole B. Hjertaker stated that SFL experienced no material business interruptions from COVID-19 and that all counterparties remained current on payments. The company emphasized its conservative profile and the visibility provided by its $3.6 billion fixed-rate charter backlog.
Dividend Adjustment: The Board declared a quarterly cash dividend of $0.25 per share, a reduction from previous levels, to retain cash and strengthen investment capacity amidst market volatility.
Outlook and Risks:
- Market Impact: Management expects reduced revenue from dry bulk and liner fleets trading in the spot market due to the pandemic and oil price drops.
- Offshore Sector: Discussions are ongoing with Seadrill Limited regarding the three drilling rigs, one of which (West Taurus) is currently laid up. SFL is seeking a sustainable path for these assets.
- Opportunities: The company is actively acquiring assets, including a 2020-built VLCC for $65 million, and securing new financing at low interest rates.
Investor Verification Checklist
- Non-GAAP Reconciliation: Verify the calculation of Adjusted EBITDA ($93.7M + $26.2M) against the reported GAAP Net Loss of ($87.1M) to understand the impact of the $113.5M in non-cash adjustments.
- Impairment Specifics: Review the valuation methodology for the $80.5M impairment charge on the seven Handysize bulk carriers and the timeline for potential divestment.
- Offshore Counterparty Risk: Monitor the status of negotiations with Seadrill Limited and the financial health of the counterparty, particularly regarding the laid-up West Taurus rig.
- Derivative Exposure: Assess the impact of the $23.2M mark-to-market loss on non-designated derivatives and the company's hedging strategy going forward.
- Debt Maturity Profile: Confirm the terms of the new $175M bank facility and the refinancing of the NOK 500M bond to ensure liquidity coverage for upcoming maturities.