SFL Corporation Ltd. - Q4 2022 Preliminary Results Summary
Business Context and Reporting Period
This Form 6-K filing, dated February 15, 2023, presents the preliminary unaudited financial results for SFL Corporation Ltd. for the quarter ended December 31, 2022. SFL is a Bermuda-based shipping company operating a diversified fleet of container vessels, car carriers, tankers, dry bulk carriers, and offshore drilling rigs. The company focuses on long-term fixed-rate charters with blue-chip customers.
Key Financial Metrics
- Revenue: Total U.S. GAAP operating revenues were $197.8 million for the quarter, compared to $166.9 million in Q3 2022. Total charter hire received was approximately $208 million, including $6.9 million in profit share.
- Profitability: Net income was $48.5 million ($0.38 per share). Adjusted EBITDA (non-GAAP) was $127.5 million from consolidated subsidiaries, plus $7.9 million from associated companies.
- Cash Flow: Net cash provided by operating activities was $108.5 million. Cash and cash equivalents totaled $188.4 million as of December 31, 2022.
- Debt and Liquidity: Short-term and current portion of long-term interest-bearing debt was $921.3 million. Long-term interest-bearing debt was $1.28 billion. The company holds approximately $180 million in unencumbered vessels.
- Dividends: The Board declared a quarterly cash dividend of $0.24 per share, the 76th consecutive dividend.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased by approximately 18.5% quarter-over-quarter, driven by new vessel deliveries and higher charter hire.
- Non-Recurring Items: Net income included $1.4 million in positive mark-to-market effects on derivatives, $10.5 million in delayed charter payments from Seadrill, and $2.9 million in gains on bond and equity investments.
- Fleet Expansion: Four new vessels were delivered in Q4, including two feeder container vessels and a mid-size car carrier, increasing the fixed-rate charter backlog.
- Acquisitions: The company acquired four modern Suezmax tankers with six-year charters to a Koch Industries subsidiary, adding approximately $250 million to the backlog.
Guidance, Outlook, and Risks
Management maintains a strategy of acquiring assets with long-term charters to reputable operators. The fixed-rate charter backlog stands at approximately $3.6 billion with a weighted average remaining term of 6.6 years. The company expects to continue expanding relationships and building backlog through selective acquisitions.
Outlook and Contingencies:
- Divestment: Agreed to sell a 2009-built Suezmax tanker for a net sales price of ~$39 million, expecting a $5 million accounting gain in Q1 2023.
- Financing: Issued a new $150 million sustainability-linked unsecured bond in January 2023. Remaining capital expenditures for newbuildings are approximately $210 million.
- Risks: Forward-looking statements are subject to risks including global economic strength, currency fluctuations, cyclical market conditions, charterer performance, and geopolitical instability.
Investor Verification Checklist
- Verify the $10.5 million delayed payment from Seadrill and its impact on future cash flow stability.
- Confirm the timing and accounting treatment of the expected $5 million gain on the Suezmax tanker sale in Q1 2023.
- Review the $210 million remaining capital expenditure requirement for newbuildings and the status of debt financing.
- Assess the composition of the $3.6 billion charter backlog, specifically the portion subject to purchase options or profit-sharing features.
- Monitor the status of the Hercules rig's new contract with ExxonMobil Canada Ltd. expected to commence in Q2 2023.