SFL Corp. Ltd. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Financials: EBITDA equivalent was $132 million in Q4, significantly up from the second quarter. Net income was around $20 million or $0.15 per share. Fixed rate backlog stands at approximately $4.3 billion, with 2/3 to investment-grade customers. A quarterly dividend of $0.27 per share was declared.
• Fleet Updates: In 2024, took delivery of 2 LNG dual-fuel PCTCs, 3 LR2 tankers, 2 dual-fuel LNG chemical tankers. Placed orders for 5 16,700 TEU container ships. Upgraded 2 container vessels for Maersk in Q1 2025. Sold 1,700 TEU containership and expect to sell sister vessel Asian Ace.
• Regulatory Focus: Tightening emissions regulations from IMO and EU drive need for continuous vessel maintenance and upgrades to meet customer requirements.

Segment Performance

• Container vessels: Largest segment with almost 68% of the backlog. Charter revenue from container fleet was approximately $85 million in Q4, down from previous quarter due to scheduled dry dockings and upgrades.
• Car carrier fleet: Generated approximately $26 million in gross charter hire in Q4, including profit share from savings.
• Tanker fleet: Generated approximately $42 million in gross charter hire in Q4, up from approximately $37 million in the previous quarter as all 5 tankers acquired in 2024 were delivered.
• Dry bulk vessels: 8 dry bulk vessels on long-term charters generated approximately $23 million in gross charter hire in Q4, including approximately $900,000 in profit share from Capesize vessels on long-term charters to Golden Ocean. The 7 vessels employed in the spot and short-term market contributed with approximately $7.4 million in net charter revenue.
• Energy assets: Generated approximately $55 million in contract revenues in Q4, down from approximately $86 million in the third quarter due to the Hercules finishing its contract with Equinor in Canada. Linus rig under long-term contract with ConocoPhillips in Norway until May 2029 had Q4 revenue of approximately $20 million.

Guidance

• Fixed rate backlog is ~$4.3 billion, with 2/3 to investment-grade customers providing cash flow visibility.
• Expect the Hercules rig to find work later in 2025, with 2026 looking promising.
• Reinvestment of proceeds from Golden Ocean deal will be evaluated on a deal-by-deal basis for optimal return.

Risks

• Uncertainties in shipping, offshore, and credit markets.
• Potential appeal of the Seadrill ruling, which could delay receipt of ~$48 million compensation.
• Volatility in shipping markets and impact of regulatory changes on vessel operations and costs.

Question and Answer

• Q: How should we think about the OpEx cost as the Hercules rig is warm stacked off of Norway? A: The rig is idle now, with upgrades planned. The market for the rig is slow in early 2025, but 2026 looks promising. Upgrades will make the rig more attractive in the long run.
• Q: What is the impact of tariffs on car carriers and container ships? A: Strong counterparties like Volkswagen Group and Maersk can absorb any issues. Trade patterns have changed, reducing the impact compared to previous years.
• Q: How should we expect to redeploy the net proceeds from Golden Ocean's purchase option? A: Neutral on allocation, will reinvest the capital for a better return than keeping the legacy deal.
• Q: Are there any significant upgrades or CapEx required to the Hercules if it were to work on offshore Norway? A: Some investments are manageable, and oil companies may compensate for effective investments. No major significant upgrades are required.
• Q: What's your view regarding the huge delivery backlog of container ships in the coming years and its effect on profitability? A: The container fleet is mainly chartered out until 2030, with strong demand for large container assets. No major impact on profitability in 2026-2027 is expected based on current backlog.