SFL Corporation Ltd. Q2 FY2025 earnings call

• Announced an 86th consecutive dividend of $0.20 per share. - Reported revenues of $194 million and EBITDA equivalent cash flow of $112 million for the quarter. - Took steps to strengthen charter backlog with agreements with strong counterparties. - Divested older less efficient vessels, including 57,000 deadweight dry bulk vessels. - Advanced commitment to new technology with 11 vessels capable of operating on LNG fuel, including 5 new buildings under construction. - Secured new 5-year charters for 3 9,500 TEU container vessels on charter to Maersk, adding $225 million to backlog. - Hercules rig remained idle, impacting near-term financial results. - Fleet was reduced with disposal of 20 older vessels, average age of sold vessels about 18 years, reducing fleet average by about 2 years. - 95% of charter revenues from all assets came from time charter contracts in Q2.

The company's segments had the following financial performance: Container fleet generated approximately $82 million in gross charter hire, including profit share from fuel savings on 7 large container vessels. The liner fleet generated approximately $26 million in gross charter hire. The tanker fleet generated approximately $41 million in gross charter hire, down from the previous quarter due to 3 vessels underweight scheduled dry docking. The dry bulk vessels generated approximately $19 million in gross charter hire, with 7 vessels in the spot and short-term market contributing approximately $5.8 million in net charter revenue. The rigs generated approximately $26 million in charter hire. Container vessels dominate the backlog, accounting for about 71% of the portfolio.

• Dividend adjusted to $0.20 per share. - Charter backlog is currently $4.2 billion, with 2/3 to investment-grade customers. - Expect dry docking costs to taper down significantly in Q3 and Q4. - Continue to look for investment opportunities with available capital from divestments. - Uncertainty regarding timing for Hercules rig to return to work.

• Litigation with Seadrill related to Hercules rig redelivery, scheduled for first half of 2026. - Market volatility affecting employment opportunities for the Hercules rig. - Dry docking expenses impacting costs in the quarter. - Stricter regulatory demands from IMO and EU on shipping emissions posing challenges.

Q: What's the status with the lawsuit with Seadrill?

A: There are 2 lawsuits, larger one relating to Hercules redelivery scheduled for first half of 2026, and awarded adjustment of approximately $45 million to $50 million with Seadrill guarantee.

Q: Thought process on lowering the dividend?

A: Rig is idle with warm stack rate and financing costs, divestments providing investment capacity, adjustment to $0.20 reflects distribution capacity from other assets and investment potential when rig is working.

Q: Dry docking costs for back half of year?

A: Expect costs to be lower, averaging under previous quarter's levels, with Q3 and Q4 expected to have lower dry docking costs.

Q: Opportunity landscape for acquisitions?

A: Focused on right deals, have investment capacity, been active in past with $2 billion added to backlog and over $1 billion invested, with available capital from recent divestments.

Q: Organic EBITDA contribution from energy side?

A: Liners have charter rate and OpEx, Hercules has rental income, but energy segment has negative drag currently with uncertainty on rig employment.