Earnings call transcript Q1 2023

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Operator

Good day and thank you for standing by. And welcome to the Q1 2023 SFL Corporation Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to Ole Hjertaker, CEO. Please go ahead, sir.

Ole Hjertaker

to quarter welcome call. and you SFL's conference first Thank of through [technical going highlights the difficulty] briefly the quarter. that for Apologies interruption.

Welcome to SFL's first quarter conference call.

start the will the I the briefly by First, going highlights of quarter. call through

Olesen, Following that, and call questions. be will take for through by up the the opening will concluded our financials, us Aksel CFO,

Sjølie, Officer, Our be for Chief Trym Operating the present also will Q&A session.

contain Securities of presentation, note XXXX. as that to Reform call expressions will statements. Before the of to this meaning are forward-looking the Private like we forward-looking I begin Words within would expects, Litigation estimates, our Act anticipates, intended U.S. statements or these conference such identify intends, similar

are future materially different on forward-looking risks of subject statements statements to statements. be guarantees plans activities These operations uncertainties to are performance. are the could that in and inherently Forward-looking and based forth the results cause of or not from future current expectations set those and

are Important factors to cause to the actual conditions results that include could offshore credit markets. not in limited shipping, and but differ

not You reliance forward-looking statements. undue should place on these therefore

our the and operating our which have Securities of on with direct the risks for condition. financial may Commission refer to bearing detailed Please and more and filings uncertainties, results Exchange a discussion operate

short-term the market. The tankers, of will around dry from included quarter from on $XXX rates The the primarily previous sale increase from lower million the of in which and due out vessels The charter total Seadrill previous in the the $XX XX% the quarter. were also spot to ratio charter restructuring. quarter, on employed long-term bulk long-term to were majority the one-off million and service vast the quarter spot-traded revenues revenues first of relating further. in went down a one After vessels charters payment charters rig

came last in total. over has The EBITDA income million approximately million $X in The million been at or $XXX in in the $X.XX the cash the flow equivalent was months, share. net the XX quarter and quarter $XXX equivalent around EBITDA per

the rig no quarter full primarily in some mark-to-market quarter, comprehensive interest and than bonds This undergoing drilling but was effects and upgrades. which were by had lower and while expenses also survey There the swaps scheduled caused one-off significantly a operating currency fourth special after revenues the relating in with quarter. to the Hercules, refinancing

is And is robust The in XXth share $XX over This in the fourth price we per supporting than quarterly line forward. have than closing capacity continued dividend the Friday. and And over announced represents going years, we quarter total dividend billion $X.XX XX% have our paid based dividend. and of with yield a on $X.X share. more a per more charter backlog dividend on

to after providing continued owned cash significantly have forward. the contribute revenues $X.X which visibility our charters, optionality, future income. vessels from traded increase share going importantly, And stands billion flow and managed recent backlog the fixed-rate to seen from at and also we Our vessels profit short-term backlog market can and excludes approximately the net continued excludes in figure

which with SFL this later be so-called charges car to our extended Volkswagen and We carriers, year report are very for Volkswagen. SFL to delivered are for pleased runners Conductor Composer, newbuilds dual-fuel to two the front currently

after to we the financing are from financial years, three have for from extend and vessels approximately Operating expenses per of charter share happy are per so to $X.XX We adding affected increases contributions and EBITDA net very with and the cash these a charters period around increases alone. around not performance million minimum year agreed the flow backlog. $X.XX fourfold to $XXX

and dual-fuel from to the quarter the this Volkswagen, the XX-year vessels will to currently time the on rate year. charter delivered new charters their estimated in expansion are effective newbuild fourth third The quarter be respective

new Galp a Hercules Canada. with to announced the in subsidiary plus for The to recently contract with Namibia of in contracts contract XXXX wells shorter is also back then an a and for Energia million new have back two be contract will Exxon more the testing. optional for for second-quarter rig new well than from This the contract opened onwards. backlog We the adds $XX

and car requirements on The With attractive and terms. newbuild been new sustainability-linked side quarter drilling secured have rigs. including of near-term at the $X was financings, very notes this with virtually busy more all our refinancing than financing billion our in capital program, financing expenditure very dual-fuel funding, carrier

trading continue to we spot in fleet And our market. renew of tankers the the all divest and

have with newer have we and increased and the chartering the line opportunities fuel-efficient selling reinvesting XXXX, build prices and two the two more This XXXX sell vessels along and for secondhand build carriers these recently tankers limited in decided is with in to assets, long-term XXXX. chemical assets older of strategy on As older vessels. Suezmax

delivered in was April, Weser SFL SFL Suezmax to be April chemical and the March in thus The in tanker, expected delivered Glorycrown, and was June. new delivered and Elbe Everbright is tanker to owners in delivered

will of any trading vessels, in tankers vessels not Following the we sale four the these have short-term market.

our or Directors of of repurchase methods. up market of programs, accelerated transactions, the repurchase in Company of authorized has to the an a privately SFL the million Purchases aggregate these program, form be repurchase made $XXX combination of may negotiated Board the shares. discretion of open share at of Furthermore,

and legal of until the are that determination under toolbox terms repurchase best repurchases amount factors. any and timing any program and The the uses to in tool price, share Company's valid of availability The the requirements, of the interest the of share. is the stock common buyback capital, June program see will its shareholders other company is alternative capital in that this obligated repurchases not as value XXXX. market of on note and would conditions, a We XX, depend shareholder

from owned have increased billion. have and backlog composition our structure XX managed and have fleet $X.X years maritime we shipping portfolio the we our assets Over in changed and and assets both to now

XXX% asset offshore we have just single to under counterparties nearly multiple varied tankers fleet to one years a years, container class ago diversified XX the backlog. customer being and Over single largest of XX% with charter composition to from the now segment XX% from gone a vessels the to fleet has and the

long-term or vessels XX% of in charter Most revenues and are the assets And only fourth the from quarter, charters. on time bareboat shipping of contracts, charter from X% came on dry lease. our

significant the million quarter. to first XX more million with profit has In time, than fixed-rate savings. addition flow have been months, from over profit charter relating charter we both rates revenues, share to and had Last $XX contribution fuel aggregate to share the in around $X cash

of and Volkswagen, assess we backlog on that portfolio our of Hapag XX, The ConocoPhillips, counterparties is visibility we speaks Galp and diversification operators use like and on lately, quality and strength the quality list a have when key now market-leading Lloyd, Maersk, itself assets of customers to of few. the name for intermediaries, our where P of operations. less Relatively, and Exxon few contracted are our the our

gives blue-chip this such the opportunities with also us customers several of flow now more access deal recently. our Volkswagen to Strategically, as like business repeat

a of strong time This our to to range our operating sister Seatankers been therefore charters. strategy has platform gives maintain in Group. Our a services offer in companies from full-service the to customers wider with technical commercial the structured cooperation and us to ability financing

to energy our incentive we impact may maintenance with vessel control assets owning and always efficiency to including have the make improvements full vessels improvements. of the only throughout not and emission-minimizing efforts, an can and where be performance And employed customers on vessels not bareboat passively over life the such

we when the value addition, replacement costs vessels, the for In can charter is SFL out current this we and our time rising benefit of the more retain of assets the basis charter with raw value material cost residual and stakeholders. the environment inflation driving for in and in

the value where For retained have bareboat charterer purchase usually this option, options. deals through or purchase charterer deals is fixed-price by the

in significant drilling would expenditure rig on market capital opportunities. comment like rig to And of and more the Hercules, the I in some light the

terms. contract on the semisubmersible process. Linus development Seadrill's Hercules, is the on But were until ultra-deepwater drilling the built and Seadrill know, jack-up to originally As rig two two rigs Technology which XXXX -- variable owns in SFL harsh them The and last harsh-environment Chapter built we long-term Odfjell Skandinavia you remains with behalf. our on ConocoPhillips back connection XXXX by Linus rigs, took a chartered with managed XX bankruptcy XXXX

by SPS second the SPS and and estimate is rig to $XXX was Hercules scheduled currently of first million the in December most us in were Odfjell while and June. completed periodic special and managed total out and to approximately upgrade upgrades is costs redelivered quarter the SPS connection in be of the the cost Norway to There no on We in Drilling. the the expected accrued. operating is of and with or works in survey revenues service

has the rig estimated longer time Norway. from of a expensive in of court than partly at to is become expenses some as condition and expected process this We're Seadrill, the taken to the of reclaiming It redelivery. but time take it more involves originally the due

Canada Irrespective XXX -- a value around under with work on the contract of and million. of duration an that with Canada and estimated one is including rig, move rig to commence the power is ExxonMobil the has own to approximately finished the its work contract rig where the The mobilization well. days, drill will to estimated $XX

Galp of Namibia for to and the wells Energia optional commence testing. plus a Thereafter, contract well two move a subsidiary rig an with will

new Excluding XXXX estimated million. opened will approximately for over optional will mobilization days the days, onwards. second contracts then another with quarter including contract an The the from rig value be XXX $XX be duration

There for tight one to a and number market the based that is rig of positive the analysts rigs harsh-environment balance. has handful a a a available of been fundamental recent years. market only in prospects also there activity on supply-demand tender are under in This segment this semi-submersible a investment realization and market is ultra-deepwater

day, on further. rigs may cash EBITDA where have further the directly harsh 'XX especially rate increase and is imply per net of increases that geographic annual are plus this million fees contracts when contribution mobilization seen will rate location, The working 'XX and for several prospects net to $XX $XXX,XXX particularly may go Depending promising excess we that in market flow.

this from impact day on rates. graph slide the the XXXX level effect activity the and The reduced on illustrates of

rig used see of year have would XXXX, count closer come back a $XXX We can to level lower to supply-demand back the to to $XXX,XXX oil for EBITDA instead. the million than last per be at based should as are peak. day saw but past, in side until rig been on tight rates significantly per paying on market now the be right the the slide, the from And characteristics we company the we the

quarter. the give I word for will will take over through our who to that, Olesen, financial with the Aksel And the CFO, us highlights

Aksel Olesen

Hjertaker. you, Thank Mr.

of of note On illustration slide, the and that first in is only accordance company's the this and not there's U.S. a this extraordinary quarter. GAAP, pro also assess forma net Please flows cash with is performance items. to non-cash and for guideline

The with visibility on approximately quarter, share company $X at $XXX our cash gross rate approximately flows billion, million going generated charter XX% our forward. of which coming charter hire $X.X of including providing from million currently us fixed in approximately the revenue backlog, profit stands strong first of reported the a

In the including carrier. our to of in liner container seven related one and million, on million charter approximately approximately fleet generated first the of hire fuel car profit quarter, savings vessels $XX large share gross $X

in compared fleet in to approximately $XX quarter previous first generated quarter. the hire gross during million million tanker Our approximately $XX charter the

the Suezmax During only vessels short-term vessels million. to net one smaller delivered which charter two These the quarter, its owners. new has four trading be were market. two vessel, hire and and approximately charter in quarter spot had The these tankers was chemical during $XX from the to and sold SFL tankers

net The which approximately $XX on are the approximately XX contributed The long-term in hire in charter short-term vessels million $X.X and in the company quarter. during vessels the the hire first charter gross the million during quarter. bulk has were employed dry eight carriers and of market charters Seven generated quarter. employed spot

semi-submersible is Skandinavia and until Hercules. currently of drilling with SFL ConocoPhillips the XXXX. Linus the on rig harsh-environment a contract owns The jack-up end two long-term rigs, Linus rig

quarter During Chapter Seadrill the payments the $XX which when approximately fourth generated $XX charter million the during approximately in catch-up in fourth hire first line contract previously rig adjusted reduced revenues million for quarter, XX, was for the from received quarter. in with

The Hercules was charter Seadrill. previously bareboat on harsh rig semi-submersible environment to

in million. SFL of the full For recorded first in we operating since to redelivered a expenses time Hercules, December were which approximately XXXX, quarter $X

rig second We quarter. a expenses also similar of the expect to level operating for record the in

happen is the of currently mobilizing to Canada with as Exxon from the second the revenue quarter. the and no end special a been the rig drilling before survey undergoing expected Hercules upgrades has quarter there Furthermore, at during for contract periodic

for adjusted also of million and operating first approximately to the Our down the of rig sale summarizes is cost the season million result This $XX quarter. G&A EBITDA The to in the quarter now $XX Linus previous therapy. $XXX of and million fourth operating compared previous quarter. quarter and quarter million, expenses includes was temporary in to $XXX in predominantly the from the the due an Hercules

We then and GAAP. on reported to move the statement as U.S. loss profit under

activities different contracts, earnings large have focuses long-term as on as shipping we from classified previous calls, are As our those of traditional described strategy company. are accounting a of leasing. in And charter capital our our statements part business a

leases of excluded sales financing investment leaseback for assets accounting entities GAAP investments repayment are purposes. from portion and revenues. a includes revenues classified Therefore, as revenues charter associates significant in This direct U.S. in operating and type of from our

quarter the according total million, million reasons charter is than report U.S. hire received GAAP approximately first for to So, just mentioned. revenues, approximately of operating $XXX which actually less was $XXX

During our million car fuel multi-vessels some $X the carriers. from on approximately large of the company and income of profit share quarter, recorded savings

mentioned, and revenue due quarter rig recorded stay. on a its recording we the operating temporary Hercules the first of quarter. to Expect quarter full be yard full of third revenue the any did record not As expenses in to rig on we

impairment Suezmax of linked sale the to derivatives $XX.X on tanker, non-cash due million the and SFL gain the During chemical Also, acquired and $X.X Weser. sale an the quarter. to company a of a recorded of million to million relating quarter, recorded from the tankers, the bonds Elbe of company negative during Glorycrown, recorded the mark-to-market the loss $X.X

million GAAP, company $X.X net share. So reported $X.XX per approximately to profit the according overall, and of a U.S. or

million balance had maturity issued at repaid XXXX. with at the sheet, in prices of repurchase million note, approximately in against at SFL the securities May the $XXX end the January, convertible to and Part a cash the approximately plus new SFL multiple cash bonds in were end, Furthermore, also on $XXX $X was maturing million company's Moving equivalents. of quarter cash of the In quarter. bond its NOKXX against were in applied sustainability-linked maturity which proceeds September. market

financing the carriers approximately to XXXX. and currently for construction During cash each of the flow yard the four price. $XXX first amount in arrangements, effect equivalent approximately financing for arrangements is to yard our corresponding million. $XXX date for Consequently, contract quarter, delivery one instalments Asphalt under XXXX paid car delivery will million, The vessels positive of combined the have a to

$XX to the be Additionally, facility company's the in entered to position two into liquidity the the company of pre-delivery delivery enhancing delivered up million period vessels bank-loan for 'XX, the further during a vessels.

and signed on during also million $XXX facility We drew quarter. the financing down four Suezmax's

The million fourth financing per rig SFL end, Linus. of second rig respectively. maturity the and the the drilling closed of the rig was quarter the and amount in 'XX quarter 'XX quarter to with the of Subsequent Hercules semi-submersible jack-up drilling refinancing $XXX

SFL carrier, Additionally, and a $XX Sea, financing arrangements, $XX one the years. million for one seven two for approximately JOLCO million six Arabian car for also years, with container for term approximately Suezmax vessel of closed the for

equity quarter. second transactions numbers, in As flow was $XX the of ratio Company's positive vessels debt cash the will XX.X%. Based effects the excess in million QX the free combined have are approximately on book

the of share XX% until has QX $X.XX This price last XXXX. buyback has authorized the a approximately conclude, with Friday. program liquidity a based to yield The represents share Board Board a quarter. Then the also new dividend cash the declared dividend of end closing on of for

visibility going Our billion, rate at currently backlog the cash with which stands provides $X.X strong us charter on fixed flow forward.

and With the latest long-term newbuild material, program debt financed refinanced the all Company's all financing is expenditure and the of materially facilities loans. capital concluded short-term now -- fully is with

going Furthermore, contract approximately far and million products, platform across a XXXX is estimate wide array $X different two securing build In recent in year, with and arrangements, summary, so financing facilities the with increase new funding has on totaling vessels The year. from company awards amount continued a forward. to billion. SFL for XX this the a diversified EBITDA secured of QX approximately contracts, QX commencement was which we significant car existing in contract per these $XX million approximately per carriers the Volkswagen, from year, for $X split

a outlook, a Finally, is tightening we supply-demand strong announced Hercules for a confirming day rig and award new harsh-environment market semi-submersible which materializing now rates. into attractive drilling balance contract

operator line word that, with questions. back And open the will who give to the for the I

Operator

BTIG. question first Elmaghrabi The Instructions] from from go Sherif Please [Operator ahead.

open. Your line is

Sherif Elmaghrabi

morning and question. Hi, good Thanks taking my for afternoon. good

looking the just Yes. that contract Is long-term stay Hercules, first have what to for for past employment Namibia? the most So plan a prospects the recent the are rig?

Ole Hjertaker

contract can is as imagine, Yes, it's to are oil multiple the after and We -- work more that, in thanks. rig this companies Exxon a this for compensate transit. but Canada in than happy places. one in Namibia, fairly you But long can

of So, maximize want in to we order flow. long-term cash in employ where of rig opportunistic the course, we to are, terms

Of seen charter the off fairly to coming -- last daily sharply better rates think rig coming right we course, our so. the as have over employment graph see contracts as relatively now timing shorter may we or the included on year off objective now, but you very rates the is we have seen the where time, very, in to we also it's fundamentally presentation for for is on that the it have over the longer-term secure

Aksel Olesen

America. North I said, location, Yes. several I are there And -- in geographic we mean that in are of in terms mean locations tenders

rigs a and have in Petrobras see You if rigs, have recently Sea as requiring also down more to has you well the two Namibia Australia. North several going North become hotspot Sea.

opportunities mean say, the I I currently So, worldwide. are would

Sherif Elmaghrabi

That's off looking tanker recent notwithstanding. And helpful. the Thank fleet, weakness rolling two I are fundamentals pretty looking tankers next are year. you. at constructive see then tanker And product

starting vessels are So at charterers you right and crude looking to about now? product tankers for and have those work really how conversations are

Ole Hjertaker

mentioning, tankers Yes, I think PXX. further are looking you're they two at two the the charter

I think, the charters also, -- they program under way very the are their as -- at They on charter and they're charter optional fit we well the very and happy today. with is rates market vessels. the today spot understand, in

extend charters to options. this anyone wouldn't So, ask But of this charters. if the certainly course are extension you in charterer's hesitate you now, the options and

to would if exercise would they upside if it and see have we and wait an them, So, be not, us. I say for

Sherif Elmaghrabi

That's very you. over. Thank helpful. I'll turn it

Ole Hjertaker

you. Thank

Operator

Thank you for question. your

We taking Please is Capital. next the from Richard standby. next are now go question, Diamond Castlewood And please ahead. from the question

Your open. line is

Richard Diamond

chartering on Good buyback since you are operations for following given if dissonance been in and it's in commend and provide question. some company, wondered stock XXXX, significant started there both on price -- the best And I the afternoon. it's good morning, one you want regarding company that been the to how buyback. I and SFL financing now that it's the outlook is approved. really shape I the visualize I you have deploying more the could And the in color cognitive

Ole Hjertaker

Richard, you. Thank thank you, and

call for the enhancement, think here the to or value that quality good and the investor having car multiple we it speaking You're tools is toolbox the company. No, -- obviously.

the that share just part renewed know, have of past. that sparingly, capital would optionality We in but had now as used call it plans allocation a our, we sort say, toolbox you optionality ATM, strategy-wise. sort As very we and having that have in of dividend we've believe used I we repurchase and also that it, of reinvestment

with utilize, where cannot benefit the give down for that seen mean SFL. will backing we I specific We the stock the think a you underlying would of value for it, disclose. most is clear for, have But of also share for, in that much sort these market say, numbers assets clearly, residual replacement coming a of assets we own we call cost we price that if how I the most any, cannot off shipping in and coming we of

more the car better years own of keep some that like the bareboat all kept Just renewal one has a charterer Instead, charters -- if could we the done is for that we vessels that we ago, have of we these the carriers value. car, this that by much think normal of where which had residual illustrated value, sort maybe our and would been stakeholders. those have

a we interesting. here with Hercules on thing some that that same rig spent on very We think The dynamics time market the the is drilling call. there

Of we per contribute course, course, through asset. this a It's that the us. very expensive SPS later of in The still and to share onwards. it's believe -- all be very process that for going a now will we're really timing. this earnings from But is, expensive about year could very

see price, in opportunity to having our enhance So, -- value time, for long-term there value from buyback we to share what time stakeholders. is could softness the

hope I for vague that So, enough Richard. you, enough, was precise but

Richard Diamond

Absolutely. the what question to shipping think second you today? want And capital, you where is, look the allocate decide as most areas markets interesting over are do you and you

Ole Hjertaker

question. tricky you all these the deals across opportunities a it's across given their are we opportunities, Yes, the see but And where everywhere, segments. in different. cycle, segments the at board structure would look market We

the where a year, effectively we year deal, now, which where market down the take probably So on lower upside, we but rapidly mid-level the half ago, period. would end optionality with values, a rate have a would rate up depreciated a would get for deal it tanker we market, book value do we instance, and we that to the quite than come more you have or charter more -- means for to with and of that accept look ensure fixed a more at would

over and underlying coming the out capacity coming values reduced an and there prices there the newbuilding are a prices dollars is here would secondhand value, is because in see both say, same the time. off also I floor -- underlying now measured the At off time, on we shipbuilding

call out have maritime inflation owning hedge a pay means you it So you can an say, in that there. maybe asset now that -- itself may what

of that on you some preference. in you mitigating risk invest is you take cycle that our would risk take the if will a little that higher than So

now say, market container would look structuring. the segment, carrier although, we look we on been quite car I the look the dry-bulk on We course, two careful tanker has there, we deals years. interesting of the side, So, it's also at at into more deals over and are to last quite down side,

So that dynamics and board, then, patient, across the don't invest we for It's certain the maybe to but are which amount that two, more. lot or deals so the the means invest. think we're we single right feel we won't all quarter right us finding invest and we deploying need a also about our every see a deal, quarter. we that stakeholders, capital right we when can But a the when

the repurchase also So, as a hopefully that will tool program, the that benefit to And also back for share is balance. long capital allocation then term. having then shareholders

Richard Diamond

Okay.

Operator

Thank you for your question.

from now are Edge, Climent from Molins next Value next the ahead. go taking please question Investor's the Please question And standby. We

Climent Molins

to thank start a for question questions. Hi, Hercules. about Yes. you modeling wanted taking with my I the

on the you You've of contracted strong And releases? come two lined short-term top costs I the contracts. do mobilization wondering, revenues was press mentioned up on

Ole Hjertaker

on certain no-mobilization we demob. The mentioned; yes. days correct, a but based - of It mobilization a amount contract basically becomes it is yes and the part contract have depends that calculate

Climent Molins

or trading spot. say, on part think recent disposals those let's after should helpful. that's we still year How forward? spot some right, bulkers non-core Are And they, you are you the they space, your tanker overall exposure, going have used of fleet? on own gradually important still an about but All

Ole Hjertaker

generally, trading sold would that those we beneficial at and the say seven good -- price, I and our if It's say, at in Handy vessels question. bulk anything we of any aspect But sort the believe -- about good did past the say, size we sell for what right was vessels them we in are and, optimistically -- course, in a for of think shop, timing. we dry market did own I would sale it's would shareholders. I is

But they that keep vessels, them, and we generate So, sell for in to if as is lot now, are such marketed would say. definitely we not some I by But you. cannot good you invested cash we keep on market. they have There or -- good entertain invest offer sales whether not point, an mean, a cash the them, trading be these identified no certainly, being as and of at may or capital. and happy return them and a candidates flow to defined we we want

Climent Molins

All right. my Thank That you sense. taking questions. makes for

Ole Hjertaker

you. Thank

Aksel Olesen

You're welcome.

Operator

you There are I no the your hand for Thank at the questions remarks. closing conference will moment, question. back for further

Ole Hjertaker

thank you. for get And conference you I everyone participating in webpage, would the follow-up contact the like you the through Thank us press there to with are in call. Then, contact you. in details pages if any have questions, where touch release can our on Thank www.sflcorp.com.

Operator

for participating. for today. conference Thank concludes the you That

disconnect. all may You

SFL (SFL) 15 May 232023 Q1 Earnings call transcript