SFL Corporation Ltd

Welcome to SFL's first quarter 2024 conference call. My name is Sande Borglind. I'm Vice President for Investor Relations in SFL. Our CEO, Ole Gjertakker, will start the call with an overview of the first quarter highlights. Then, our Chief Operating Officer, Trym Kjøli, will comment on vessel performance matters, followed by our CFO, Axel Olsson, who will take us through the financials. The conference call will be concluded by opening up for questions, and I will explain the procedure to do so prior to the Q&A session. Before we begin our presentation, I would like to note that this conference call will contain forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intents, estimates, or similar expressions are intended to identify these forward-looking statements. Forward-looking statements are not guarantees of future performance. These statements are based on our current plans and expectations and are inherently subject to risks and uncertainties that could cause future activities and results of operation to be materially different from these set forth in the forward-looking statements. Important factors that could cause actual results to differ include, but are not limited to, conditions in the shipping, offshore, and credit markets. You should therefore not place undue reliance on these forward-looking statements. Please refer to our filings within the Securities and Exchange Commission for a more detailed discussion of risks and uncertainties, which may have a direct bearing on our operating results and our financial condition. Then I will leave the word over to our CEO, Ole Artakil, with highlights for the first quarter.

Thank you, Sondre. We are now announcing our 81st dividend and have built a unique profile as a maritime infrastructure company with a diversified fleet. The total charter revenues were $236 million in the quarter, which is up 13% from the previous quarter, primarily due to the delivery of our new car carriers and also increased revenues on the drilling rig Hercules. The EBITDA equivalent cash flow in the quarter was approximately $152 million, which was also significantly higher than the previous quarter. And over the last 12 months, the EBITDA equivalent has been $523 million. The net income came in at around $45 million in the quarter, or 36 cents per share. We had a positive contribution of 2.2 million relating to profit share on tape-sized bulkers, and 3.3 million relating to fuel cost savings, and also some minor one-off items, including 1.8 million mark-to-market gain on interest rate swaps. In line with the approved results and commitment to return value to our shareholders, we are again increasing our quarterly dividend and this time to 27 cents per share. We have paid dividends every quarter since our inception in 2004, and this has accumulated to more than $30 per share or more than $2.7 billion in total. And we have a robust and increasing charter backlog supporting continued dividend capacity going forward. Our fixed-rate backlog stands at approximately $3.6 billion, and importantly, the backlog is concentrated around long-term charters to very strong end-users. And I would note that the backlog figure excludes revenues from the vessels trading in the short-term market, and also excludes revenues on the new dual-fuel chemical carriers that will operate in a pool with Stolt Nielsen. And it also excludes future profit share optionality, which we have seen can contribute significantly to our net income. We have recently announced several new acquisitions and charters. In March, we announced the acquisition of three new 110,000 deadweight ton LR2 product tankers for an aggregate purchase price of approximately $230 million, in combination with long-term time charters to a world-leading energy and commodities company. The vessels are currently under construction in China and have conventional propulsion system with the latest eco-design features. We expect to take delivery of the vessels between June and October this year and the charter period will be minimum five years plus up to three years of extension options. This adds around $200 million to our fixed rate backlog, excluding the optional years. The Charter will have options to purchase the vessels after year five and eight, subject to a profit share mechanism with SFL. In April, we announced an agreement to acquire two 33,000 deadweight ton chemical carriers with LNG dual fuel propulsion system. The vessels are built in 2022 and 2023 and fitted with stainless steel cargo tanks, and the aggregate purchase price is approximately $114 million. We expect to take delivery of the vessels in July and have arranged long-term employment for the vessels with affiliates of Stolt Tankers, a subsidiary of the world-leading chemical logistics company Stolt Nielsen. Both vessels will be employed for a minimum of eight years when one vessel will be on a fixed rate time charter and one vessel will be employed in a pool with similar sized vessels. The fixed rate vessel has extension options of up to three years in addition to purchase options after year five and eight, subject to a profit share mechanism with SFL. We have a very close business relationship with Maersk Line and have 17 vessels on long-term charters to them now. We recently agreed to extend charters for three 10,600 TU vessels until 2030, and Maersk also exercised the one-year pre-agreed extension options on three other vessels ranging from 8,700 to 9,500 TU. In addition to this, we have also fixed our 1,700 feeder green ace on a short-term charter to Maersk until late 2024. In aggregate, this adds approximately $250 million to our charter backlog. And in addition, we have a profit share relating to scrubber benefits on some of the vessels that is expected to add additional revenues for us over time. In April, we raised a new $150 million senior unsecured sustainability-linked bond loan in the Nordic market. Maturity will be in the second quarter of 2028, and the coupon is 8.25%. Proceeds are for refinancing existing debt and for general corporate purposes. As part of the use of this facility, we have repaid a Norwegian kronor denominated bond loan due in June 2024, with the equivalent of $81 million outstanding at the end of the first quarter. And with that, I will give the word over to our Chief Operating Officer, Tim Shirley.

Thank you, Ola. Including vessels to be delivered this year, we have 76 maritime assets in our portfolio and our backlog from owned and managed shipping assets stands at $3.6 billion. The current fleet is made up of 15 dry bulk vessels, 34 container ships, 18 tankers, two drilling rigs and seven car carriers. We have a diversified fleet of assets charted out to first-class charters or mostly long-term charters. Container vessels is now our largest segment. We're just under 50% of the backlog. We have over the last eight to 10 years completely transformed the company's operating model and have moved away from financing type bare-board charters and instead assumed full operating exposure. This makes us relevant for large industrial end users, both in the dry and wet segments. The two new dual-fuel chemical tankers on time-chartered to stalled and pooled with stalled tankers is a recent example of this. In the third quarter, 95% of charter revenues from all assets came from time-chartered contracts and only 5% from bare boats or dry leases. In addition to fixed rate charter revenues, we've had significant contribution to cash flow from profit share arrangements over time, both relating to charter rates and cost savings on fuel. And in Q1, profit split arrangements have contributed about $5.5 million. Out of the 76 vessels, we have 11 on bare boat contracts and 65 on time charter and spots. Our operation is quite complex with vessels across multiple sectors and we have our own commercial operation out of Oslo and operational management out of Singapore and Stavanger. In Q1, we had a total of almost 6,500 operating days defined as calendar day, less technical or fire and dry dockings. One vessel has been in dry lock in the quarter. Our overall utilization across the fleet in Q1 was 99.5%. The charter revenue from our fleet was $236 million in Q1 and OPEX for the fleet was $81 million. Our OPEX philosophy is to continuously invest in our fleet to optimize the vessel's performance and maintain a high level of service to our customers. This includes investing to minimize off-fire as well as investments to increase cargo carrying capacity and reducing energy consumption. Such investments and cooperation with our charters is important as a way to grow our relationship and increase backlog from existing vessels. As part of our fleet upgrade program, we are working with our main container charters, Maersk and Hapag Lloyd, to increase energy efficiency of our container fleet. With Maersk, we are making investments across the long-term chartered fleet for various energy efficiency measures, including hull and propeller modifications when the vessels are in dry dock. These modifications ensure the vessels remain attractive to charters over time. And as Ole mentioned, we just entered into new five-year time charges of three 10,600 TU container ships with Maersk, in which energy efficiency was an important consideration. For the six sub-aggloid vessels, we are investing in energy-saving devices, improved hull form with new bulbous bow, new propellers and fittings, anti-fouling paint and exhaust gas scrubbers. Furthermore, we are boosting the cargo intake up to nominally 15,400 TU by increased dead weight and modification to lashing bridges and lashing gears. Two of the vessels have already been upgraded and delivered to Håpa Gløyd, and we estimate that fuel consumption and emissions per TU carried is down by approximately 20%. And with that, I will give the word over to our CFO Axel Olsson, who will take us through the financial highlights of the quarter.