SFL Corporation Ltd

Hello, everyone, and welcome to SFL's third quarter 2024 conference call. My name is Espen Jørsson. I'm vice president of investor relations in SFL. Our CEO, Ole Achtakko, will start the call with an overview of the third quarter highlights. Then our chief operating officer, Trim Sjöle, will comment on vessel performance matters, followed by our CFO, Axel Olesen, 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, intends, 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 operations to be materially different from those set forth in the forward-looking statements. Important factors that can 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 operating results and our financial condition. Then I will leave the word over to our CEO, Ole Erdaka, with highlights for the third quarter.

Thank you, Espen. We are now announcing our 83rd dividend and continue building our unique profile as a maritime infrastructure company with a diversified fleet. We reported revenues of more than $260 million this quarter, and the EBITDA equivalent cash flow in the quarter was approximately $167 million, which is significantly up from the second quarter. Over the last 12 months, the EBITDA equivalent has been $580 million. The net income came in at around $45 million in the quarter, or $0.34 per share. And we had positive contributions relating to profit share on capes as bulkers and fuel cost savings of $4.2 million in the quarter, offset by approximately $5.6 million in negative non-cash mark-to-market and one-off items. Due to US GAAP accounting rules, the revenue and expense in the quarter for the drilling rig Hercules also includes the mobilization period that started in the second quarter. Our CFO, Axel Olesen, will give more details on this when he goes through the numbers for the quarter. Our fixed rate backlog stands at approximately $4.7 billion, and importantly, two-thirds of this is to customers with investment-grade rating, giving us a unique cash flow visibility. This backlog figure excludes revenues from the vessels trading in the short-term market and also excludes revenues on the new dual-fuel chemical carrier that will operate in a pool with stalled tankers. It also excludes future profit share optionality, which we have seen can contribute significantly to our net income. And in line with our commitment to return value to shareholders, we are paying a quarterly dividend of 27 cents per share, or around 10% dividend yield. Most of our vessels are on long-term charters, and we have over the last 10 years completely transformed the company's operating model, making us relevant for large end users like Maersk, Volkswagen Group, and Vittal. We have been busy renewing and extending multiple existing charters, and have also recently ordered five large container vessels in combination with 10-year time charters, adding $1.2 billion in that transaction alone. In addition, we have taken delivery of seven new vessels so far this year, including four vessels during the third quarter. We are also in the process of upgrading several other vessels, and our chief operating officer, Trim Shirley, will talk more about this later. During the quarter, we raised another unsecured bond loan, the 16th in a row. This was issued as a floating rate note in Norwegian kronor, and we have swapped it to US dollars at approximately 6.45% fixed interest. This was primarily used to refinance a bond loan that was due to expire in early 2025. It has also been a busy quarter from a financing perspective, where we have effectively addressed virtually all short-term asset debt maturities, matching funding with charter tenors. And with that, I will give the word over to our COO, Trim Shirley.

Thank you, Ola. When including our new building program, as well as the six vessels delivered this year, we have 81 maritime assets in our portfolio. And our backlog from owned and managed shipping assets stands at $4.7 billion. The current fleet is made up of 15 dry bulk vessels, 39 container ships, 18 tankers, seven car carriers, and two drilling rigs. We have a diversified fleet of assets charted out to first-class charters on mostly long-term charters. Container vessels is a larger segment with almost 65% of the backlog. In the third quarter, 96% of charter revenues from all assets came from time charter contracts and only 4% from bare boats or dry leases. In addition to fixed rate charter revenues, we have had significant contribution to cash flow from profit share arrangements over time, both relating to charter rates and cost savings on fuel. In Q3, profit split arrangements have contributed about $4.3 million. Out of the 81 vessels and rigs, we have 11 container ships on bare boat type contracts and the rest of the fleet on time charter or spot trading. Our operation is quite complex with vessels across multiple sectors, and we have our own commercial operation out of Oslo and operational and technical management out of Singapore and Stavanger. In Q3, we had about 6,700 operating days, defined as calendar day, less technical or fire and dry dockings. Three vessels have been in dry dock in the quarter, and our overall utilization across the fleet in Q3 was about 99%. The charter revenue from our fleet was $263 million in Q3, which is up from Q2, mainly due to the drilling rig Linus being back in operation end of July after a special periodic survey. The drilling rig Hercules entered a contract in Canada end of October and is currently on a way across the Atlantic to the west coast of Norway. As part of our decarbonization and commercial strategy, we continue to invest in new vessels as well as upgrades to our existing fleet. Our fleet has lately been enhanced by 11 LNG dual fuel vessels and three LR2 tankers. As for new building, 7,000 CU car carriers have already been delivered to Chartreuse, Volkswagen and K-Line. And two 33,000 denway ton LNG dual fuel stainless steel chemical tankers have been delivered and are in service to Stoll tankers. Five 16,800 TU container vessel new builds are to be delivered in 2028. And by October, all three of our new building LR2s have been delivered to VTOL. Our investment in fleet upgrades continues, and in Q3, we had three vessels in dry dock where energy-saving devices and upgrade works were also carried out. Such investments and cooperation with our charters is important as a way to grow our relationship and increase backlog from existing vessels. Earlier this year, we increased the backlog to Maersk with new five-year charges for seven of our large container vessels, which is a result of our close relationship and cooperation on vessel upgrades and performance enhancements. The first four 8700 TEU vessels will dock from December onwards, and the upgrades include energy-saving devices and increased cargo intake, boosting cargo capacity to about 9500 TEU, while also reducing fuel consumption. Another three 11,000 TEU vessels will dock from Q2 next year, also with energy and cargo system upgrades to be carried out. On the Hapag-Lloyd charters, the remaining three vessels out of six will be completed in Q4 before delivery to Hapag-Lloyd on the new five-year time charters. A key tool in delivering on the various projects is a strong operations, technical and new building team who can work in close contact with our charters. Fleet renewal and upgrades improves energy and operational efficiency of our vessels. This is increasingly important in the new world of ever tightening environmental regulations, both regionally and globally. I will now give the word over to our CFO, Axel Olsson, who will take us through the financial highlights of the quarter.