SHIP FINANCE INTERNATIONAL LIMITED Q3 2017 RESULTS - NOVEMBER 22, 2017 - EARNINGSCAST
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Ship Finance International Limited
Q3 2017 Results
November 22, 2017
1
FORWARD LOOKING STATEMENTS
This presentation contains forward looking statements. These statements are based upon various assumptions, many of which are
based, in turn, upon further assumptions, including Ship Finance management's examination of historical operating trends, data
contained in the Company’s records and other data available from third parties. Although Ship Finance believes that these
assumptions were reasonable when made, because assumptions are inherently subject to significant uncertainties and contingencies
which are difficult or impossible to predict and are beyond its control, Ship Finance cannot give assurance that it will achieve or
accomplish these expectations, beliefs or intentions.
Important factors that, in our view, could cause actual results to differ materially from those discussed in the forward looking
statements include the strength of world economies, fluctuations in currencies and interest rates, general market conditions including
fluctuations in charter hire rates and vessel values, changes in demand in the markets in which we operate, changes in demand
resulting from changes in OPEC's petroleum production levels and world wide oil consumption and storage, developments regarding
the technologies relating to oil exploration, changes in market demand in countries which import commodities and finished goods and
changes in the amount and location of the production of those commodities and finished goods, increased inspection procedures and
more restrictive import and export controls, changes in our operating expenses, including bunker prices, dry-docking and insurance
costs, performance of our charterers and other counterparties with whom we deal, timely delivery of vessels under construction within
the contracted price, changes in governmental rules and regulations or actions taken by regulatory authorities, potential liability from
pending or future litigation, general domestic and international political conditions, potential disruption of shipping routes due to
accidents or political events, and other important factors described from time to time in the reports filed by the Company with the
Securities and Exchange Commission.
2
Q3 2017 Highlights
Quarterly dividend of $0.35 per share
• 9.4% dividend yield(1)
• 55th consecutive quarterly dividend and approximately $1.9 billion aggregate
distributions since 2004
Net income of $28.7m ($0.31/share) for the quarter
• Aggregate charter revenue of $150m ($1.60/share)(2)
• Adjusted EBITDA(3) of $115m ($1.23/share)
Delivery of 2 x 114,000 dwt LR2 product tankers
• Vessels delivered in August
• Minimum 7 year time charters to Phillips 66 plus options
• Total EBITDA(4) contribution estimated to ~$11m per year
Strengthened balance sheet through early conversion of convertible notes
• $121m principal amount converted to equity in October 2017
• 9.4m new shares issued
• $63m remaining outstanding, due February 2018
1) Quarterly cash dividend, annualized / SFL share price $14.95 as of November 21, 2017.
2) Charter revenues include total charter hire from all vessels and rigs, including assets in 100% owned subsidiaries classified as ‘Investment in associates’.
3) Adjusted EBITDA is a non-GAAP measure and includes assets in 100% owned subsidiaries classified as 'Investment in associates'. For more details please see Q3 17 press release Appendix 1: Reconciliation of Net Income to Adjusted EBITDA. 3
4) EBITDA is defined as earnings before interest, tax, depreciation and amortization.
Liners: Modern Vessels with Long Term Contracts
2 x 19,200 TEU Built: 2016 - 2017
Charterer: MSC #2 liner worldwide(1)
Contract expiry: 2031-2032
EBITDA: ~$31 million/year
$867
million of contracted
Built: 2015 – 2016
revenue(2)
3 x 9,500 TEU
Charterer: Maersk Line #1 liner worldwide(1)
9.1
Contract expiry: 2020-2021
EBITDA: ~$32 million/year
Built: 2014 - 2015 Average duration of
4 x 8,700 TEU
Charterer: Hamburg Süd (to be acquired by Maersk) current charters in years(2)
Contract expiry: 2021-2022
EBITDA: ~$46 million/year
Other liner vessels with long term charters
Type No. x Size Contract Expiry Charterer
150,000
Aggregate TEU(3)
Container 10 x 1,700-5,800 TEU 2019-2022 MSC
Container 2 x 1,700 TEU 2020 Heung-A
Car Carrier 2 x 6,500 CEU 2018 Huyndai Glovis
.
1) Based on operating fleet. Source: Alphaliner.
2) As of September 30, 2017. Average charter term weighted by charter revenues and excluding option periods.
3) Approximate capacity, as of September 30, 2017.
4
Tankers: Fleet renewal and diversification
$596
9 x VLCCs to Frontline after recent sales
• $20,000 base rate
• 50% profit share above daily base rates, payable quarterly
• Low leverage compared to scrap value million of contracted
revenue(1)
2 x Suezmax tankers
• 2009/2010 built vessels with eco upgrades
• Trading in pool with sister vessels owned by Frontline and
significant charter coverage in 2017 7.5
Average duration of
2x Product tankers delivered in August
current charters in years(1)
• Minimum 7-year charters + options to Phillips 66
• Investment grade chartering counterparty
3.3
• Attractive bank financing structure
Other tanker vessels with long term charters Million aggregate dwt(2)
Type No. x Size Contract Expiry Charterer
Chemical 2 x 17,000 DWT 2018 Sinochem
1) As of September 30, 2017. Average charter term weighted by charter revenues and excluding option periods.
2) Approximate capacity, as of September 30, 2017.
5Dry bulk: Improving market fundamentals
8 x Capesize vessels to Golden Ocean
• $17,600 base rate(1)
• 33% profit share above daily base rates, payable quarterly $520
• Fixed charter period until 2025 Million of contracted
Historical Capesize earnings 2003 - ytd 2017 (2)
revenue(3)
$90 000
$80 000
$70 000
$60 000
$50 000
6.8
$40 000 Average duration of
$30 000
$20 000 current charters in years(3)
$10 000
$0
2.1
2003 2005 2007 2009 2011 2013 2015 2017
Capesize Earnings SFL avg base rate
Other dry bulk vessels with long term charters Million aggregate DWT(4)
Type No. x Size Contract Expiry Charterer
Kamsarmax 2 x 82,000 DWT 2022 Sinochart
Supramax 5 x 57,000 DWT 2018-2022 Hyundai Glovis
1) Base rate will reduce to $14,900/day in 2022
2)
3)
Source: Clarksons Platou.
As of September 30, 2017 – average charter term weighted by charter revenues and excluding option periods.
6
4) Approximate capacity, as of September 30, 2017.Drilling Rigs: Managing Risk in a Down Cycle
West Hercules - 2008 West Taurus - 2008
$1,210
million of contracted
revenue(1)
6th gen. semi 6th gen. semi
9.2
BB to Seadrill(1) – 2024 BB to Seadrill(1) – 2024
Book value : $335m Book value : $343m
Debt(2): $258m Debt(2): $231m
Average duration of
current charters in years(1)
West Linus - 2014 Soehanah - 2007 Limited corporate guarantees(3)
Initial
Debt
$2.0bn
Heavy-duty jackup 375ft jackup
BB to Seadrill(1) – 2029 12+12m BB charter
Book value: $445m Book value: $80m
Debt(2): $321m Debt: $0m
Corporate guarantees:
1) As of September 30, 2017. Average charter term weighted by charter revenues and excluding option periods. Based on proposed restructuring of Seadrill, the charters will continue
$235m (29%)
to be fully guaranteed by Seadrill Limited. Hercules/Taurus charters extended to Dec 2024.
2) Outstanding debt as of September 30, 2017. 7
3) Guarantee amount as per September 30, 2017. Going forward, the corp. guarantees will increase with net dividends up from the rig owning subsidiaries.Contribution from Projects last 12 months (1)
Large performing fleet generating significant cash flows
$472m adjusted EBITDA-equivalent last twelve months
$178m net cash flow from projects after interest and debt amortization (3)
$ mill.
700
$13m
600
$587m $130m
500
$116m
400
$176m
300
200
$178m
100
$150m
0
Charter (2) Profit Share OPEX+ G&A Net interest Loan Amort.(3) Distributable Dividend
Revenues Cash
1) Not as accounted per US GAAP and including cash flow in subsidiaries accounted for as ‘investment in associates‘.
2) Charter revenues and return on financial investments.
3) Ordinary installments relating to the Company’s projects. Excluding refinancings and prepayments when vessels are sold.
8SFL Operational Performance
Pro-forma illustration of cash flow(1)
• Not as accounted for under US GAAP
• Used as an internal guideline to assess the Company's performance
• Excluding extraordinary and non-cash items
Q3 2017(2) Q2 2017(2)
$ mill. $/share $ mill. $/share
Charter hire
VLCC 16.2 0.17 17.8 0.19
Suezmax 4.6 0.05 6.8 0.07
Product Tankers 1.7 0.02 0.0 0.00
Chemical Tankers 1.5 0.02 1.5 0.02
Liner (Container and Car Carriers) 43.9 0.47 43.7 0.47
Drybulk 27.8 0.30 27.8 0.30
Offshore 51.1 0.55 49.5 0.53
Sum charter hire, excluding profit share 146.8 1.57 147.2 1.57
Vessel operating expenses and G&A (31.9) (0.34) (32.1) (0.34)
Financial investments 0.3 0.00 2.5 0.03
Adjusted EBITDA including profit share 115.1 1.23 117.6 1.26
1) Including cash flow in subsidiaries accounted for as ‘investment in associates’
2) In this table, revenues and vessel operating expenses for vessels trading in the spot market are net of voyage expenses 9Income Statement
Three months ended Full year 2016
(in thousands of $ except per share data)
Sep 30, 2017 Jun 30, 2017 (audited)
Charter revenues - operating lease 76 208 74 292 293 703
Charter revenues - finance lease 25 321 28 623 99 084
Revenues classified as Repayment of investment in finance leases (7 856) (8 692) (31 380)
Profit share income - - 51 544
Total operating revenues 93 673 94 223 412 951
Gain (loss) on sale of assets and termination of charters 345 805 (167)
Vessel operating expenses (32 596) (32 690) (136 016)
Administrative expenses (1 702) (1 855) (9 072)
Depreciation (22 137) (21 802) (94 293)
Vessel impairment charge - - (5 314)
Total operating expenses (56 435) (56 347) (244 695)
Operating income 37 583 38 681 168 089
Results in associate 6 227 7 276 27 765
Interest income from associates 3 533 3 532 18 675
Interest income, other 681 1 286 3 061
Interest expense (21 695) (20 871) (60 871)
Amortization of deferred charges (2 419) (2 337) (10 972)
Income (expense) related to non-designated derivatives 7 339 (7 487) (514)
Other financial items (2 518) 31 1 173
Taxes - - -
Net income 28 731 20 111 146 406
Basic earnings per share ($) 0.31 0.22 1.57
Weighted average number of shares(1) 93 504 575 93 504 575 93 496 744
Common shares outstanding(1) 93 504 575 93 504 575 93 504 575
1) The weighted average number of shares and the number of common shares outstanding excludes 8 million shares issued by Ship Finance as part of a share lending arrangement in connection with the Company's offering of the $225 million
convertible notes due 2021. The shares are owned by Ship Finance and will be returned on or before maturity of the 2021 Notes, thus they are excluded in the calculation of earnings per share. 10Balance Sheet
Dec 31, 2016
(in thousands of $)
Sep 30, 2017 Jun 30, 2017 (audited)
ASSETS
Short term
Cash and cash equivalents 245 782 248 999 62 382
Restricted cash - 9 000 -
Available for sale securities 115 921 110 802 118 489
Amount due from related parties 12 125 16 933 17 519
Other current assets 56 235 61 879 80 037
Long term
Newbuildings and vessel deposits - 45 907 33 447
Vessels and equipment, net 1 784 504 1 691 530 1 737 169
Investment in finance leases 593 992 612 390 523 815
Investment in associate 6 572 91 130
Amount due from related parties - Long term 322 090 322 171 339 355
Other long term assets 19 630 19 211 25 034
Total assets 3 156 851 3 138 913 2 937 377
LIABILITIES AND STOCKHOLDERS’ EQUITY
Short term
Short term and current portion of long term interest bearing debt 467 224 487 859 174 900
Amount due to related parties 621 3 479 850
Other current liabilities 56 672 70 326 63 220
Long term
Long term interest bearing debt, net of deferred charges 1 244 919 1 183 733 1 377 974
Other long term liabilities 285 336 295 334 186 338
Stockholders’ equity 1 102 079 1 098 182 1 134 095
Total liabilities and stockholders’ equity 3 156 851 3 138 913 2 937 377
11Liquidity and Financing
Strong liquidity position
• $254m in total available liquidity(1) at quarter end
o $246m cash and cash equivalents
• $116m in available for sale securities(2)
o Mainly tradeable shares and senior secured bonds
Staggered debt maturity schedule(3)
$mill
600
500
400
300
200
100
0
1Q-18 2Q-18 3Q-18 4Q-18 1Q-19 2Q-19 3Q-19 4Q-19 2020 2021 2022 2023 2024
Bank debt - scheduled repayments Senior Notes
Bank debt - amounts to be refinanced
1) Includes net amounts freely available under revolving credit facilities and cash in subsidiaries accounted for as ‘investment in associates’
2) Market value as per September 30, 2017.
3) Assumes all available amounts fully drawn under revolving credit facilities, approval of the Seadrill restructuring plan and includes early conversion of $121 million convertible notes due 2018 in October 2017.
12Q3 2017 Summary
• Quarterly dividend of $0.35 per share
o 9.4% dividend yield(1)
• Net Income of $28.7m ($0.31/share)
o $150m Aggregate charter revenue(2)
o $115m Adjusted EBITDA(3)
• Delivery of two LR2 product tankers with long term charters
to Phillips 66
• Strengthened balance sheet through early conversion of
$121m convertible notes due 2018
• Strong liquidity position and no remaining capex
1) Quarterly cash dividend, annualized / SFL share price of $14.95 (Nov 21, 2017).
2) Charter revenues includes total charter hire from all vessels and rigs, including assets in 100% owned subsidiaries classified as ‘Investment in associates’.
3) Adjusted EBITDA is a non-GAAP measure and includes assets in 100% owned subsidiaries classified as 'Investment in associates'. For more details please see Q3 17 press release Appendix 1: Reconciliation of Net Income to EBITDA.
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