SFL Corporation Ltd. (SFL) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call shows a mix of stable financial performance, with consistent EBITDA and a large charter backlog, but also a net loss due to nonrecurring items. The Q&A reveals optimism in certain segments, like Suezmax vessels, but lacks clarity on future dividends and Hercules rig opportunities. The dividend yield is high, but no guidance is given. The market cap suggests moderate volatility, and the absence of clear guidance or new partnerships results in a neutral sentiment.
Key Financial Performance
Revenue $176 million for the quarter, a slight decrease from $178 million in the previous quarter. The decrease was due to scheduled dry docking of vessels.
EBITDA $109 million for the quarter, consistent with the third quarter. Over the past 12 months, EBITDA amounted to $450 million, reflecting operational stability.
Net Profit/Loss Net loss of approximately $4.7 million for the quarter, impacted by nonrecurring and noncash items such as a $11.3 million gain on sale of Suezmax tankers, $23 million settlement compensation for 2 Suezmax tankers, and other minor adjustments.
Cash and Cash Equivalents $151 million at year-end, with an additional $46 million available on undrawn credit facilities. The Hercules rig debt was repaid using balance sheet cash, leaving it debt-free at quarter end.
Charter Hire Revenue $176 million for the quarter, with $81 million from the container fleet, $26 million from the car carrier fleet (up from $23 million in the prior quarter), $42 million from the tanker fleet (down from $44 million due to dry docking), and $2.7 million from dry bulk vessels.
Dividend $0.20 per share declared for the 88th consecutive quarter, representing a dividend yield of approximately 9%.
Charter Backlog Approximately $3.7 billion, with more than 2/3 linked to investment-grade customers, providing strong cash flow visibility.
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Operating Highlights
LNG dual fuel system upgrades: Upgrades were carried out on a chemical tanker to better handle gas boil-off, with a sister vessel scheduled for similar upgrades in Q1. This aligns with the company's ambitions to reduce greenhouse gas emissions.
Tanker market outlook: Market analysts predict a strong tanker market in the coming quarters, driven by consolidation in the VLCC segment and high charter rates, which are expected to positively impact the Suezmax market.
Offshore drilling sector: The sector is gaining structural support with higher day rates, extended contract durations, and rising demand for premium rigs. Recent industry developments, such as the Transocean-Valaris merger and a new 3-year contract for a drilling rig in Norway, highlight this trend.
Fleet utilization: Overall fleet utilization in Q4 was 98.6%, with adjusted utilization at 99.8% after excluding unscheduled technical off-hire.
Fleet composition: The fleet now consists of 57 maritime assets, including vessels, rigs, and contracted newbuildings, with a charter backlog of $3.7 billion.
Profitability from Suezmax tankers: Two 2015-built Suezmax tankers were sold for $57 million each, generating a book gain of $11.3 million and an annualized return on equity above 25%. Two other Suezmax tankers were retained due to their fuel efficiency and higher charter-free values.
Dividend distribution: Declared the 88th consecutive quarterly cash dividend of $0.20 per share, with a total of $2.9 billion returned to shareholders over time.
Investment in newbuildings: Remaining capital expenditures on five container newbuildings amount to $850 million, expected to be funded through pre and post-delivery financing.
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Risk or Challenges
Market Volatility: The company acknowledges that forward-looking statements are inherently subject to risks and uncertainties, including conditions in the shipping, offshore, and credit markets, which could materially impact future activities and results.
Spot Market Exposure: The two Suezmax tankers are currently traded in the spot market, which introduces profit and loss volatility due to vessel positioning and market fluctuations.
Idle Offshore Asset: The harsh environment drilling rig Hercules remains warm stacked in Norway, awaiting new employment, which could lead to underutilization and financial strain if not resolved.
Regulatory and Environmental Compliance: The company is investing in LNG dual fuel system upgrades to meet environmental standards, which could increase operational costs and require further capital expenditures.
Credit Loss Provisions: An increase in credit loss provisions of $200,000 was reported, indicating potential risks in receivables or counterparties.
Debt and Financing Risks: The company repaid the Hercules rig facility using balance sheet cash, leaving the rig debt-free but requiring new financing, which is subject to customer closing conditions.
Capital Expenditure Commitments: The remaining capital expenditures on five container newbuildings amount to approximately $850 million, which will require a combination of pre- and post-delivery financing, posing financial and execution risks.
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Guidance & Outlook
Tanker Market Outlook: Market analysts predict a very strong tanker market in the next few quarters, driven by unprecedented consolidation in the supply side for larger VLCCs and high charter rates, which are expected to positively impact the Suezmax market.
Offshore Drilling Sector: The offshore drilling sector is gaining structural support with higher day rates, extended contract durations, and rising demand for premium rigs. The company remains optimistic about securing new employment for the Hercules rig.
Dividend and Shareholder Returns: The company declared its 88th consecutive quarterly dividend of $0.20 per share, representing a dividend yield of approximately 9%. The charter backlog stands at $3.7 billion, with 2/3 contracted to investment-grade counterparties, ensuring strong cash flow visibility.
Fleet and Charter Strategy: The company plans to seek new long-term charter opportunities for its vessels currently in the spot market. The fleet includes 57 maritime assets, and the company is focused on maintaining high utilization rates and upgrading assets for efficiency.
Capital Expenditures and Financing: The remaining capital expenditures on five container newbuildings amount to approximately $850 million, expected to be funded through pre and post-delivery financing. The company is experiencing strong interest from lenders, reflecting a robust financing market for these assets.
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Shareholder Return Plan
Dividend Announcement: SFL announced its 88th consecutive quarterly cash dividend of $0.20 per share, representing a dividend yield of approximately 9% based on the share price as of the announcement date.
Total Shareholder Returns: SFL has returned more than $2.9 billion to shareholders over 88 consecutive quarters through dividends.
Dividend Sustainability: The company emphasized its ability to sustain long-term shareholder distributions, supported by a charter backlog of $3.7 billion and a diversified asset base.
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Key Q&A
Q:How is the company thinking about the Suezmax vessels given the strong crude tanker spot market?
A:The company finds the Suezmax market interesting due to strong returns and market dynamics. They sold two older Chinese-built vessels for a high return on equity and retained two Korean-built vessels, which are more attractive for long-term charters due to their eco-design and scrubbers. The market has seen a 20% increase in rates over two months, and the company aims to find long-term charters while benefiting from the strong spot market. The remaining two vessels are generating more net cash flow than the previous four vessels combined.
Q:What is the company's approach to dividends over the next 12 months?
A:The Board does not guide on future dividends but focuses on long-term sustainable cash flows. The company sold older vessels to free up capital and aims to deploy it in balanced, long-term deals. Despite challenges, the company is paying over $100 million in annual dividends and has distributed more than $2.9 billion over 88 quarters.
Q:What were the rates on the terminated charters, and what are the current spot market fixtures?
A:The terminated charters had rates of around $27,000 per day. The company sold the Chinese-built vessels for $57 million net, generating strong returns. Current spot market rates for modern Suezmax tankers are guided at $47,500 for a 1-year time charter and over $60,000 per day based on the TD20 index. The remaining two vessels are generating more net cash flow than the previous four vessels combined.
Q:What is the status of the company's remaining Panamax vessels and potential reallocation of capital towards dry bulk?
A:The company has two remaining Panamax vessels, which are not considered non-core but are currently traded in the short-term market. The company is segment agnostic and evaluates opportunities in all sectors, including dry bulk, based on risk-adjusted returns.
Q:What is the update on the Hercules rig?
A:The Hercules rig has been idle since November 2024. The market has been slow, but there are signs of increased dynamics and employment opportunities. The company cannot comment on specific discussions but will announce contracts if they materialize.
Q:What is the long-term evolution of the contracted revenue mix across shipping segments?
A:The company focuses on long-term time charters with investment-grade counterparties and modern technology. While the containership market has been significant, the company is open to opportunities in other segments and aims to position itself as a logistics partner for strong industrial-focused partners.
Q:Which shipping segment is the company most optimistic about for future growth?
A:The company does not have a favorite segment and evaluates opportunities across all sectors, including container ships, car carriers, tankers, dry bulk, and chemical carriers, based on risk-adjusted returns.
Q:What is the status of the SFL Composer after the collision?
A:The SFL Composer was repaired during its scheduled dry dock, with all damage and off-hire costs covered by insurance. The vessel is now back in service with Volkswagen and operating normally in the Atlantic.
Q:What is the size of the new rig financing facility?
A:The new rig financing facility is $100 million.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the Hercules rig's employment opportunities, stating only that the market shows signs of increased dynamics. They also did not specify the long-term evolution of the contracted revenue mix across segments, emphasizing flexibility and openness to opportunities without clear direction.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CFO result
Conoco environment
GreatWhite rig
Hercules course
LNG ambition
LNG fuel
Linus term
Noble GreatWhite
Norway employment
Norway start
Officer matter
Officer transaction
Suezmax market
Suezmax tanker
Suezmaxes fleet
Transocean Valaris
VLCCs charter
Valaris week
agreement charter
barrel
charter vessel
charterer
compensation
consolidation
dividend SFL
effect
gain
gas
party vessel
return investment
spot market
tanker market
vessel book
vessel spot
SFL Transcript
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SFL Corporation Ltd. (SFL) Q4 2025 Earnings Call Transcript
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The earnings call shows a mix of stable financial performance, with consistent EBITDA and a large charter backlog, but also a net loss due to nonrecurring items. The Q&A reveals optimism in certain segments, like Suezmax vessels, but lacks clarity on future dividends and Hercules rig opportunities. The dividend yield is high, but no guidance is given. The market cap suggests moderate volatility, and the absence of clear guidance or new partnerships results in a neutral sentiment.
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The earnings call summary reveals strong financial performance with high utilization rates, reduced operating expenses, and a solid liquidity position. The $4 billion charter backlog and dividend yield indicate stability and shareholder focus. The Q&A section confirms management's proactive approach to market opportunities and risk management. New charters with Maersk and a robust buyback plan further bolster confidence. Despite minor uncertainties around the Hercules rig, the overall sentiment is positive, suggesting a stock price increase in the short term, particularly given the company's small-cap status.
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The earnings report shows mixed signals. Financial performance was weak with revenue and EBITDA decreases, but the charter backlog is strong, providing cash flow visibility. The dividend cut may concern investors, but it's offset by a 9% yield. The Q&A reveals uncertainties around the Hercules rig and unclear acquisition strategies, which could worry investors. However, the strong charter backlog and cash flow resilience offer positive aspects. Given the market cap, the stock is likely to experience a neutral reaction, as positive and negative factors balance each other.
SFL Report
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