Ship Finance International Ltd. (SFL)

Q3 2010 Earnings Conference Call

November 23, 2010 10:00 AM ET

Executives

Ole Hjertaker – CEO and Interim CFO

Analysts

John Parker – Jefferies

Darren Hickson [ph] – JP Morgan

Phyllis Camera [ph] – Pax Wildfund [ph]

Adam French [ph] – 1492 Capital

Justine Fisher – Goldman Sachs

Presentation

Ole Hjertaker

Thank you very much and welcome everyone to the Ship Finance International third quarter conference call. As mentioned, my name is Ole Hjertaker. I’m the CEO and Chief Finance Management, and here with me today, I also have Senior Vice President, Mr. Harald Gurvin and Vice President, Mr. Magnus Valeberg.

Before we begin our presentation, I would like to note that this conference call will contain forward-looking statements. Important factors that could cause actual results to differ include conditions in the shipping, offshore and credit markets. For further information, please refer to Ship Finance’s reports and filings with the Securities and Exchange Commission.

The Board of Directors has declared an increased cash dividend of $0.36 per share this quarter. This is the third dividend increase in 2010 and the dividend represents $1.44 per share on an annualized basis or 6.6% dividend yield based on closing price yesterday. We have now declared dividends for 27 consecutive quarters and we have paid $12.12 per share in total aggregate cash dividends over the last six to seven years.

The adjusted net income for the quarter was $36.7 million or $0.46 per share. Adjustments include our $400,000 book profit linked to a sale of a single (inaudible) and a $2.5 million negative non cash mark to market adjustment linked to interest rate swaps. The reported net income after these non-cash adjustments was $34.6 million or $0.44 per share.

Gross charter revenues including subsidiaries accounted for us an investment in associate was $197 million or $2.49 per share including profit share. The EBITDA equivalent cash flow also included profit share was $176 million or $2.22 per share.

The profit share contribution was lower than the $11.4 million in the second quarter but we still generated $5.8 million despite a weak spot tanker market in the quarter. According to Clarkson’s, the spot market in the fourth quarter has been in line with the third quarter, and Clarkson’s reported average day to sea earnings of $25,900 in the third quarter and they indicate that based on previous Friday’s information, $25,200 per day so far in the fourth quarter, but on a rising trends with $35,100 reported last week.

The reported market rates in the third quarter were lower than the average base rates we have with Frontline of approximately $26,000 per day for the (vehicletoseas). Manual front line vessels have been sub chartered on profitable terms above our base rate and will therefore provide a positive contribution to profit share calculation irrespective of the spot market. In total, more than $500 million in profit share has accumulated since 2004 in addition to the base rates.

We place $484.6 million senior unsecured bond in the Norwegian market in late September with maturity in April 2014. Closing took place in early October, so this financing is not reflected on our balance sheet for our third quarter.

The loan is denominated in Norwegian Kroner, but all payments have been swapped to U.S. dollar and the fixed interest rate is 5.32% per annum.

In addition to the 357 dead weight tons Supramax bulk carriers we announced in August, we have now increased this by another two vessels. All the vessels are of so called Dolphin design and built at reputable yards in China.

One 2009 built vessel was delivered to us in early October 2010, and another new building is expected to be delivered from the shipyard in December this year. The remaining three vessels will be delivered in the first, second and third quarter of 2011.

The aggregate purchase price is $161 million for the five vessels, and we have already secured financing for two of the vessels at very attractive terms.

The charter of all five vessels is Glovis, an investment grade A ship based logistics company with a market capitalization in excess of $5 billion. Average net charter rate for these five vessels is approximately $16,800 per day and we estimate operating expenses of approximately $5,300 per day for the vessels. There are no purchase options attached.

We have also secured five year charters for our remaining handy sized bulk carriers. The charter is Hong Sung [ph] shipping, which is part of the Yeong Long [ph] group, a privately owned Chinese industrial conglomerate. With these charters, all our new buildings have been chartered out.

In November, we announced the sale of a 13 year old Panamax bulk carrier, Golden Shadow. We purchased the vessel in 2006 in a sale lease back transaction, where Gold Notion was granted fixed price purchase options, and they have now decided to exercise the purchase option in connection with a sale to an unrelated third party.

Our sales price is $21.5 million pursuant to this purchase option, and we expect net cash proceeds from the transaction of approximately $4.5 million after prepayment of associated debit. We do not expect the transaction to have a material impact on our profit and loss statement

I would now like to take a step back just to illustrate the development of the company over these past seven years. In 2004, the company had 47 vessels, which all operated in the crude oil market and all vessels were chartered to Frontline. The charter back log at the time stood at $4.8 billion.

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