Ship Finance International Limited's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Ship Finance International Limited (SFL)

Q4 2011 Earnings Call

February 17, 2012 10:00 am ET

Executives

Ole B. Hjertaker - Chief Executive Officer and Chief Executive Officer of Ship Finance Management AS

Eirik Eide - Chief Financial Officer

Analysts

Oliver Corlett

Herman Hildan - RS Platou Markets AS, Research Division

C.J. Baldoni

Presentation

Operator

Good day, and welcome to the Ship Finance Fourth Quarter Results Presentation Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Ole Hjertaker, CEO. Please go ahead, sir.

Ole B. Hjertaker

Thank you, and welcome everyone to the Ship Finance International Fourth Quarter Conference Call. My name is Ole Hjertaker. I'm the CEO in Ship Finance management. And with me here today, I also have the CFO, Eirik Eide; and our Senior Vice President, Magnus Valeberg.

Before we begin our presentation, I would like to note that this conference call will contain forward-looking statements within the meaning of the U.S. 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. These statements are based on our current plans and expectations and involve 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 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 a cash dividend of $0.30 per share for the fourth quarter. This represents $1.20 per share on an annualized basis or nearly 10% dividend yield based on closing price yesterday. We have now declared dividends for 32 consecutive quarters and paid out more than $1 billion in dividends since 2004.

The net income for the quarter was $30 million, or $0.38 per share. Adjusted net income was $32 million or $0.41 per share. This is before gain on sales, some negative adjustments relating to profit split in previous quarters, a gain related to repurchase of bonds and also some non-cash mark-to-market of interest rate swaps and amortization of deferred charges relating to prepayment of debt.

The fixed-rate charter revenues in the quarter, including 100% owned subsidiaries accounted for as investment in associate, was more than $190 million, and the EBITDA equivalent cash flow in the quarter was $162 million or $2.05 per share, which was in line with the previous quarter.

Ship Finance took delivery of the 34,000 deadweight ton newbuilding Handysize drybulk vessel SFL Medway in October. And so far into the first quarter, we have taken delivery of 3 additional newbuilding drybulk vessels: the 57,000 deadweight ton Supramax SFL Humber; the 34,000 deadweight ton Handysize vessel SFL Trent; and the 32,000 deadweight ton Handysize drybulk vessel Western Australia.

With the delivery of SFL Humber, we have taken delivery of all 5 vessels chartered to Hyundai Glovis on 8- to 10-year time charters. SFL Medway and SFL Trent are chartered to Hong Xiang Shipping on 5-year time charters, while Western Australia has been chartered for 3 years to Western Bulk Carriers.

We have 7 remaining vessels under construction, 3 Handysize drybulk carriers with expected delivery this year and 4 4,800 teu container vessels with expected delivery in 2013. All vessels are fully financed, and we expect a positive cash effect in 2012 net of financing as we have already paid significant amounts in cash to the yards.

In October last year, we sold a 1992-built combination carrier, Front Striver, and simultaneously terminated the charter to Frontline. This was the third OBO sold in 2011. Net proceeds from the sale was approximately $18.7 million, including $8.1 million compensation from Frontline. We recorded a book gain of $2.3 million in the fourth quarter in connection with this sale.

We finalized the restructuring of the agreements with Frontline before year end and this is therefore reflected in the accounts for the fourth quarter. There will be a temporary reduction in charter rates of $6,500 per day per vessel from 2012 through 2015, and thereafter revert to previous charter rate levels. The adjusted base rates are reflected in the updated lease schedules which are available upon request by contacting us at ir@shipfinance.no.

Frontline paid a cash compensation of $106 million to us, which is equivalent to nearly 2 years charter rate reduction. In addition, the new cash sweep feature will give us 100% of vessel earnings up to the old base rates. The old profit share arrangement has also been improved from 20% to 25%, and will be calculated from the old threshold levels. The cash sweep and the profit split will be payable on an annual basis as before.

If Frontline generates market revenues in line with the previous base rates, the cash sweep payments alone may give a positive net effect of approximately $0.20 per share per quarter or double the previous net contribution from Frontline. Actually, due to the fact that many of these vessels have subcharters at significantly higher level than the base rates, we estimate that the cash sweep in 2012 will start accumulating from a level as low as $10,000 per day for VLCCs and Suezmaxes or in line with operating expenses for the vessels.

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