Earnings call transcript: SFL Q4 2024 misses EPS forecast, stock dips

SFL Corporation Ltd (NYSE: NYSE:SFL) reported its fourth-quarter 2024 earnings, revealing an EPS of $0.15, slightly below the forecasted $0.16. Despite this minor miss, the company posted strong revenue figures, surpassing expectations with $229.1 million against a forecast of $218.18 million. The market reacted negatively, with SFL’s stock price dropping 3.23% during open market trading. According to InvestingPro analysis, SFL has maintained dividend payments for 21 consecutive years, currently offering a substantial 9.8% yield.

[Get access to 13 more exclusive InvestingPro Tips for SFL Corporation and discover key insights about the company’s financial health, valuation, and growth prospects.]

Key Takeaways

• SFL’s Q4 revenue exceeded forecasts by nearly $11 million.
• Earnings per share fell short of expectations, impacting investor sentiment.
• The stock price declined by 3.23% following the earnings announcement.
• The company maintained a high fleet utilization rate of 98.3%.
• SFL continues to focus on long-term charters with investment-grade clients.

Company Performance

SFL Corporation demonstrated robust revenue growth in the fourth quarter of 2024, achieving $230 million, which marks a significant increase from previous quarters. The company’s diversified fleet and strong long-term charters have positioned it well in the current shipping market, characterized by low capacity and high demand. SFL’s strategic partnerships with major players like Maersk and Volkswagen (ETR:VOWG_p) further enhance its competitive position.

Financial Highlights

• Revenue: $230 million, exceeding forecasts and previous quarter results.
• EBITDA: $132 million, showing a significant increase.
• Net Income: $20 million, translating to $0.15 per share.
• Fixed Rate Backlog: $4.3 billion, indicating strong future revenue potential.
• Quarterly Dividend: 27 cents per share, reflecting a 10% yield.

Earnings vs. Forecast

SFL’s actual EPS of $0.15 fell short of the expected $0.16, resulting in a negative surprise of approximately 6.25%. Despite the minor miss in EPS, the company’s revenue performance was strong, surpassing expectations by 5%. This mixed result reflects the company’s ongoing efforts to manage costs and optimize fleet utilization.

Market Reaction

Following the earnings release, SFL’s stock price declined by 3.23%, closing at $10.99. This drop is primarily attributed to the EPS miss, despite the positive revenue figures. With a beta of 0.71, the stock typically exhibits lower volatility than the broader market. The stock’s performance remains within its 52-week range, which has seen a high of $14.62 and a low of $9.64, demonstrating resilience amid sector-wide challenges.

Outlook & Guidance

Looking ahead, SFL is focused on marketing its Hercules rig for 2025-2026 opportunities and reinvesting proceeds from vessel sales. The company’s future EPS forecasts for 2025 suggest a gradual increase, with estimates for the fourth quarter at $0.19. Revenue projections also indicate steady growth, with expectations reaching $214 million by Q4 2025.

Executive Commentary

CEO Uli Artaco emphasized the strength of SFL’s backlog, noting, "We have two-thirds of our backlog with investment-grade counterparties." Ola, an executive at SFL, highlighted the strategic approach, stating, "We are segment agnostics. It’s all about doing the right deals with the right structure." These comments underscore the company’s focus on long-term stability and strategic partnerships.

Risks and Challenges

• Potential tariff impacts on global shipping could affect profitability.
• The shipping industry’s capacity constraints may limit growth opportunities.
• Legal challenges, such as the Seadrill (OL:SDRL) ruling, could pose financial risks.
• Market volatility and economic downturns may impact demand.
• Environmental regulations necessitate ongoing fleet upgrades.

Q&A

During the earnings call, analysts inquired about the Hercules rig’s market prospects and potential tariff impacts on shipping. Executives also discussed strategies for reinvesting proceeds from vessel sales and provided insights into the Seadrill legal ruling. These discussions highlighted the company’s proactive approach to navigating industry challenges and capitalizing on market opportunities.

Full transcript - SFL Corporation Ltd (SFL) Q4 2024:

Espniosn, Vice President of Investor Relations, SFL: name is Espniosn. I’m Vice President of Investor Relations in SFL. Our CEO, Ulya F Thacker, will start the call with an overview of the fourth quarter highlights. Then our Chief Operating Officer, Trim Schoerli, will come in on vessel performance matters. Followed by our CFO, Aksel 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 and 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 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.

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 could cause actual resource 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, Uli Artaco, with highlights for the fourth

Uli Artaco, CEO, SFL: Our business as a maritime infrastructure company with a diversified team. We reported revenues of more than $230,000,000 this quarter and the EBITDA equivalent cash flow in the quarter was $132,000,000 which is significantly up from the second quarter. Over the last twelve months, the EBITDA equivalent has been $581,000,000 The net income came in at around $20,000,000 in the quarter or $0.15 per share. And we had positive contribution relating to profit share on Capesize bulkers and fuel cost savings of $2,500,000 Our fixed rate backlog stands at approximately $4,300,000,000 and importantly two thirds of this is to customers with investment grade rating giving us a unique cash flow visibility and resilience. This backlog figure excludes revenues from the vessels trading in the short term market and also excludes revenue on the new dual fuel chemical carrier that operates in approved installed tankers.

It also excludes future profit share optionality, which we have seen can contribute significantly through our net income. And in line with our commitment to return value to shareholders, we are paying a quarterly dividend of 27¢ per share or around 10% dividend yield. Most of our vessels are on long term charters and we have over the last ten years completely transformed the company’s operating model, making us relevant for large end users like Maersk, Volkswagen Group and Vittel. During the year, we renewed and extended multiple existing charters and took delivery of nine new vessels in 2024. We also ordered five new large container vessels last year, which added $1,200,000,000 to our fixed rate charter backlog.

And we are also in the process of upgrading several other vessels and our Chief Operating Officer, Trim Shirley, will talk more about that later. It has also been a busy year from a financing perspective, where we have effectively addressed virtually all short term asset debt maturities, matching funding with Charter Tenor. In total, we raised $1,300,000,000 in financing, including $220,000,000 in senior unsecured bonds in 2024. And subsequent to year end, we raised a new 150,000,000 senior unsecured bond loan in the Nordic market with maturity in 02/1930. We have had a ruling in Oslo district court, where Seadrill was ordered to pay us approximately $48,000,000 in compensation, including interest and legal costs.

It was a comprehensive case with more than 80,000 pages of documentation and a ruling over 112 pages. This ruling is subject to appeal from both sides within a month of the judgment. We have so far not included any potential proceeds as an asset on a balance sheet, and the legal costs have been expensed over time in your general administrative expenses. Separately, there is a case due to commence later in 2025 in connection with certain parts delivered to us by Seadrill in connection with a special survey of Hercules in 2023. We disagree on the actual ownership of some of the parts before they were delivered to us and therefore also the compensation claimed by Seadrill.

It will most likely take several months before this case is heard and there is a final ruling.

Ola, Executive, SFL: And with that, I will leave the word over to

Uli Artaco, CEO, SFL: our Chief Operating Officer, Trim Shirley.

Trim Shirley, Chief Operating Officer, SFL: Thank you, Uda. Our fleet currently contain 80 maritime assets. This includes vessels, rigs and contracted newbuildings. In 2024, we took delivery from shipyard of two LNG dual fuel PCTCs and three LR2 tankers as well as purchased two dual fuel LNG 33,000 deadweight ton stainless steel chemical tankers. We also last year placed orders for five sixteen thousand seven hundred TEU container ships in China.

Also last year we increased the backlog to Maersk with new five year charters 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 two vessels out of these seven have already been upgraded and were delivered to Maersk in Q1 this year. On divestments, we have sold one of our old 1,700 TEU container ships, the Green Ace that was delivered to buyers in Q4. Also Gold Motion, the charter for our eight Capesize bulk carriers recently declared their purchase option for the eight vessels. We expect the vessels to be delivered to Gold Motion early Q3 this year.

Our backlog from owned and managed shipping assets thus stands at $4,300,000,000 and the current fleet is made up of 15 drybulk vessels, 38 container ships, 18 tankers, two drilling rigs and seven car carriers. We have a diversified fleet of assets charted out to first class customers on mostly long term charters and majority of our customer base is large industrial end users. Container vessels remain our largest segment with almost 68% of the backlog. As mentioned previously by Ola, we have increasingly been investing in vessel maintenance and upgrades. From IMO and especially the EU, there are ever tightening regulatory requirements to reduce emissions from shipping driving the need for continuous improvement.

Such improvement and investing in assets is also critical for our customers and by doing so puts us in a better position to grow organically with our existing clients by either providing new vessels to their service or by extending with our current fleet. We see that particularly the container operators are keen to see such partnership models developing with large upgrade projects including cargo boost, energy saving devices, propeller modifications and even change to the haul form like new bulb boost bow. We have identified major benefits from these investments both in terms of cost saving for our customers and lower emissions. In the fourth quarter ’90 ’6 percent of chart revenues from all assets came from time charter contracts and only 4% from bareboats 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 Q4, profit split arrangements have contributed about $1,800,000 which is lower than a typical quarter due to lower fuel cost spread between heavy fuel oil and very low sulfur fuel oil. The charter revenue from our fleet was about $232,000,000 in Q4. We had a total of almost six thousand eight hundred operating days in the quarter defined as calendar day less technical of fire and dry dockings. Eight vessels have been in drydock in the quarter including major upgrade projects. Our overall utilization across the shipping fleet in Q4 was 98.3% mainly due to the one hundred and eight days spent in drydock.

For the rigs, the availability was about 67% mainly due to idle period for the Hercules rig. And on that, on the energy side, the Hercules rig was contracted with Equinor Canada until mid November including demobilization time to Norway. The rig is currently warm stacked and being marketed for opportunities later in 2025 and 2026. During the fourth quarter, the rig recorded revenue of 34,000,000 and costs of approximately 26,000,000. Going forward, we expect the stacking cost of the rig to be considerably lower than those of Q4.

And for the Linus, the rig recorded its first full operating quarter after its special periodic survey in May to July and had Q4 revenue of $20,200,000 The rigs market index rate increased 2.3% in the fourth quarter and costs were $13,000,000 in Q4 compared to $11,800,000 in the previous quarter. Subsequent to quarter end, we got a notification from our insurers that we will receive close to $5,000,000 to partly cover the expenses we incurred for the spud can repairs during the rig’s yard stay last summer. I will now give the word over to our CFO, Axel Olsson, who will take us through the financial highlights of the quarter.

Axel Olsson, CFO, SFL: Thank you, Mr. Shirley. On this slide, we have shown a pro form a illustration of cash flows for the fourth quarter. Please note that this is on a guideline to assess the company’s performance and it’s not in accordance with U. S.

GAAP and also net of extraordinary and noncash items. The company generated a gross charter hire of approximately $232,000,000 during the fourth quarter with approximately $85,000,000 coming from our container fleet, which was down from the previous quarter due to scheduled drydockings and efficiency upgrades on some of our large container vessels. This includes approximately SEK 1,700,000.0 in profit share related to fuel savings on seven of our large container vessels. In the fourth quarter, the company sold the 2,005 build Feeder container vessel, Greenase, for approximately SEK 10,800,000.0 and booked a gain of approximately SEK 5,400,000.0. At subsequent to quarter end, the company has agreed to sell the sister vessel, ASH and ACE, approximately SEK 9,500,000.0 with expected delivery to the buyer in the second quarter of twenty twenty five after expiry of the current charter.

The vessel is debt free and a gain of approximately SEK 4,000,000 is expected to be recorded in the second quarter. The Carcater fleet generated approximately SEK 26,000,000 of gross charter hire in the quarter, including profit share from fuel savings. Our Tanki fleet generated approximately SEK42 million in gross charter hire, up from approximately SEK37 million in the previous quarter as all five tankers acquired in 2024 now have been delivered. SFL has 15 drybulk vessels, of which eight are employed on long term charters. The vessels generated approximately SEK 23,000,000 in gross charter hire in the fourth quarter, including approximately SEK 900,000 in profit share generated from our eight Capesize vessels on long term charters to Gold Notion.

The seven vessels employed in the spot and short term market contributed with approximately SEK7.4 million in net charter revenue compared to approximately SEK8.4 million in the third quarter. Subsequent to quarter end, Gold Notion exercised its purchase option for eight KETAS vessels for $112,000,000 in aggregate. The vessels will be redelivered to Gold Notion during the third quarter of twenty twenty five, and the net cash proceeds after repayment of debt is estimated to approximately $50,000,000 In the fourth quarter, our energy assets generated approximately $55,000,000 in contract revenues compared to approximately SEK 6,000,000 in the third quarter as the Hercules finished its contract with Equinor in Canada in mid October. The line is under a long term contract with ConocoPhillips (NYSE:COP) in Norway until May 2029. And during the quarter, revenues from the rig was approximately SEK20 million compared to approximately SEK16 million in the third quarter.

Our operating and G and A expenses for the quarter was approximately SEK104 million compared to approximately NOK 99,000,000 in the third quarter, mainly due to scheduled dry dockings and delivery of new vessels. This summarizes to an adjusted EBITDA of approximately NOK 132,000,000 compared to SEK167 million in the previous quarter. We then move on to the profits and loss statements as reported under U. S. GAAP.

For the fourth quarter, we report total operating revenues according to U. S. GAAP of approximately SEK $229,000,000 compared to approximately SEK $255,000,000 in the previous quarter. The operating revenue decrease is primarily driven by the Hercules concluding its contract with Equinor in Canada in mid October. During the quarter, the company recorded profit sharing income for approximately SEK2.6 million from fuel savings from some of our large container vessels, our car carrier and our eight Capesize dry bulk vessels on charter to Golden Ocean.

During the quarter, we had an increase in vessel operating expenses mainly due to scheduled drydockings and new vessel deliveries. Furthermore, result was impacted by nonrecurring and noncash items, including a gain of approximately SEK 5,400,000.0 in connection with the sale of the feeder container vessel, Greenes, a negative mark to mark effect from swaps of approximately SEK 2,000,000, negative mark to mark effects from equity investments of approximately SEK 500,000 and a decrease in approximately SEK 100,000 on credit loss provisions. So overall and according to US GAAP, the company report a net profit of approximately SEK 20,000,000 or SEK 0.15 per share compared to approximately SEK 44,500,000.0 or SEK 0.34 per share in the previous quarter. So moving on to the balance sheet. At quarter end, SFL had approximately SEK 135,000,000 of cash and cash equivalents.

Furthermore, the company had marked all securities of approximately SEK 4,600,000.0 in addition to debt free vessels with an estimated market value of approximately SEK 75,000,000. The company has recently concluded financing arrangements of approximately SEK1 billion with approximately SEK280 million being drawdown during the quarter. During the fourth quarter, the company paid the second year installment of approximately 5% relating to the new billing order for five sixteen thousand eight hundred TEU container vessels with scheduled delivery in 2028. The remaining balance is due closer to delivery and expect this to be financed by pre- and post delivery loan facilities. And subsequent to quarter end, the company successfully placed a new sustainability linked bond of SEK 150,000,000 in an audit market in anticipation of new investments and general corporate purposes.

And based on the Q4 numbers, the company had a book equity ratio of eighty fourth consecutive cash dividend of $0.27 per share, which represents a dividend deal of approximately 10%. The company has a strong balance sheet and liquidity position, and we have effectively addressed the majority of all short term asset debt maturities, matching funding with charter tenors. In total, we raised approximately $1,300,000,000 in financing, including $220,000,000 in senior unsecured bonds. And subsequent to quarter end, we raised a new $150,000,000 senior secured bond in the Nordic market with maturity in 02/1930. Our fixed charge rate backlog currently stands at approximately SEK 4,300,000,000.0 after adding approximately SEK 2,000,000,000 during 2024.

Twothree of the backlog is the customers with investment grade rating, giving us strong visibility on our cash flow going forward. And with that, I give the word back to the operator who will open the line for questions.

Espniosn, Vice President of Investor Relations, SFL: Thank you, Axel. We’ll now open for a question and answer session. For those of you who are following this presentation through Zoom (NASDAQ:ZM), please use the raise hand function under reactions in the toolbar to ask a question. When your name is called out, please unmute your speaker to ask your question. Thank you.

We will have our first question from Gregory Lewis (JO:LEWJ). Please unmute your speaker to ask your question.

Gregory Lewis, Analyst: Hey, thank you and good afternoon everybody and thanks for taking my questions. I actually had a few today. The first is going to be around the semi submersible rig, the Hercules. Clearly, the rig got back to work, had a good year in 2024. I believe it’s currently warm stacked outside of Norway.

Was hoping you could kind of couple of questions around the Hercules. One is, how should we think about that OpEx cost as that rig is warm stacked off of Norway and as we think about budgeting for 2025 or how are you thinking about budgeting that expense for 2025 just given some of the prospects that you’re seeing for that rig, maybe as things start to warm up or the weather improves in the North Sea as we kind of move in the summer?

Ola, Executive, SFL: Thanks, Greg. You know, the the rig, just concluded very successfully a drilling campaign in Canada for Equinor. This is a rig that is one of a handful of rigs that are capable of drilling, you know, both in ultra deep water and welcome to s a f. You know, it has it has drilled in, in, the the Arctic, you know, before and, and and can do it again. So, the the issue right now is that that market is a little slow at the beginning of twenty five.

And, and we believe there are more prospects, you know, you know, in the second half and and and onwards. So I would say, if you talk to market analysts, they would say that 2026 looks very promising. So for now, we we are keeping the ring idle. The reason why it is in the location where it is is that it it’s very close to where it has a true Edge. Also, we’re taking the opportunity while it is idle now to do some upgrades for the rig, which makes it more attractive, you know, in the long run.

So we, we don’t, you know, risk, you know, having to take the rig out of business, you know, when it’s working to do some upgrades that has to do with everything from, you know, the the the very latest drilling control systems and and frankly, many of that, what they call six and seven generation rates have the same issue. So we’re dealing with it now beforehand. And also some other of upgrades that we think would make the rig more attractive. We spent more than $100,000,000 on the rig in early twenty twenty three, and, that rig we believe is very attractively positioned, but a very soft first quarter, definitely, or sorry, first half, I would say. So our expectation is not to that rig will be back working until later in the year.

Gregory Lewis, Analyst: Okay, great. And then I did want to bounce around a little bit. Can appreciate the stability of the dividend. It’s kind of we look at, we went back and looked at, say, 2023, it looked like the dividend was really funded, call it mid 40% payout of free cash flow. In 2024, that dipped down into kind of like a high 30s percentage of free cash, our operating cash flow payout.

As realizing that the dividend is a decision that the Board is always focused on and always thinking about, as we think about the stability of that dividend, how should we be thinking about that, I. E, hey, if we’re in this range, if we’re in this kind of 30%, forty %, maybe even 50% payout of operating cash flow, the dividend is pretty, should we expect it to be stable or asked another way, what could trigger a decision to move the dividend higher or lower?

Ola, Executive, SFL: Yeah, thanks. You’re absolutely correct. The dividend is set on a quarter over quarter basis. You know we cannot guide specifically, you know what will be next quarter dividend. But generally, I would say that the dividend discussions in the company and when the board is more has more to do with the long term prospects.

And you know and if you look at the company’s operating model yes we have we have this legacy asset and you know frankly I mean the reason why we have this asset in the operating mode where it is is because it wasn’t a bareboat charter and our counterparty, Seadrill, failed. They went through two chapter 11s and we ended up taking the rig back because that was the best solution for the company at the time. If you look at the generally, if you look at the rest of the business, now we have two thirds of our backlog with investment grade counterparties. I mean, that’s a fundamental change in the business model. And we have more than 70 vessels.

If we net out the Gold Notion vessels, which will go out of the fleet in the third quarter, and frankly, Gold Notion assets, they’re also legacy assets. They are on an operating model where which is more, I would say, more of a financial nature than an operating later. But if you look at the rest, it’s all a long term business, it’s all with stray restaurant counterparties. We have a very stable cash flow fundament in the business. Yes, that that drilling rig you know has had some very you know a lot of noise in in in in the in the cash flow and more even more noise in the in the net income because of us accounting rules where you know, when when the rig is mobilizing, you know, you cannot recognize revenues even though you’re compensated for revenues.

And then everything is piled up on top of the drilling days. So you have, you know, lower, higher, lower, higher, lower, higher revenue structures, which which creates a bit of a noise. But, you know, I think we should, you know, yes, we are managing the rig. The rig is upgraded. We spent a lot of capital on it.

We had this, you know, legal case that you may have noticed that where where where so far, you know, Seadrill has been ordered to pay us a compensation, you know, to effectively compensate us for the cost we had back in 2023. But the rest of the model and the rest of the business is quite stable and very predictable, I would say, in nature. So I would say it’s sort of a we have the SFL model is a model I would say of it’s a tale of two decades as as you could call it it’s from 02/2004 to 2014 ish you know that’s the financial structures more bareboat type deals and from there onwards, we have switched the model more to an operating model where we basically run the vessels, we do repeat business, and typically with very strong card parties. So, that’s really what I can say. You know, it’s difficult to be more specific on the Hercules.

We will market that rig, of course, we are marketing that rig, you know and and we hope to find work for it but we cannot be specific on on when on what exactly we are bidding and and and when exactly we can we can notify the market about contracts

Gregory Lewis, Analyst: okay that was super helpful helpful. I did have I did want to keep going.

Axel Olsson, CFO, SFL: Go on.

Gregory Lewis, Analyst: And I saw that, you know, you kind of were flagging and maybe that they like the strength of your counterparties, you know, maybe this quarter more than most. You know, a couple a question I’ve gotten a little bit this morning was around tariffs. And and and, you know, I I don’t think I think I know the answer to this. But, you know, as we think about, you know, as you built this container ship portfolio and even the car carrier portfolio, obviously, it’s, you know, I don’t know if they’re interesting or volatile. I don’t know what the word is in The US.

But but regardless, you know, these tariffs that, you know, people are reading about. You know, the question that that I’ve gotten a little bit this morning was around the you know, and I think the people in shipping have seen this in in other industries around force majeure, how certain things can create force majeures. As we look at these car carriers and container ships around tariffs, regardless of where these tariffs potentially go, I would think that that should provide no impact for existing charters. But I would, if you could kind of clarify that or walk through any wrinkles, I think that might be super helpful this morning.

Ola, Executive, SFL: Yeah. Thank you. I mean, if you look at the car carriers we have, just to to start with that, you know, that are trading on The US. This is Volkswagen Group. They it’s a it’s a very strong, you know, counterparty, and and they are our counterparty.

So we could say if there are any issues there, they will absorb that. And I think, frankly, they have good economic capacity to to do that. And but but also I would like to add that, you know when when when you look at the car trade as a market yes we have you have you have volumes going from Asia no so sorry sorry sorry from Europe to The Us but you also have a lot of volume going from The Us and back you know so so it’s not like the car factories have they’re producing all sorts of brand all sorts of variations in in each reflecting market they typically have a trade where where the logistics on c has been very effective for them. So so the dilemma, you know, it’s of course that, you know, if this this evolves, I mean, what then happens to, you know, the the the vehicles that are being produced locally in The US for instance. And I think it’s a little too early to tell, and whether or not this is, you know, what we say, a leverage to start discussions at a different level is difficult to say.

But from our perspective, our counterparty is there is Volkswagen Group. So so we don’t think we are very exposed from that perspective. Same thing goes for for the liner side or or or liner companies going there are, you know, there are, you know, Hapag Lloyd, Merced Line, MSC. You know, we have very strong counterparties who’ve made a lot of money over the last few years and are quite robust. So, and and also, you know, the the trade between say China and The US has changed fundamentally since the, what we call the twenty eighteen, nineteen, trade war, if you can call it that between between US and China, where you at that point of time had around 10% of the volumes going from China to The US and therefore had quite a bit of an impact.

In the meantime, trade patterns have changed and right now, China to US has diminished quite dramatically on the container line side. So you could say, yes, it has an impact, but it’s much less than it was six, seven years ago. So we monitor this closely, but there at the same time, we have very strong counterparties. We are not directly exposed to that. This is our customers who are potentially exposed, and we are quite confident that they can easily service their charter rates to us.

Gregory Lewis, Analyst: Okay. Super helpful, guys. I actually see a hand raised, so I’ll turn it over. Thank you very much.

Ola, Executive, SFL: Thank you.

Espniosn, Vice President of Investor Relations, SFL: Thank you. And then we’ll take our next question from

Mala, Analyst: Mala. You announced Golden Ocean will be exercising their purchase options on eight ks sizes. As you think about redeploying the net proceeds, should we expect you to focus on drybulk investments or are you willing to reduce your exposure to that sector?

Uli Artaco, CEO, SFL: Thank

Ola, Executive, SFL: you. Generally, I would say we are segment agnostics. So for us, it’s all about doing the right deals with the right structure, with the right counterparties and with the right type of economics. We would love to do more in the drybulk space. And, if we can find the right structure around that.

And if you look at the segments that we’re in, I mean, yes, we have liners, there we see a significant interest from companies with a very logistics mindset. We would love to do the same, more of the same in the drybulk sector, and we’ve done a few deal in the tanker segment. I would say the only segment where we are not present right now is LNG, and that has more to do with maybe, as we see it, maybe a lot of players chasing deals in that segment, and therefore, that segment hasn’t, for us hasn’t been attractive enough from a running yield perspective and a residual exposure after the charter period perspective. So we have not sort of allocated that capital for anything in particular or anything specific. It’s all about deal by deal and we monitor that these markets as we go.

But maybe also generally, I would say that if you look at that deal, that is one of our obviously, call it a legacy deal. It’s sort of a, it was, has had a more of a financial profile really than a true operating profile. And if you look at the effective cash flow coming from those vessels compared to the equity that we know gets released, we believe that we can actually reinvest that with a better return than keep rolling that deal. We are we are quite neutral to that. I mean, we wouldn’t mind working with Gold Notion that’s been it’s been working quite smoothly, but we also believe we can very effectively reinvest that capital in in other assets and get at least as good return on the on the capital point.

Mala, Analyst: That’s very helpful. Thank you. I also wanted to ask about the Seadrill award. I’m guessing you cannot provide much commentary on the $48,000,000 ruling, but should the ruling be appealed? When should we expect to hear from the next ruling?

Axel Olsson, CFO, SFL: Sure. This is Axel here. I mean, the ruling itself is public. So it’s in Norwegian, so everybody can read that ruling. The timing for appeal is appeal until the March 5.

So we will then know if it’s appealed. And then it will be moved on to, call it, the second circuit and that could potentially take up to another twelve months before that case is scheduled. So it could take some time still, yes.

Mala, Analyst: Thanks for the color. That’s everything from me. Thank you for taking my questions.

Espniosn, Vice President of Investor Relations, SFL: Thank you. We’ll take our next question from Belggebakke. Please unmute your speaker and ask your question.

Axel Olsson, CFO, SFL: Yes. Good afternoon, guys. A very quick one for me. Are there any significant upgrades or CapEx required to the Hercules, if it were to work on offshore Norway? Thank you.

Ola, Executive, SFL: Thanks. Not particularly, I mean, this rig has worked in Norway in the past, so it but but that under another call it manager. So, you know, going back in with Odfield Drilling, I would say who is maybe the premier operator on the Norwegian continental shelf. Frank Lloyd, we took the Linus, the order rig we have, the harsh environment checkup, that was also taken into Norway and switched management from from CDRL to odd fill technology. So they’ve affected with a bit of wider group was done in a very efficient manner.

You know, we there is there are always some some investments to be made, but we think compared to numbers you’ve seen from from in other settings, I think they’re quite manageable and and typically what you see when you when you bring rigs into Norway, the oil companies are generally willing to compensate the companies for the effective investments of taking them into you know, that that environment. So, so, we don’t think, that would be material, but, you know, well, you know, you know, there will there will be investment for sure. And, if and when a contract is awarded, we will inform the market about what can we say for both the charter rates and mobilization fees and and investments required to get the job done effectively on it from a drilling perspective.

Axel Olsson, CFO, SFL: All right. Thanks, Ricola.

Espniosn, Vice President of Investor Relations, SFL: We have also received a question on the side here. Which shipping segment do you see as the most potentialprofitable in the next two to three years?

Ola, Executive, SFL: That that, you know, it’s a difficult question. And the reason why it’s difficult is that we don’t focus on spot market. We focus on long term charters. And if you see the deals we’ve done is typically five, seven, ten year charters. So which which means that we’re not really exposed to the short term market.

So so so spot market isn’t so relevant. But if you look at new business development, typically the sweet spot when we get deals done and we get, it’s a setting where we have an attractive investment or entry point, where we have a structure where our customer don’t affect you could say in the front end lose money, say, from day one. So hopefully, it’s like the the the spot market if that’s where they’re facing is a little over. And then in the long run, you get a you get to an effective cost of capital. We have over the years now built quite efficient funding structures for for assets.

We have funded ourselves, I would say, primarily in the Asian capital market, where we have seen very attractive funding rates for long term, you know, charter structures with very strong counterparties. So we believe that we can structure deals that are quite attractive. And that’s why we are insulated from that perspective, from the short term market fluctuations. And that’s the nature of our business. But if you look at shipping in general, I would say that most shipping segments and particularly if you look at the big volume shipping segments, being dry bulk, which is the biggest tanker, smaller than dry bulk, but bigger than others, you have a very low order book, a historic low order book generally.

So, and you have a significant reduction in shipping capacity, And you also have structural issues like in Japan and Korea, where you have workforce issues, which could be making it difficult to keep up, even also with the current reduced volumes of ship production. So from that perspective, I think shipping is in a very interesting spot where you have true shortage of shipping capacity, you’ve had an order book where you want, if you order a ship today, and or if you want a volume of ships, new builds, you will have to wait until 2029. We’re talking four to five, at least four years to get these delivered. And historically, it’s always been the ship owners who’s doing it to the sales. Typically, ship owners, as soon as you see some lightning in the market, ship owners would run out and order a lot of vessels to be put in the spot market.

And then when they get delivered, suddenly there are too many vessels and the ship and the charter rate collapse. To do that now, it will take a long time. So I think we’ve in a very interesting spot from a supply perspective, at least, and then we just have to hope that the demand side is keeping up and China and Asia, which is really where the volumes are going, there’s so much noise about The US and trade wars, but volumes from a shipping perspective is more Asia centric than US centric, I think makes, you know, maritime transportation quite attractive.

Espniosn, Vice President of Investor Relations, SFL: Thank you, Ola. We also have another question here. What’s your view regarding the huge delivery backlog of container ships in the coming years? Do you think it will affect your profitability in 2026 and 2027?

Trim Shirley, Chief Operating Officer, SFL: Tim, Shirley speaking. I think regarding the backlog of containerships and any effect on SFL in 2026 and 2027, we do not believe there will be a major impact to us. We our container fleet is mainly charted out until sort of 02/1930 now or 2029, ’2 thousand and ’30. And the vessels that are still open, we expect there is good interest in the market still. And we see that there is a strong interest for good and large container assets from all the operators still.

May sound surprising, but it’s what we see. And so demand is still good. So this I mean, for us to look at the huge order book, as you call it, from the big liners, there is definitely a demand there still. So as far as we can tell right now, we do not see a big drop in the rates or definitely not in our profitability in the next four to five years based on our current backlog.

Espniosn, Vice President of Investor Relations, SFL: Thank you, Thorne. Then I would like to thank everyone for participating in this conference call. If you have any follow-up questions to the management, there are contact details in the press release or you can get in touch with us through the contact pages on our webpage, www.sflcorp.com. Thank you, everyone.

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