SFL .(SFL) - 2024 Q2 - Quarterly Report

FORM 6-K Filing Information Report Overview This report contains unaudited interim financial statements and management's analysis for the six months ended June 30, 2024 - The report includes unaudited condensed interim financial statements and Management's Discussion and Analysis for the six months ended June 30, 2024[2] - The Form 6-K is incorporated by reference into the Company's Registration Statements on Form F-3ASR[2] Financial Statements Unaudited Condensed Consolidated Statements of Operations The company reported a significant increase in net income for H1 2024, driven by higher total operating revenues and improved operating income Key Operating Results (Six Months Ended June 30) | Metric (in thousands of $) | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | 419,979 | 337,827 | 82,152 | 24.3% | | (Loss)/gain on sale of vessels | (17) | 16,476 | (16,493) | -100.1% | | Total operating expenses | 272,262 | 252,512 | 19,750 | 7.8% | | Operating income | 147,700 | 101,791 | 45,909 | 45.1% | | Interest expense | (88,175) | (82,554) | (5,621) | 6.8% | | Income before taxes | 70,381 | 23,264 | 47,117 | 202.5% | | Tax expense | (4,447) | — | (4,447) | N/A | | Net income | 65,934 | 23,264 | 42,670 | 183.4% | | Basic EPS | $0.52 | $0.18 | $0.34 | 188.9% | | Diluted EPS | $0.52 | $0.18 | $0.34 | 188.9% | - Basic and diluted earnings per share increased significantly from $0.18 in H1 2023 to $0.52 in H1 2024[5] Unaudited Condensed Consolidated Statements of Comprehensive Income The Company's comprehensive income substantially increased for the six months ended June 30, 2024, driven by higher net income Comprehensive Income (Six Months Ended June 30) | Metric (in thousands of $) | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net income | 65,934 | 23,264 | 42,670 | 183.4% | | Fair value adjustments to hedging financial instruments | (3,411) | (3,147) | (264) | 8.4% | | Other comprehensive (loss)/income, net of tax | (3,245) | 1,412 | (4,657) | -329.8% | | Comprehensive income | 62,689 | 24,676 | 38,013 | 154.0% | Unaudited Condensed Consolidated Balance Sheets As of June 30, 2024, total assets and liabilities increased, driven by vessel growth and higher short-term debt respectively Key Balance Sheet Items (as of June 30, 2024 vs. December 31, 2023) | Metric (in thousands of $) | June 30, 2024 | Dec 31, 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total current assets | 381,098 | 298,059 | 83,039 | 27.9% | | Vessels, rigs and equipment, net | 2,809,216 | 2,654,733 | 154,483 | 5.8% | | Total assets | 3,867,010 | 3,731,389 | 135,621 | 3.6% | | Total current liabilities | 1,113,437 | 969,195 | 144,242 | 14.9% | | Total liabilities | 2,831,104 | 2,691,992 | 139,112 | 5.2% | | Stockholders' equity | 1,035,906 | 1,039,397 | (3,491) | -0.3% | - Cash and cash equivalents increased from $165.5 million at December 31, 2023, to $186.1 million at June 30, 2024[9] - Short-term debt and current portion of long-term debt increased from $432.9 million to $571.0 million[9] Unaudited Condensed Consolidated Statements of Cash Flows For H1 2024, cash from operations decreased while cash from financing activities turned positive, resulting in a net cash increase Cash Flow Summary (Six Months Ended June 30) | Metric (in thousands of $) | 2024 | 2023 | Change ($) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | 187,430 | 230,962 | (43,532) | | Net cash used in investing activities | (195,938) | (35,544) | (160,394) | | Net cash provided by/(used in) financing activities | 29,078 | (182,314) | 211,392 | | Net change in cash and cash equivalents | 20,570 | 13,104 | 7,466 | | Cash and cash equivalents at end of the period | 186,062 | 201,466 | (15,404) | - Investing activities used significantly more cash in H1 2024 ($195.9 million) compared to H1 2023 ($35.5 million), primarily due to increased purchases of vessels and capital improvements and lower proceeds from vessel sales[11] - Financing activities shifted from using $182.3 million in H1 2023 to providing $29.1 million in H1 2024, mainly due to lower debt repayments and bond repurchases/redemptions, partially offset by lower debt proceeds[11] Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity slightly decreased in H1 2024, primarily influenced by dividends declared, partially offset by net income Stockholders' Equity Changes (Six Months Ended June 30) | Metric (in thousands of $) | 2024 | 2023 | Change ($) | | :--- | :--- | :--- | :--- | | Total stockholders' equity (end of period) | 1,035,906 | 1,051,026 | (15,120) | | Net income | 65,934 | 23,264 | 42,670 | | Dividends declared | (66,894) | (60,862) | (6,032) | | Shares issued | 242,146 | — | 242,146 | | Shares repurchased | — | (527,417) | 527,417 | - The number of shares outstanding increased from 137,467,078 at the beginning of the period to 137,708,524 at the end of the period, due to shares issued from option exercises and fewer repurchases compared to the prior year[13] Notes to the Unaudited Condensed Consolidated Financial Statements 1. Interim Financial Information This section outlines the basis of preparation for the unaudited condensed interim financial statements, confirming adherence to U.S. GAAP - The financial statements are prepared in accordance with U.S. GAAP and include all material adjustments deemed necessary by management[15] - New accounting standards ASU 2023-09 (Income Taxes) and ASU 2023-07 (Segment Reporting) are not expected to have a material impact on the consolidated financial statements, but the latter will expand disclosure requirements[18][19] - Management's estimates and assumptions are considered appropriate despite market volatility from geopolitical conflicts and inflationary pressures[20] 2. Gain or Loss on Sale of Vessels For H1 2024, the Company recorded a net loss from vessel disposals, a significant change from the net gain reported in H1 2023 Gain/(Loss) on Sale of Vessels (Six Months Ended June 30) | Vessel Name | 2024 Proceeds ($'000) | 2024 Gain/(Loss) ($'000) | 2023 Proceeds ($'000) | 2023 Gain/(Loss) ($'000) | | :--- | :--- | :--- | :--- | :--- | | MSC Margarita | 5,991 | (9) | — | — | | MSC Vidhi | 5,992 | (8) | — | — | | Glorycrown | — | — | 43,740 | 10,056 | | Everbright | — | — | 41,113 | 6,390 | | SFL Weser | — | — | 9,473 | (13) | | SFL Elbe | — | — | 9,885 | 43 | | Total | 11,983 | (17) | 104,211 | 16,476 | 3. Earnings Per Share Basic and diluted EPS for H1 2024 significantly increased to $0.52, up from $0.18 in the prior year, reflecting higher net income Earnings Per Share (Six Months Ended June 30) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net income available to stockholders ($'000) | 65,934 | 23,264 | | Weighted average number of common shares outstanding (thousands) | 125,844 | 126,774 | | Diluted weighted average number of common shares outstanding (thousands) | 126,481 | 127,016 | | Basic earnings per share | $0.52 | $0.18 | | Diluted earnings per share | $0.52 | $0.18 | - The weighted average number of common shares outstanding excludes shares from share lending arrangements and repurchased shares held as treasury stock[25][26] 4. Other Financial Items Net other financial items for H1 2024 resulted in a loss of $1.4 million, a larger loss compared to the prior year Other Financial Items, Net (Six Months Ended June 30) | Metric (in thousands of $) | 2024 | 2023 | | :--- | :--- | :--- | | Change in allowance for expected credit losses | (214) | 402 | | Other items | (1,202) | (1,492) | | Total other financial items, net | (1,416) | (1,090) | - Other items in H1 2024 included a net loss of $0.4 million from foreign currency translations, an improvement from a $1.7 million loss in H1 2023[28] 5. Investments in Equity Securities The Company's equity securities in NorAm Drilling Company AS resulted in a mark-to-market loss and a foreign exchange loss in H1 2024 - Equity securities comprise approximately 1.3 million shares in NorAm Drilling Company AS, traded on Euronext Growth in Oslo[29] - A mark-to-market loss of $0.2 million and a foreign exchange loss of $0.2 million were recognized in H1 2024[29] 6. Vessels, Rigs and Equipment, Net The net value of vessels, rigs, and equipment increased to $2.8 billion as of June 30, 2024, due to new vessel deliveries Vessels, Rigs and Equipment, Net (in thousands of $) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cost | 3,703,077 | 3,454,193 | | Accumulated depreciation | (893,861) | (799,460) | | Vessels and equipment, net | 2,809,216 | 2,654,733 | - The Company took delivery of two dual-fuel 7,000 CEU newbuild car carriers for $169.1 million and one newbuild LR2 product tanker for $78.1 million in H1 2024[30] 7. Capital Improvements, Newbuildings and Vessel Purchase Deposits Capital improvements, newbuildings, and vessel purchase deposits decreased as of June 30, 2024, due to the delivery of newbuildings Capital Improvements, Newbuildings and Vessel Purchase Deposits (in thousands of $) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Capital improvements in progress | 22,597 | 2,194 | | Newbuildings | — | 83,864 | | Vessel purchase deposits | 26,760 | — | | Total | 49,357 | 86,058 | - Capital improvements in progress include upgrades and Special Periodic Surveys on two rigs and four container vessels[32] - Vessel purchase deposits were made for two LNG dual-fuel chemical tankers and two newbuild LR2 product tankers[32] 8. Vessels Under Finance Lease, Net The net value of vessels under finance lease decreased to $552.9 million as of June 30, 2024, primarily due to depreciation Movements in Vessels Under Finance Lease, Net (in thousands of $) | Metric | Cost | Accumulated Depreciation | Vessels under Finance Lease, net | | :--- | :--- | :--- | :--- | | Balance as of December 31, 2023 | 777,939 | (204,485) | 573,454 | | Depreciation | — | (20,598) | (20,598) | | Balance as of June 30, 2024 | 777,939 | (225,083) | 552,856 | 9. Investments in Sales-Type Leases The number of container vessels accounted for as sales-type leases decreased from nine to seven following the sale of two vessels - As of June 30, 2024, the Company had seven container vessels accounted for as sales-type leases, down from nine at December 31, 2023[34] - Two container vessels, Margarita and Vidhi, were sold and delivered to MSC in H1 2024 following the exercise of purchase obligations[34] 10. Short-Term and Long-Term Debt Total debt principal increased to $2.3 billion as of June 30, 2024, with a significant portion due within one year Total Debt Principal (in thousands of $) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | NOK700 million senior unsecured floating rate bonds due 2024 | — | 68,426 | | NOK600 million senior unsecured floating rate bonds due 2025 | 53,373 | 58,089 | | 7.25% senior unsecured sustainability-linked bonds due 2026 | 150,000 | 150,000 | | U.S. dollar denominated fixed rate debt due 2026 | 148,125 | 148,875 | | 8.875% senior unsecured sustainability-linked bonds due 2027 | 150,000 | 150,000 | | 8.25% senior unsecured sustainability-linked bonds due 2028 | 150,000 | — | | U.S. dollar denominated floating rate debt | 914,201 | 1,014,842 | | Lease debt financing | 733,522 | 573,456 | | Total debt principal | 2,299,221 | 2,163,688 | | Current portion of long-term debt | (570,992) | (432,918) | | Total long-term debt | 1,711,892 | 1,713,828 | - The Company issued $150.0 million in 8.25% senior unsecured sustainability-linked bonds due 2028 in April 2024[42] - Discussions are underway with financial institutions to refinance credit facilities maturing in 2024 and early 2025[36] Interest Rate Information Weighted Average Interest Rates | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Weighted average interest rate on floating rate debt* | 6.38 % | 6.49 % | | Weighted average interest rate on lease debt financing | 5.49 % | 5.41 % | | Weighted average interest rate on fixed rate debt | 8.40 % | 8.46 % | Fixed Rate Debt and NOK Bonds - The NOK700 million senior unsecured bonds due 2024 were fully redeemed in H1 2024, with a principal amount of NOK695 million ($62.8 million)[38] - The NOK600 million senior unsecured bonds due 2025 had NOK20 million ($1.9 million) purchased in H1 2024, leaving NOK570 million ($53.4 million) outstanding[41] - A new $150.0 million 8.25% senior unsecured sustainability-linked bond due 2028 was issued in April 2024, with proceeds used for refinancing and general corporate purposes[42] U.S. Dollar Floating Rate Debt U.S. Dollar Floating Rate Debt Outstanding (in millions of $) | Facility Type | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | $45 million secured term loan and revolving credit facility | 30.0 | 32.5 | | $76 million secured term loan facility | 40.9 | 43.5 | | $175 million term loan facility | 99.3 | 108.7 | | $150 million senior secured term loan facility | 142.0 | 150.0 | | $60 million loan facility | 60.0 | 60.0 | | Total | 914.2 | 1,014.8 | - The $60 million loan facility, drawn in 2024, is callable at any time and provides cash collateral pertinent to shares lent under a general share lending agreement[44][45] Lease Debt Financing Lease Debt Financing Outstanding (in millions of $) | Lease Debt Financing (Price of vessel sold and leased back) | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | $65 million lease debt financing | 45.7 | 49.4 | | $120 million lease debt financing | 103.2 | 108.4 | | $72.2 million lease debt financing | 69.5 | 71.2 | | $77.5 million lease debt financing (2024 start) | 75.8 | — | | Total | 733.5 | 573.5 | - The Company entered into three new lease debt financing arrangements in 2024 for a total of $192 million, increasing total lease debt financing[47] 11. Financial Instruments The Company utilizes derivative instruments to manage interest rate and foreign currency risks, with changes impacting net income Fair Values of Derivative Instruments (in thousands of $) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Designated derivative instruments - short-term assets (Interest rate swaps) | 2,874 | 4,333 | | Non-designated derivative instruments - short-term assets (Interest rate swaps, Commodity swaps) | 143 | 284 | | Designated derivative instruments - short-term liabilities (Cross currency swaps) | 11,118 | 11,845 | | Non-designated derivative instruments - short-term liabilities (Cross currency swaps, Commodity swaps) | 586 | 521 | | Total derivative instruments - short-term assets | 3,017 | 4,617 | | Total derivative instruments - short-term liabilities | 11,704 | 12,366 | - Net gain/(loss) in fair value movements of non-designated derivatives shifted from a loss of $5.6 million in H1 2023 to a gain of $1.6 million in H1 2024[50] Interest Rate Risk Management - The Company uses interest rate swap agreements to manage its debt portfolio, aiming for a desired mix of fixed and floating interest rates[51] - The total net notional principal amount subject to interest rate swap agreements was $0.3 billion as of June 30, 2024, down from $0.4 billion at December 31, 2023[51] Foreign Currency Risk Management - Cross currency swap transactions are used to hedge against the NOK600 million senior unsecured floating rate bonds due 2025[52] - The NOK700 million senior unsecured bonds due 2024 were redeemed in full, leading to the termination or maturity of related currency swaps[53] Fair Values Fair Value of Financial Assets and Liabilities (in thousands of $) | Metric | June 30, 2024 Carrying Value | June 30, 2024 Fair Value | | :--- | :--- | :--- | | Equity securities | 4,662 | 4,662 | | NOK600 million senior unsecured floating rate bonds due 2025 | 53,373 | 54,174 | | 7.25% senior unsecured sustainability-linked bonds due 2026 | 150,000 | 149,813 | | 8.875% senior unsecured sustainability-linked bonds due 2027 | 150,000 | 154,125 | | 8.25% senior unsecured sustainability-linked bonds due 2028 | 150,000 | 150,375 | | Interest rate/currency/commodity swap contracts - short-term receivables | 3,017 | 3,017 | | Interest rate/currency/commodity swap contracts - short-term payables | 11,704 | 11,704 | - Fair values of bonds are based on quoted market prices, while swap contracts are valued using independent valuation techniques applied to contracted cash flows and interest rates[57] Concentrations of Risk - Credit risk concentration exists with several established financial institutions for cash and cash equivalents, which the Company believes is remote[58] - A concentration of revenue risk exists with Maersk A/S, a significant charterer, and a portion of net income is generated from associated company River Box Holding Inc[59] 12. Share Capital, Additional Paid-In Capital and Contributed Surplus As of June 30, 2024, the Company's issued share capital increased slightly due to the issuance of new shares from option exercises Share Capital (in thousands of $, except share data) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Authorized common shares ($0.01 par value each) | 300,000,000 | 300,000,000 | | Issued common shares ($0.01 par value each) | 138,803,619 | 138,562,173 | | Share capital | 1,388 | 1,386 | - 242,146 new shares were issued in H1 2024 due to the exercise of share options, and 700 shares were cancelled[62] - The Company declared dividends of $0.26 per share in February 2024 and $0.27 per share in May 2024[63] 13. Share Option Plan In H1 2024, 510,000 share options were exercised, leading to the issuance of new shares, and 440,000 new options were awarded - 510,000 share options were exercised in H1 2024, resulting in the issuance of 242,146 new shares with a total intrinsic value of $3.0 million[64] - 440,000 new options were awarded in February 2024, with a five-year term, three-year vesting period, and an initial strike price of $12.02 per share[64] 14. Finance Lease Liability The Company's current finance lease liability decreased to $391.6 million, with all outstanding liabilities due within one year Finance Lease Liability (in thousands of $) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Finance lease liability, current portion | 391,553 | 419,341 | | Total finance lease liabilities | 391,553 | 419,341 | - All finance lease liabilities are due within one year, as each option is expected to be exercised on the sixth anniversary during 2024[65] - The Company is in discussions to secure refinancing for these liabilities prior to maturity[65] 15. Related Party Transactions The Company engages in various related party transactions, including leasing, service contracts, and vessel acquisition agreements Amounts Due From/To Related Parties (in thousands of $) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total amount due from related parties | 8,630 | 3,532 | | Loans to related parties - associated companies, long-term (River Box) | 45,000 | 45,000 | | Total amount due to related parties | 1,199 | 2,890 | - The Company leases eight vessels to Golden Ocean, generating $27.4 million in operating lease income and incurring $10.2 million in vessel management fees in H1 2024[69] - Agreements were made to acquire three LR2 product tankers under construction from Hemen-related entities for $231.0 million, with one delivered in June 2024[71] Related Party Leasing and Service Contracts - Operating lease income from Golden Ocean for eight vessels was $27.4 million in H1 2024, with vessel management fees of $10.2 million[69] - Other service contracts include payments to Front Ocean Management, Seatankers Management, and Frontline Management for office facilities, administration, newbuilding supervision, and vessel management[69] Related Parties – Associated Companies - The Company holds a 49.9% ownership in River Box Holding Inc, which holds investments in direct financing leases for four containerships[68] - A $45.0 million non-amortizing loan to River Box generated $2.3 million in interest income in H1 2024[70] Other Related Party Transactions - The Company agreed to acquire three LR2 product tankers from Hemen-related entities for $231.0 million, with one delivered in June 2024[71] - Dividend income of $0.3 million was received from NorAm Drilling in H1 2024[71] 16. Commitments and Contingent Liabilities The Company has significant assets pledged as collateral, substantial capital commitments, and ongoing legal contingencies Assets Pledged (in millions of $) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Vessels, rigs and equipment, net | 2,632 | 2,508 | | Investments in sales-type leases | 39 | 56 | | Book value of consolidated assets pledged under ship mortgages | 2,671 | 2,564 | - The Company has committed to pay $267.6 million for the acquisition of two remaining LR2 product tankers and two LNG dual-fuel chemical tankers[75] - The drilling rig Linus is undergoing its second special periodic survey (SPS) with an expected remaining cost of approximately $27.0 million[75] - A claim was filed against Seadrill Ltd in the Oslo District Court regarding the redelivery condition of the Hercules drilling rig, with the court case scheduled for mid-August 2024[76] Assets Pledged - Book value of consolidated assets pledged under ship mortgages increased to $2,671 million as of June 30, 2024[72] - Vessels under finance lease, net, totaled $553 million as of June 30, 2024[73] Other Contractual Commitments and Contingencies - The Company is subject to calls from mutual protection and indemnity associations for legal liability risks in shipping and rigs[74] - The harsh environment semi-submersible rig Hercules commenced a drilling contract with Equinor Canada Ltd in July 2024[74] Capital Commitments - As of June 30, 2024, the Company had committed $267.6 million for the acquisition of two LR2 product tankers and two LNG dual-fuel chemical tankers[75] - The drilling rig Linus is undergoing its second special periodic survey (SPS), with an estimated remaining cost of $27.0 million[75] Other Contingencies - A claim was filed against Seadrill Ltd in the Oslo District Court regarding the redelivery condition of the Hercules drilling rig, seeking damages[76] - The Company is routinely involved in lawsuits arising from vessel operations but believes their resolution will not materially adversely affect financial results[76] 17. Subsequent Events Post-quarter end, the Company took delivery of new vessels, declared a dividend, issued shares, and ordered new container vessels - In August 2024, SFL Taurus (LR2 product tanker) and SFL Aruba (LNG dual-fuel chemical tanker) were delivered and commenced charters/trading[77] - A dividend of $0.27 per share was declared on August 14, 2024, payable on September 27, 2024[77] - In July 2024, 8,000,000 common shares were issued in a public offering at $12.50 per share, with net proceeds for general corporate purposes including vessel acquisitions[77] - Agreements were signed in July 2024 to build five LNG dual-fuel 16,800 TEU container vessels for approximately $962.5 million, scheduled for delivery in 2028 with long-term charters[78] Management's Discussion and Analysis of Financial Condition and Results of Operations General SFL Corporation Ltd is a Bermuda-based company primarily engaged in the ownership and operation of vessels and offshore assets - SFL Corporation Ltd is a Bermuda-based company, incorporated in 2003, focused on ownership and operation of vessels and offshore related assets[80] - The Company operates through subsidiaries and branches in Bermuda, Canada, Cyprus, Liberia, Namibia, Norway, Singapore, the United Kingdom, and the Marshall Islands[81] Recent and Other Developments The Company has been active in fleet expansion, securing new financing, and managing its capital structure through various initiatives - Acquired two dual-fuel car carriers and three LR2 product tankers, with deliveries in H1 2024 and scheduled for H2 2024[82] - Entered into agreements to build five LNG dual-fuel 16,800 TEU container vessels for $962.5 million, scheduled for 2028 delivery[83] - Issued $150.0 million in senior unsecured sustainability-linked bonds due 2028 and completed several sale and leaseback transactions for vessel financing[86][87] - Issued 8,000,000 common shares in a public offering in July 2024, raising capital for general corporate purposes including vessel acquisitions[88] Acquisitions, Deliveries, Capital Investments and Disposals - Two dual-fuel 7,000 CEU newbuilding car carriers were delivered between January and March 2024, commencing 10-year time charters[82] - Agreed to acquire three LR2 product tankers for $231.0 million, with two delivered by August 2024 and the third scheduled for Q4 2024[82] - Sold and delivered two container vessels (MSC Margarita and MSC Vidhi) for $12.0 million, recording a net loss of $17.0 thousand[83] New Contracts, Extensions and Changes - Maersk extended charter options for two container vessels (San Felipe and Maersk Skarstind) by 12 months[85] - New five-year time charter contracts were agreed with Maersk for three 10,600 TEU container vessels and four 8,700 TEU container vessels[85] - The harsh environment semi-submersible rig Hercules commenced a drilling contract with Equinor Canada Ltd in July 2024[85] Corporate Debt and Lease Debt Financing - Entered into three sale and leaseback transactions for $77.5 million (Odin Highway), $77.5 million (Thor Highway), and $37.0 million (Maersk Phuket) for vessel financing[85][86][87] - Issued $150.0 million in senior unsecured sustainability-linked bonds due 2028 in April 2024, with proceeds used for refinancing and general corporate purposes[86] - Exercised call option on NOK700 million senior unsecured floating rate bonds, extinguishing this debt in full[86] Issuance of Shares, Share Options, Grants and Exercises - 440,000 options were awarded to officers, employees, and directors in February 2024[87] - 510,000 share options were exercised between January and May 2024, resulting in the issuance of 242,146 new shares[88] - Issued 8,000,000 common shares in a U.S. public offering in July 2024 at $12.50 per share[88] Dividend - Declared a dividend of $0.26 per share on February 14, 2024, and $0.27 per share on May 14, 2024[89] - Declared a dividend of $0.27 per share on August 14, 2024, payable on September 27, 2024[89] Operating Results The Company achieved a substantial increase in net income for H1 2024, driven by a 24.3% rise in total operating revenues Operating Results Summary (Six Months Ended June 30) | Metric (in thousands of $) | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | 419,979 | 337,827 | 82,152 | 24.3% | | Operating income | 147,700 | 101,791 | 45,909 | 45.1% | | Net income | 65,934 | 23,264 | 42,670 | 183.4% | - Total operating revenues increased by 24.3% in H1 2024 compared to H1 2023[91] - Operating income increased by 45.1% to $147.7 million in H1 2024[90] Total Operating Revenues - Total operating revenues increased by 24.3% to $419.9 million in H1 2024[91] Time Charter Revenues - Time charter revenues increased by 18% to $302.4 million in H1 2024, driven by the delivery of four new building car carriers and one product tanker, and higher rates on existing car carriers[92][93] Voyage Charter Revenues - Voyage charter revenues decreased by 80% to $5.8 million in H1 2024, mainly due to the sale of two Suezmax tankers and two chemical tankers in the prior year[92][95] Drilling Contract Revenues - Drilling contract revenues increased to $95.8 million in H1 2024, as both drilling rigs (Linus and Hercules) were operational, compared to only Linus in H1 2023[92][96] Interest Income - Sales-Type Leases and Leaseback Assets - Interest income from sales-type leases and leaseback assets decreased to $1.4 million in H1 2024, due to the disposal of vessels previously accounted for under these arrangements[92][97] Profit Share Revenues - Profit share revenues increased to $9.9 million in H1 2024, including $3.8 million from Golden Ocean Capesize dry bulk vessels and $6.2 million from fuel saving arrangements on container and car carriers[92][98] Loss/Gain on Sale of Vessels - A net loss of $17.0 thousand was recorded in H1 2024 from the disposal of two container vessels, contrasting with a net gain of $16.5 million in H1 2023 from the sale of four tankers[99] Operating Expenses - Total operating expenses increased by $19.7 million to $272.3 million in H1 2024[101] Vessel and Rig Operating Expenses - Vessel and rig operating expenses increased by $11.9 million in H1 2024, mainly due to the drilling rig Hercules' operations and the acquisition of new car carriers and a product tanker[101] Depreciation - Depreciation expense increased by $12.8 million in H1 2024, primarily due to the acquisition of new vessels and capitalized SPS costs and upgrades for the rig Hercules[102] Administrative Expenses - Administrative expenses increased by $2.4 million in H1 2024, driven by increased costs from business activities, vessel acquisitions, financing, and investor relations[103] Interest Income (Non-operating) - Total interest income decreased by $0.7 million in H1 2024, mainly due to lower interest received on bank and short-term deposits[104] Interest Expense (Non-operating) - Interest expense increased to $88.2 million in H1 2024, due to new loans and lease debt financing for vessel purchases and increased interest rates on floating rate debt[105] Other Non-Operating Items Other Non-Operating Items (Six Months Ended June 30) | Metric (in thousands of $) | 2024 | 2023 | | :--- | :--- | :--- | | Loss on investments in equity securities | (207) | (792) | | Interest and valuation gain/(loss) on non-designated derivatives | 4,530 | (2,694) | | Other financial items, net | (1,416) | (1,090) | | Total other non-operating items | 2,907 | (4,576) | - Total other non-operating items shifted from a $4.6 million loss in H1 2023 to a $2.9 million gain in H1 2024, mainly due to positive mark-to-market adjustments on non-designated derivatives[107] Equity in Earnings of Associated Companies - Equity in earnings of associated companies remained stable at $1.5 million in H1 2024, primarily from River Box Holding Inc[108] Tax Expense - A tax expense of $4.4 million was recorded in H1 2024, mainly related to the operations of the Hercules drilling rig in Namibia[108] Liquidity and Capital Resources The Company maintained a strong cash position and is actively managing significant upcoming debt and finance lease maturities - Cash and cash equivalents totaled $186.1 million as of June 30, 2024[109] - Net cash provided by operating activities was $187.4 million, while net cash used in investing activities was $195.9 million, and net cash provided by financing activities was $29.1 million in H1 2024[109] - A significant portion of outstanding debt and finance lease liabilities are due within one year, and the Company is in discussions for refinancing[113] Overall Summary of Borrowings (as of June 30, 2024) | Metric (in millions of $) | Outstanding balance | | :--- | :--- | | Unsecured borrowings: | | | 7.25% senior unsecured sustainability-linked bonds due 2026 | 150.0 | | 8.875% senior unsecured sustainability-linked bonds due 2027 | 150.0 | | 8.25% senior unsecured sustainability-linked bonds due 2028 | 150.0 | | NOK600 million senior unsecured floating rate bonds due 2025 | 53.4 | | Total bonds | 503.4 | | Lease debt financing | 733.5 | | U.S. dollar denominated floating rate debt | 914.2 | | U.S. dollar denominated fixed rate debt due 2026 | 148.1 | | Total borrowings | 2,299.2 | | Finance lease liabilities | 391.6 | | Finance lease liabilities in associated companies (1) | 190.2 | | Total borrowings and lease liabilities | 2,881.0 | Cautionary Statement Regarding Forward-Looking Statements Forward-Looking Statements This section provides a cautionary statement regarding forward-looking statements, emphasizing that such statements are subject to various risks - Forward-looking statements are based on management's assumptions but are subject to significant uncertainties and contingencies beyond the Company's control[119] - Key risk factors include the strength of world economies, inflationary pressures, ability to service indebtedness and obtain refinancing, counterparty reliability, and volatility in the seaborne transportation industry[120] - Other important factors include changes in market demand, delays in newbuilding construction, technological innovation, governmental regulations (including environmental), and geopolitical instability[122][123] Signatures Report Signatures The report is duly signed on behalf of SFL Corporation Ltd by its Principal Financial Officer on August 21, 2024 - The report was signed by Aksel C Olesen, Principal Financial Officer, on August 21, 2024[126]