Ship Finance International Limited 4Q 2016 Results February 28, - - PowerPoint PPT Presentation

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Ship Finance International Limited 4Q 2016 Results

February 28, 2017

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FORWARD LOOKING STATEMENTS This presentation contains forward looking statements. These statements are based upon various assumptions, many of which are based, in turn, upon further assumptions, including Ship Finance management's examination of historical operating trends, data contained in the Company’s records and other data available from third parties. Although Ship Finance believes that these assumptions were reasonable when made, because assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond its control, Ship Finance cannot give assurance that it will achieve or accomplish these expectations, beliefs or intentions. Important factors that, in our view, could cause actual results to differ materially from those discussed in the forward looking statements include the strength of world economies, fluctuations in currencies and interest rates, general market conditions including fluctuations in charter hire rates and vessel values, changes in demand in the markets in which we operate, changes in demand resulting from changes in OPEC's petroleum production levels and world wide oil consumption and storage, developments regarding the technologies relating to oil exploration, changes in market demand in countries which import commodities and finished goods and changes in the amount and location of the production of those commodities and finished goods, increased inspection procedures and more restrictive import and export controls, changes in our operating expenses, including bunker prices, dry-docking and insurance costs, performance of our charterers and other counterparties with whom we deal, timely delivery of vessels under construction within the contracted price, changes in governmental rules and regulations or actions taken by regulatory authorities, potential liability from pending or future litigation, general domestic and international political conditions, potential disruption of shipping routes due to accidents or political events, and other important factors described from time to time in the reports filed by the Company with the Securities and Exchange Commission.

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Quarterly dividend of $0.45 per share

• 12.3% dividend yield(1)

Net income of $28.5m ($0.31/share) for the quarter

• Aggregate charter revenue of $154m ($1.64/share)(2)
• Adjusted EBITDA(3) of $121m ($1.29/share)

Successful placement of $225 million convertible notes, due 2021

• Primarily used to repurchase a part of our $350m convertible note due 2018
• Approximately $40 million net cash proceeds

1) Quarterly cash dividend, annualized / SFL share price $14.65 as of Feb 27, 2017. 2) Charter revenues include total charter hire from all vessels and rigs, including assets in 100% owned subsidiaries classified as ‘Investment in associates’ and accrued profit share. 3) Adjusted EBITDA is a non-GAAP measure and includes assets in 100% owned subsidiaries classified as 'Investment in associates'. For more details please see 4Q-16 press release Appendix 1: Reconciliation of Net Income to Adjusted EBITDA.

Charter revenues 4Q-16 OFFSHORE TANKERS LINERS DRY BULK

4Q 2016 Highlights

18% 34% 24% 24%

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2 x 19,200 TEU container vessels

• 15 year bareboat charters to MSC
• First vessel delivered in December 2016 and second expected in

March 2017

• Total EBITDA contribution estimated to ~$31m per year after delivery

2 x 114,000 dwt LR2 product tankers

• 7 year time charters to Phillips 66
• Expected delivery from Korean shipyard during second half of 2017
• Total EBITDA contribution estimated to ~$11m per year after delivery

Sale of 19 year old tanker

• VLCC Front Century (1998), expected delivery to new owners in

March 2017

Recent Events

$0 $50 000 $100 000 $150 000 $200 000 $250 000 $300 000 $350 000 2009 2011 2013 2015 2017E 2019E 2021E 2023E

Limited c corporate guarantees Frontload aded ed charter er r rev even enues(3)

Year

Initial l Debt t $2. $2.0bn

Corporate guarantees: $240m, only 28%

Drilling Assets Positioned for a Market Downturn

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Hercules/Taurus: Average charter rate per day

15 year charters, but ~70% of aggregate charter hire already received

1) Charter fully guaranteed by Seadrill Limited. 2) Current Debt as of 28 Feb 2017. 3) For illustrative purposes only - average bareboat charter hire for West Hercules and West Taurus, based on actual hire received until 4Q 2016 and estimate of future average hire with adjustments based on current interest rate levels. The charter on West Linus is structured with a similar frontloaded profile, but with different charter rate levels during the charter.

West st T Taurus - 200 2008

6th gen. semi BB to Seadrill

(1) – 2023

Current debt

(2): $245m

SFL guarantee: $75m

We West Hercule les - 200 2008

6th gen. semi BB to Seadrill

(1) – 2023

Current debt

(2): $274m

SFL guarantee: $75m

West st Li Linus s - 2014

Heavy-duty jackup BB to Seadrill

(1) – 2029

Current debt

(2): $348m

SFL guarantee: $90m

Soe

• ehan

anah ah - 200 2007

375ft jackup Currently Idle Current debt: $0m SFL guarantee: n/a

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Modern Liner Vessels with Long Term Contracts

9.3

Average length of current charters in years

(2)

$990

million of contracted revenue

(2)

. 1) Based on operating fleet. Source: Alphaliner 2) As of Dec 31, 2016. Average length weighted by charter revenues and excluding option periods. 3) Approximate capacity, as of Dec 31, 2016, including newbuildings.

3 x 9,500 T 00 TEU Built lt: 2015 – 2016 Chartere rer: Maersk Line #1 liner worldwide(1) EBITDA DA: ~$32 million/year 4 x 8,700 T 00 TEU Built lt: 2014 - 2015 Chartere rer: Hamburg Süd #7 liner worldwide(1) EBITDA DA: ~$46 million/year 2 x 19, 19,20 200 T TEU Built lt: 2016 - 2017 Chartere rer: MSC #2 liner worldwide(1) EBITDA DA: ~$31 million/year

Other lin liner v vessels w with ith lo long t g term c contr tracts ts

150,000

Aggregate TEU

(3)

Ty Type Quanti tity ty x S x Size Contr tract e t expi xpiry Ch Charterer Container 2 x 1,700 TEU 2020 Heung-A Container 7 x 4,100 TEU 2019 - 2020 MSC Container 2 x 5,800 TEU 2019 MSC Car carrier 2 x 6,500 CEU 2017 Hyundai Glovis

7 63 % 63 % 37 % 37 %

1) As of Dec 31, 2016. Average length weighted by charter revenues and excluding option periods. 2) Approximate capacity, as of Dec 31, 2016, including newbuildings.

Tankers: Continued Profit Share Potential

4Q-16 Actual Revenue 4Q-16 Contracted Revenue

12 x x ve vessels ls t to Frontli line

• 10 x VLCCs: $20,000 base rate
• 2 x Suezmax: $15,000 base rate
• 50% profit share above daily base rates, paid quarterly

2 x x Suezma max t tankers s

• 2009/2010 built vessels with eco upgrade
• Trading in pool with sister vessels owned by Frontline and significant

charter coverage in 2017 Other t r tanker ve r vessels ls

• 2 x 2008 built Chemical tankers on bareboat charters until 2018
• 2 x 114dwt LR2 Product tankers on time charters until 2024

$23 $23M $36 $36M

7.7

Average length of current charters in years

(1)

$740

million of contracted revenue

(1)

3.9

Million aggregate dwt

(2)

Contracted Profit Share/Spot

8 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 2003 2005 2007 2009 2011 2013 2015 2017 Capesize Earnings SFL avg base rate

Kamsarmax 2 x 82,000 DWT 2022 Sinochart Supramax 5 x 57,000 DWT 2018 - 2022 Hyundai Glovis

Early Signs of Recovery in the Dry Bulk Market

1) Source: Clarksons Platou. 2) As of Dec 31, 2016 – average length weighted by charter revenues and excluding option periods. 3) Approximate capacity, as of Dec 31, 2016, including newbuildings.

Historical Capesize earnings 2003 - Jan 2017(1)

Significa cant u upside o

• ptionality f

from l larger C Capesize v vessels

7.4

Average length of current charters in years(2)

$590

Million of contracted revenue(2)

Other d dry b bulk v vessels w with ith lo long t g term c contr tracts ts

• 8 x Capesize vessels delivered in 3Q 2015
• 10 year charters with Golden Ocean
• 33% profit share above daily base rates, paid quarterly

2.1

Million aggregate DWT(3)

9 100 200 300 400 500 600 700 Charter Revenues Profit Share OPEX+ G&A Net interest Loan Amort. Distributable Cash Dividend

$ mill.

1) Not as accounted per US GAAP and including cash flow in subsidiaries accounted for as ‘investment in associate‘. 2) Charter revenues and return on financial investments, including dividend from Frontline. 3) Ordinary installments relating to the Company’s projects. Excluding prepayments when vessels are sold.

Large performing fleet generating significant cash flows

$503m adjusted EBITDA-equivalent last twelve months $221m net cash flow from projects after interest and debt amortization(3)

(3) (2)

52 137 97 184 221 589 168 76%

Contribution from Projects last 12 months

(1)

10 4Q 2016 3Q 2016 $ mill. $/share $ mill. $/share Charter hire VLCC 19.8 0.21 19.9 0.21 Suezmax

(2)

8.0 0.09 7.0 0.07 Chemical Tankers 1.5 0.02 1.5 0.02 Liner (Container and Car Carriers) 36.7 0.39 36.7 0.39 Drybulk 27.1 0.29 25.8 0.28 Offshore 50.4 0.54 50.4 0.54 Sum charter hire, excluding profit share 143.5 1.54 141.3 1.51 Vessel operating expenses(2) and G&A (32.6) (0.35) (34.8) (0.37) Profit share 7.0 0.07 5.5 0.06 Financial investments 2.7 0.03 2.5 0.03 Adjusted EBITDA including profit share 120.6 1.29 114.5 1.23

1) Including cash flow in subsidiaries accounted for as ‘investment in associate’ 2) In this table, revenues and vessel operating expenses for Suezmaxes trading in the spot market are net of voyage expenses

SFL Operational Performance

Pro-forma illustration of cash flow

(1)

• Not as accounted for under US GAAP
• Used as an internal guideline to assess the Company's performance
• Excluding extraordinary and non-cash items

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(1) 19,200 TEU container

vessel delivered December 2016 accounted for as finance lease

Income Statement

(5) Includes $8.8m one-time

expense from repurchase

• f $166m nominal amount
• f convertible notes due

2018

(2) $6.8m from 50% profit

share with Frontline in 4Q 2016

(3) $4.8m impairment on

2003 built 1,700 TEU container vessel and $0.5m impairment on 1998 built VLCC held for sale

(4) ’Interest expense’ includes

$225m convertible notes issued October 2016 and lease financing of 19,200 TEU container vessel delivered December 2016

(6) Excluding 8m shares lent

under a share lending arrangement in connection with the $225m convertible notes

Full y ll year 2 2016 Dec 3 31, 2 2016 Sep 3 30, 2 2016 (unaudited) Charter revenues - operating lease 74 490 71 790 293 703 Charter revenues - finance lease(1) 23 701 23 422 99 084 Revenues classified as Repayment of investment in finance leases(1) (7 345) (7 214) (31 380) Profit share income(2) 7 003 5 530 51 544 Cash sweep income

• Tot
• tal o
• perating r

rev evenues es 97 8 849 93 5 528 412 9 951 Gain ( (loss)

• ss) o
• n sa

sale o

• f a

asse ssets a s and t termination

• n o
• f c

charters

• (181)

(167) Vessel operating expenses (33 001) (34 201) (136 016) Administrative expenses (2 049) (2 235) (9 072) Depreciation (23 738) (24 251) (94 293) Vessel impairment charge(3) (5 314)

• (5 314)

Tot

• tal o
• perating ex

expenses es (64 1 102) (60 6 687) (244 6 695) Op Operating i income 33 7 747 32 6 660 168 0 089 Results in associate 6 819 6 624 27 765 Interest income from associates and long term investments 4 669 4 668 18 675 Interest income, other 1 679 333 3 061 Interest expense(4) (16 497) (14 763) (60 871) Amortization of deferred charges (2 623) (2 686) (10 972) Other financial items(5) (8 098) 1 728 1 173 Income (expense) related to non-designated derivatives 8 833 3 702 (514) Taxes

• Net

et i incom

• me

e 28 5 529 32 2 266 146 4 406 Basic e earnings p per s share ( e ($) 0.31 0.35 1.57 Weighted average number of shares(6) 93 504 575 93 504 575 93 496 744 Common shares outstanding(6) 93 504 575 93 504 575 93 504 575 (in thousands of $ except per share data) Three ee m mon

• nths en

ended

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(1) Excludes $205m available

under revolving credit facilities

Balance Sheet

Dec 3 31, 2 2016 Sep 3 30, 2 2016 Dec 3 31, 2 2015 (audited) ASSE SSETS Short term Cash and cash equivalents(1) 62 382 63 420 70 175 Available for sale securities 118 489 116 222 199 594 Amount due from related parties 17 519 12 766 45 659 Other current assets 80 037 53 325 60 489 Long term Newbuildings and vessel deposits 33 447 27 662 40 149 Vessels and equipment, net 1 737 169 1 765 715 1 641 317 Investment in finance leases(2) 523 815 413 108 474 298 Investment in associate 130 110 84 615 Amount due from related parties - Long term 339 355 343 705 387 712 Other long term assets 25 034 28 190 28 546 Total a asse ssets 2 9 937 3 377 2 8 824 2 223 3 0 032 5 554 LIA IABIL ILIT ITIE IES A AND S STOCKHOLDERS’ E ’ EQUIT ITY Short term Short term and current portion of long term interest bearing debt 174 900 78 401 208 031 Other current liabilities 63 220 18 119 30 518 Amount due to related parties 850 922 416 Long term Long term interest bearing debt, net of deferred charges 1 377 974 1 480 125 1 426 174 Other long term liabilities(3) 186 338 115 138 125 605 Stockholders’ equity(4) 1 134 095 1 131 518 1 241 810 Total li l liabili lities a and s stockhold lders’ e equity 2 9 937 3 377 2 8 824 2 223 3 0 032 5 554 (in thousands of $)

(2) 19,200 TEU container

vessel delivered December 2016 included under ‘Investment in finance leases’

(3) Lease financing of 19,200

TEU container vessel included under ‘Other long term liabilities’

(4) Book equity ratio of 39%

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Strong liquidity position

• $267m in total available liquidity at quarter end
• $62m cash and cash equivalents
• $205m freely available under revolving credit facilities
• $118m in available for sale securities(1)
• tradeable shares and senior secured bonds

Limited remaining capital expenditure commitments

• 1 x 19,200 TEU container vessel
• Expected delivery early 2017
• ~$15m net remaining capex after financing
• 2 x 114,000 dwt LR2 product tankers
• Expected delivery in second half 2017
• ~$38 million remaining capex per vessel before financing

Liquidity and Capex

1) Market value as per Dec 31, 2016.

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$225m convertible notes issued October 2016

• 5.75% p.a. coupon and initial conversion price ~$17.77 per share
• Higher coupon compared to $350m convertible notes in exchange for lower

adjustment in strike price when we pay dividends

• Only adjusted for dividends in excess of $0.225 per quarter = less potential

dilution for shareholders

• Proceeds mainly used to repurchase part of our 2018 notes
• ~$184m net outstanding under $350m notes following repurchase
• Net proceeds of approximately $40m

Staggered debt maturity schedule(1) Steep repayment of loans and no debt maturities until 4Q 2017

Financing

1) Including debt in subsidiaries accounted for as ‘investment in associate‘ and assuming all loans are fully drawn

100 200 300 400

1Q-17 2Q-17 3Q-17 4Q-17 1Q-18 2Q-18 3Q-18 4Q-18 $mill

Bank debt - scheduled repayments Bank debt - amounts to be refinanced Senior Notes

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1) Quarterly cash dividend ( annualized) / SFL share price of $14.65 (February 27, 2017). 2) Charter revenues includes total charter hire from all vessels and rigs, including assets in 100% owned subsidiaries classified as ‘Investment in associates’ and accrued profit share. 3) Adjusted EBITDA is a non- GAAP measure and includes assets in 100% owned subsidiaries classified as 'Investment in associates'. For more details please see 4Q-16 press release Appendix 1: Reconciliation of Net Income to EBITDA.

• Quarterly dividend of $0.45 per share
• 12.3% dividend yield

(1)

• Net Income of $28.5m
• $154m Aggregate charter revenue

(2)

• $121m Adjusted EBITDA

(3)

• Successful placement of $225 million convertible

notes

• Delivery of first 19,200 TEU container vessel with 15

year charter to MSC

• Strong liquidity position and limited remaining capex

4Q 2016 Summary