New deliveries drive increased Ship Finance revenue
Why investment portfolios might benefit from Ship Finance (Part 2 of 11)
Revenue share
In 2Q2014, Ship Finance International Limited (SFL) recorded almost 50% of its charter revenues from the offshore segment, consisting of drill ships and rigs. Around 30% of revenues came from tankers, and the remaining 20% was split between drybulk and container assets. In the offshore segment, Ship Finance’s peers include Diamond Offshore Drilling Inc (DO), Transocean LTD (RIG), Ocean Rig UDW Inc (ORIG), and Hercules Offshore Inc. (HERO). The Guggenheim Shipping ETF (SEA) tracks these companies.
Ship Finance’s revenue also includes profit-based contributions and cash sweep, which we’ll discuss in later parts of our series. The company expects its liner segment share to increase as it takes delivery of new 8,700 TEUs (twenty-foot equivalent unit) vessels later in 2014 and early in 2015. The liner service transports small parcels of general cargo, including manufactured and semi-manufactured goods, and many small quantities of bulk commodities. It’s an organization-intensive business in which speed, reliability, and high service levels are important.
Second quarter revenue growth
In 2Q2014, total charter revenues—operating and financial lease—increased to $82.2 million from $81.7 million recorded in the preceding quarter. Meanwhile, total operating revenues declined to $72.9 million from $82.7 million. Total charter revenues exclude $11.3 million classified as repayment of investments in finance lease, and $73.7 million earned from assets classified as investment in associate.
The drop was led by a fall in profit share and cash-sweep income of 48.6% and 84.6%, respectively, to $267,000 and $1.8 million, quarter-over-quarter.
Revenue breakdown
Revenues from VLCCs (very large crude carriers) are in line with the previous quarter. Meanwhile, revenues from Suezmaxes were down in the quarter due to lower earnings on the two ships trading in the spot market.
Also, liners revenue, including container vessels and car carriers, was down in the quarter. This followed a decision by CMA CGM—France’s third-largest container shipping company—to exercise purchase options for the two 13,800 TEU container vessels in the first quarter. The delivery of nine container vessels on charter to the Mediterranean Shipping Company during the first and second quarter slightly offset the CMA GGM action .
West Linus, which was delivered in February, increased offshore revenues for the company. West Linus earned full-day rates since its sub-charter to ConocoPhillips at end of May. The full impact of these revenues will be seen in the third quarter.
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