SBNA - Scorpio Tankers Inc. Announces Financial Results for the First Quarter of 2019 and Declaration of a Quarterly Dividend

MONACO, May 02, 2019 (GLOBE NEWSWIRE) -- Scorpio Tankers Inc. (NYSE: STNG) ("Scorpio Tankers", or the "Company") today reported its results for the three months ended March 31, 2019.  The Company also announced that its Board of Directors has declared a quarterly cash dividend of $0.10 per share on the Company’s common stock.

Share and per share results included herein have been retroactively adjusted to reflect the one for ten reverse stock split of the Company's common shares, which took effect on January 18, 2019.

Results for the three months ended March 31, 2019 and 2018

For the three months ended March 31, 2019, the Company's adjusted net income (see Non-IFRS Measures section below) was $14.8 million, or $0.31 basic and $0.30 diluted income per share, which excludes from net income a $0.3 million, or $0.01 per basic and diluted share, write-off of deferred financing fees. For the three months ended March 31, 2019, the Company had net income of $14.5 million, or $0.30 basic and diluted income per share.

For the three months ended March 31, 2018, the Company's adjusted net loss (see Non-IFRS Measures section below) was $31.5 million, or $1.02 basic and diluted loss per share, which excludes from the net loss $0.3 million, or $0.01 per basic and diluted share, of transaction costs related to the Company's merger with Navig8 Product Tankers Inc ("NPTI"). For the three months ended March 31, 2018, the Company had a net loss of $31.8 million, or $1.03 basic and diluted loss per share.

Declaration of Dividend

On May 1, 2019, the Company's Board of Directors declared a quarterly cash dividend of $0.10 per common share, payable on or about June 27, 2019 to all shareholders of record as of June 5, 2019 (the record date).  As of May 1, 2019, there were 51,396,970 common shares of the Company outstanding.

Summary of Other Recent and First Quarter Significant Events

• Below is a summary of the average daily Time Charter Equivalent (TCE) revenue (see Non-IFRS Measures section below) and duration for voyages fixed for the Company's vessels thus far in the second quarter of 2019 as of the date hereof (See footnotes to 'Other operating data' table below for the definition of daily TCE revenue):
  
  -- For the LR2s in the pool: approximately $16,500 per day for 55% of the days.
  
  -- For the LR1s in the pool: approximately $15,750 per day for 45% of the days.
  
  -- For the MRs in the pool: approximately $15,000 per day for 40% of the days.
  
  -- For the ice-class 1A Handymaxes in the pool: approximately $13,000 per day for 40% of the days.
  
  
• Below is a summary of the average daily TCE revenue earned on the Company's vessels during the first quarter of 2019:
  
  -- For the LR2s in the pool: $22,923 per revenue day.
  
  -- For the LR1s in the pool: $17,929 per revenue day.
  
  -- For the MRs in the pool: $15,715 per revenue day.
  
  -- For the ice-class 1A Handymaxes in the pool: $17,846 per revenue day.
  
  
• The Company is in discussions with various financial institutions for scrubber financing that will increase the Company’s liquidity by approximately $120 million.
  
  
• On March 18, 2019 ("the Redemption Date"), the Company redeemed the entire outstanding balance of its Senior Notes Due 2019 of $57.5 million.  The redemption price of the Senior Notes Due 2019 was equal to 100% of the principal amount to be redeemed, plus accrued and unpaid interest to, but excluding, the Redemption Date.
  
  
• In March 2019, the Company paid a quarterly cash dividend with respect to the fourth quarter of 2018 on the Company's common stock of $0.10 per share.
  
  
• In March 2019, the Company repurchased $2.29 million face value of its Convertible Notes due 2019 at an average price of $990.00 per $1,000 principal amount, or $2.27 million. 
  
  
• In March 2019, the Company entered into new bareboat charter-in agreements on seven previously bareboat chartered-in vessels.  Three of these vessels will be bareboat chartered-in for one year and the remaining four vessels will be bareboat chartered-in for two years.  The daily bareboat rate under all seven agreements is $6,300 per day.  The right of use assets and related liabilities under these arrangements have been reflected on the Company's balance sheet in accordance with the new lease standard, IFRS 16 - Leases.  The transition to this new accounting standard is discussed below.
  
  
• On January 18, 2019, the Company effected a one-for-ten reverse stock split and reduction in authorized common shares. The Company's shareholders approved the reverse stock split and change in authorized common shares at the Company's special meeting of shareholders held on January 15, 2019.

$250 Million Securities Repurchase Program

In May 2015, the Company's Board of Directors authorized a Securities Repurchase Program to purchase up to an aggregate of $250 million of the Company's securities which, in addition to its common shares, currently consist of its (i) Convertible Notes due 2019, which were issued in June 2014, (ii) Unsecured Senior Notes due 2020 (NYSE: SBNA), which were issued in May 2014, and (iii) Convertible Notes due 2022, which were issued in May and July 2018.  Since January 2019 through the date of this press release, the Company has acquired the following:

• An aggregate of 30 of its common shares at an average price of $17.10 per share; the repurchased shares are being held as treasury shares. There are 51,396,970 shares outstanding as of May 1, 2019.
  
  
• $2.29 million face value of its Convertible Notes due 2019 at an average price of $990.00 per $1,000 principal amount, or $2.27 million. 

As of the date hereof, the Company has the authority to purchase up to an additional $121.6 million of its securities under its Securities Repurchase Program. The Company may repurchase its securities in the open market, at times and prices that are considered to be appropriate by the Company, but is not obligated under the terms of the Securities Repurchase Program to repurchase any of its securities.

Diluted Weighted Number of Shares

Diluted earnings per share is determined using the if-converted method. Under this method, the Company assumes that its Convertible Notes due 2019, which were issued in June 2014 and Convertible Notes due 2022, which were issued in May and July 2018 were converted into common shares at the beginning of each period and the interest and non-cash amortization expense associated with these notes of $6.1 million and $5.7 million during the three months ended March 31, 2019 and 2018, respectively, were not incurred. Conversion is not assumed if the results of this calculation are anti-dilutive.

For the three months ended March 31, 2019, the Company's basic weighted average number of shares was 48,070,530. The Company's diluted weighted average number of shares was 48,556,887 excluding the impact of the Convertible Notes due 2019 and Convertible Notes due 2022 and 55,173,745 under the if-converted method.  Diluted earnings per share for the three months ended March 31, 2019 does not consider the effect of the Convertible Notes due 2019 and Convertible Notes due 2022 as the if-converted method was anti-dilutive.

The weighted average number of shares, both diluted and under the if-converted method, were anti-dilutive for the three months ended March 31, 2018 as the Company incurred a net loss.

As of the date hereof, the Company's current stock price is below the conversion prices of both the Convertible Notes due 2019 and Convertible Notes due 2022.

New Accounting Standard - IFRS 16 - Leases

Effective January 1, 2019, the Company adopted IFRS 16, Leases.  IFRS 16 amended the existing accounting standards to require lessees to recognize, on a discounted basis, the rights and obligations created by the commitment to lease assets on the balance sheet, unless the term of the lease is 12 months or less. Accordingly, the standard resulted in the recognition of right-of-use assets and corresponding liabilities on the basis of the discounted remaining future minimum lease payments relating to the three existing bareboat chartered-in vessel commitments that were previously reported as operating leases and are scheduled to expire in April 2025 and the seven new bareboat chartered-in vessel commitments mentioned above. The impact of the application of this standard during the first quarter of 2019 was as follows:

• The recognition of a $48.5 million right of use asset, a $50.7 million lease liability and a $2.2 million reduction in retained earnings on our opening balance sheet as of January 1, 2019 pertaining to the three bareboat chartered-in commitments that were previously accounted for as operating leases and are scheduled to expire in April 2025.  Additionally, $2.5 million of previously incurred deferred drydock costs relating to these vessels was also reclassified from Other Assets to Right of Use Assets on the balance sheet upon transition and is being depreciated until the next drydock date. 
  
  
• The recognition of a $24.2 million aggregate right of use asset and corresponding lease liability as a result of the new bareboat charter-in agreements on seven Handymax vessels that were entered into in March 2019. 

All right of use assets will be depreciated on a straight-line basis over the term of each lease.  The lease liabilities will be settled over the lease terms using the effective interest method, with each lease payment apportioned to principal and interest using the discount rate implicit in the lease or, if that is not available, the Company's incremental borrowing rate.

Conference Call

The Company has scheduled a conference call on May 2, 2019 at 8:30 AM Eastern Daylight Time and 2:30 PM Central European Summer Time.  The dial-in information is as follows:

US Dial-In Number: 1 (855) 861-2416

International Dial-In Number: +1 (703) 736-7422

Conference ID: 5249065

Participants should dial into the call 10 minutes before the scheduled time. The information provided on the teleconference is only accurate at the time of the conference call, and the Company will take no responsibility for providing updated information.

Slides and Audio Webcast:

There will also be a simultaneous live webcast over the internet, through the Scorpio Tankers Inc. website www.scorpiotankers.com. Participants to the live webcast should register on the website approximately 10 minutes prior to the start of the webcast.

Webcast URL: https://edge.media-server.com/m6/p/fuakrmuz

Current Liquidity

As of May 1, 2019, the Company had $518.4 million in unrestricted cash and cash equivalents.

Drydock, Scrubber and Ballast Water Treatment Update

The following drydock, scrubber and ballast water treatment activity occurred during the first quarter of 2019:

• Two 2014 built MRs completed their class required special survey, along with ballast water treatment system installations. During the first quarter of 2019, these vessels were offhire for an aggregate of 47 days, and the aggregate costs incurred were $4.3 million.  These drydocks commenced in December 2018 and were completed in January 2019. 
  
  
• One 2016 built LR2 completed its scrubber installation and also underwent additional repairs during the first quarter of 2019.  This vessel was offhire for a total of 56 days (for both the repairs and scrubber installation).  The aggregate cost of the scrubber installation was $2.6 million, which includes both the cost of the equipment and installation costs.  The cost of the additional repairs was covered under a shipyard warranty.  
  
  
• One 2014 built MR entered drydock for its class required special survey and a scrubber installation at the end of March 2019.  This drydock and scrubber installation is expected to be completed in May 2019 for an aggregate estimated cost of approximately $3.5 million (which includes the drydock along with the cost of the scrubber and related installation costs).  The vessel was offhire for 9 days in March 2019.
  
  
• One 2016 built LR2 entered drydock for a scrubber installation and additional repairs in March 2019.  This drydock was completed in April 2019.  This vessel was offhire for 30 days in the first quarter of 2019 and the estimated cost of the installation and equipment was $2.5 million in aggregate.  The cost of the additional repairs was covered under a shipyard warranty.

Set forth below are the expected, estimated payments for the Company's drydocks, ballast water treatment system installations, and scrubber installations through 2020:

Set forth below are the expected, estimated number of ships and estimated offhire days for the Company's drydocks, ballast water treatment installations, and scrubber installations ⁽²⁾:

* Second quarter 2019 MR activity includes a vessel which entered drydock for its class required special survey and scrubber installation at the end of March 2019 and is expected to be completed in May 2019.  Second quarter 2019 LR2 activity includes a vessel which entered drydock for repairs and a scrubber installation at the end of March 2019 and concluded in April 2019.

Debt

Set forth below is a summary of the Company’s outstanding indebtedness as of the dates presented:

Set forth below are the expected, estimated future principal repayments on the Company's outstanding indebtedness which includes principal amounts due under lease financing arrangements and lease liabilities under IFRS 16 as of March 31, 2019:

Explanation of Variances on the First Quarter of 2019 Financial Results Compared to the First Quarter of 2018

For the three months ended March 31, 2019, the Company recorded net income of $14.5 million compared to a net loss of $31.8 million for the three months ended March 31, 2018. The following were the significant changes between the two periods:

• TCE revenue, a Non-IFRS measure, is vessel revenues less voyage expenses (including bunkers and port charges). TCE revenue is included herein because it is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company's performance irrespective of changes in the mix of charter types (i.e., spot voyages, time charters, and pool charters), and it provides useful information to investors and management. The following table depicts TCE revenue for the three months ended March 31, 2019 and 2018:

• TCE revenue for the three months ended March 31, 2019 increased $42.4 million to $195.5 million, from $153.1 million for the three months ended March 31, 2018. This increase was the result of an improvement in TCE revenue per day across all of the Company's operating segments.  Overall TCE revenue per day increased to $18,570 per day during the three months ended March 31, 2019, from $13,331 per day during the three months ended March 31, 2018. The first quarter of 2019 reflected a dramatic improvement in the product tanker market as compared to the same period in 2018.  The positive trends developed late in the fourth quarter of 2018 and continued through most of the first quarter of 2019 as a result of several different factors including, but not limited to, (i) an increase in global demand for refined commodities against the backdrop of moderating supply of the global product tanker fleet, (ii) the opening of arbitrage windows on several trading routes, and (iii) the reduction of global product inventory drawdowns, increasing demand for product imports. This increase in TCE revenue per day was partially offset by a reduction of the Company's fleet to an average of 119.3 operating vessels during the three months ended March 31, 2019 from an average of 128.0 operating vessels during the three months ended March 31, 2018, which was the result of the redelivery of 11 time chartered-in vessels throughout 2018 and in the first quarter of 2019.
  
  
• Vessel operating costs for the three months ended March 31, 2019 decreased $1.1 million to $69.4 million, from $70.4 million for the three months ended March 31, 2018.  This decrease was primarily due to take over costs that the Company incurred for six vessels acquired from NPTI that transitioned technical management during the three months ended March 31, 2018.  These costs included additional crew severance and repatriation costs along with the costs for new spares, stores and other supplies.  No such costs were incurred during the three months ended March 31, 2019.  Additionally, vessel operating costs in the Handymax operating segment improved during the three months ended March 31, 2019, primarily as a result of reduced repairs and maintenance expenses.
  
  
• Voyage expenses for the three months ended March 31, 2019 decreased $3.0 million, to $0.3 million from $3.3 million for the three months ended March 31, 2018.  This decrease was primarily due to several vessels that were acquired from NPTI that traded in the spot market during the three months ended March 31, 2018 prior to their transition to the Scorpio pools.
  
  
• Charterhire expense for the three months ended March 31, 2019 decreased $13.6 million to $4.4 million, from $18.0 million for the three months ended March 31, 2018.  This decrease was the result of a decrease in the number of time chartered-in vessels during those periods.  The Company's time and bareboat chartered-in fleet consisted of an average of 0.3 time chartered-in vessels and 10.0 bareboat chartered-in vessels for the three months ended March 31, 2019, and the Company's time and bareboat chartered-in fleet consisted of an average of 9.4 time chartered-in vessels and 10.0 bareboat chartered-in vessels for the three months ended March 31, 2018.  As of March 31, 2019, we had 10 bareboat chartered-in vessels, which are right of use assets under IFRS 16 - Leases (i.e. there is no charterhire expense for these vessels).
  
  
• Depreciation expense - owned or finance leased vessels for the three months ended March 31, 2019 remained consistent, increasing slightly by $0.4 million to $43.8 million, from $43.5 million for the three months ended March 31, 2018.  Depreciation expense in future periods is expected to increase as the Company installs ballast water treatment systems and scrubbers on its vessels in 2019 and 2020.
  
  
• Depreciation expense - right of use assets for the three months ended March 31, 2019 was $2.1 million.  Depreciation expense - right of use assets reflects the straight-line depreciation expense recorded during the three months ended March 31, 2019 as a result of the Company's transition to IFRS 16 - Leases on January 1, 2019.  Depreciation expense for right of use assets in future periods, absent any changes to the Company's time or bareboat chartered-in fleet, is expected to increase as seven bareboat chartered-in vessels commenced their leases in late March 2019 and depreciation expense in future periods will therefore reflect the full impact of these arrangements.  Right of use asset depreciation is approximately $0.2 million per vessel per month for all 10 vessels that the Company currently bareboat charters-in.
  
  
• General and administrative expenses for the three months ended March 31, 2019 increased $2.1 million to $15.7 million, from $13.6 million for the three months ended March 31, 2018.  This increase was primarily driven by an increase in compensation expenses, including an increase in restricted stock amortization.  General and administrative expenses in future periods are expected to reflect a similar run-rate to that which was incurred in the first quarter of 2019.
  
  
• Financial expenses for the three months ended March 31, 2019 increased $9.3 million to $48.8 million, from $39.4 million for the three months ended March 31, 2018.  The increase in financial expenses was primarily a result of (i) increases in LIBOR rates as compared to the three months ended March 31, 2018, (ii) an increase in the Company's average debt to $3.0 billion during the three months ended March 31, 2019 from $2.8 billion during the three months ended March 31, 2018 as a result of the Company's refinancing initiatives that were executed in the second, third and fourth quarters of 2018 and (iii) increased borrowing costs associated with the Company's lease financing arrangements that were entered into during 2018.  If LIBOR rates remain consistent, financial expenses in future periods are expected to reflect a similar run-rate to that which was incurred in the first quarter of 2019.

Fleet list as of May 1, 2019