Scorpio Tankers beats estimates in fourth quarter

ScorpioTankers

Scorpio Tankers Inc. reported its results for the three months and year ended December 31, 2015 and declaration of a quarterly dividend.

Results for the three months ended December 31, 2015 and 2014

For the three months ended December 31, 2015, the Company’s adjusted net income was $36.3 million (see Non-IFRS Measures section below), or $0.22 basic and $0.21 diluted earnings per share, which excludes (i) a $0.7 million write-off of deferred financing fees, (ii) a $0.7 million write-off of deposits made for options to construct MR product tankers that expired unexercised, and (iii) a $0.7 million unrealized loss on derivative financial instruments. The adjustments aggregated to an increase of adjusted net income by $2.1 million or $0.01 basic and diluted earnings per share. For the three months ended December 31, 2015, the Company had net income of $34.2 million, or $0.21 basic and $0.20 diluted earnings per share.

For the three months ended December 31, 2015, the Company’s basic and diluted weighted average number of shares were 163,792,076 and 202,210,591, respectively. The diluted weighted average number of shares includes the potentially dilutive shares relating to the Company’s Convertible Senior Notes due 2019 (the “Convertible Notes”) representing 31,791,435 potential common shares that the Company may issue upon conversion (see below for further information).

For the three months ended December 31, 2014, the Company’s adjusted net income was $18.3 million (see Non-IFRS Measures Section below), or $0.12 basic and diluted earnings per share, which excludes (i) a $13.9 million write down from the discontinuation of equity method accounting for the Company’s investment in Dorian LPG Ltd. (“Dorian”), (ii) a $4.0 million write down from the designation of two vessels as held for sale, and (iii) a $0.1 million unrealized gain on derivative financial instruments. The adjustments aggregated to an increase of adjusted net income by $17.8 million or $0.12 basic and diluted earnings per share. For the three months ended December 31, 2014, the Company had net income of $0.5 million, or $0.00 basic and diluted earnings per share.

Results for the year ended December 31, 2015 and 2014

For the year ended December 31, 2015, the Company’s adjusted net income was $221.3 million (see Non-IFRS Measures section below), or $1.37 basic and $1.21 diluted earnings per share, which excludes (i) a $1.2 million gain from the sale of the Company’s investment in Dorian, (ii) a $1.4 million gain from the early termination of the contract on a time chartered-in vessel, (iii) a $1.4 million reserve for a pool bunker supplier in bankruptcy, (iv) a $2.7 million write-off of deferred financing fees, (v) a $0.7 million write-off of deposits made for options to construct MR product tankers that expired unexercised, (vi) a $35,000 net loss related to the sales of four vessels during 2015, (vii) a $1.3 million unrealized loss on derivative financial instruments, and (viii) a $46,000 gain from the repurchase of $1.5 million face value of the Company’s Convertible Notes. The adjustments aggregated to an increase of adjusted net income by $3.5 million or $0.02 basic and $0.01 diluted earnings per share. For the year ended December 31, 2015, the Company had net income of $217.7 million, or $1.35 basic and $1.20 diluted earnings per share.

For the year ended December 31, 2014, the Company’s adjusted net income was $7.7 million (see Non-IFRS Measures section below), or $0.04 basic and diluted earnings per share, which excludes (i) a $51.4 million gain from the sales of seven Very Large Crude Carriers (‘VLCCs’) under construction in March 2014, (ii) a $10.9 million gain from the acquisition of 7,500,000 common shares of the Company in exchange for 3,422,665 shares of Dorian in June 2014, (iii) a $13.9 million write down from the discontinuation of equity method accounting for the Company’s investment in Dorian, (iv) a $4.0 million write down from the designation of two vessels as held for sale, (v) a $0.3 million write-off of deferred financing fees and (vi) a $0.3 million unrealized gain on derivative financial instruments. The adjustments aggregated to a decrease of adjusted net income by $44.4 million or $0.26 basic and diluted loss per share. For the year ended December 31, 2014, the Company had net income of $52.1 million, or $0.30 basic and diluted earnings per share.

Declaration of Dividend

On February 25, 2016, the Company’s Board of Directors declared a quarterly cash dividend of $0.125 per share, payable on March 30, 2016 to all shareholders as of March 10, 2016 (the record date). As of February 26, 2016, there were 173,035,794 shares outstanding.

Diluted Weighted Number of Shares

Diluted earnings per share for the three months and year ended December 31, 2015 includes the potentially dilutive shares relating to the Convertible Notes representing 31,791,435 potential common shares that the Company may issue upon conversion. The Convertible Notes were issued in June 2014. The dilutive impact of the Convertible Notes is determined using the if-converted method. Under this method, the Company assumes that the Convertible Notes are converted into common shares at the beginning of each period and the interest and non-cash amortization expense associated with these notes of $5.4 million and $21.4 million during the three months and year ended December 31, 2015, respectively, are not incurred. Conversion is not assumed if the results of this calculation are anti-dilutive. The Convertible Notes are currently ineligible for conversion.

Summary of Recent and Fourth Quarter Significant Events:

Below is a summary of the voyages fixed thus far in the first quarter of 2016:
For the LR2s in the pool: approximately $28,000 per day for 80% of the days
For the LR1s in the pool: approximately $24,000 per day for 74% of the days
For the MRs in the pool: approximately $19,000 per day for 72% of the days
For the Handymaxes in the pool: approximately $18,000 per day for 66% of the days
Below is a summary of the TCE revenue earned during the fourth quarter of 2015:
For the LR2s in the pool: $26,464 per day
For the LR1s in the pool: $21,013 per day
For the MRs in the pool: $19,800 per day
For the MRs outside of the pool: $18,086 per day
For the Handymaxes in the pool: $18,562 per day
Reached an agreement with an unrelated third party to sell five 2014 built MR tankers for approximately $33.3 million each. Two of these sales are expected to close in March 2016, and the remaining three sales are expected to close in the second quarter of 2016.
Repurchased an aggregate of 5,220,971 of the Company’s common shares since October 1, 2015 that are being held as treasury shares at an average price of $7.35 per share.
Entered into time charter out agreements with an unrelated third party for two ice-class 1B MRs, STI Notting Hill and STI Westminster, each for three years at $20,500 per day. These charters commenced in November 2015 and December 2015, respectively.
Entered into a time charter out agreement with an unrelated third party for an LR2 product tanker, STI Rose, for three years at $28,000 per day. This charter commenced in February 2016.
Entered into time charter out agreements with an unrelated third party for two ice-class 1A Handymaxes, STI Poplar and STI Pimlico, each for three years at $18,000 per day. These charters commenced in January and February 2016, respectively.
Received a commitment from Scotiabank Europe plc for a loan facility of up to $36.0 million, which will be utilized to refinance the existing indebtedness on an LR2 product tanker (2015 built). The loan facility has a maturity of three years from the drawdown date and bears interest at LIBOR plus a margin of 1.50% per annum.
Received a commitment to upsize the previously announced $87.0 million credit facility with ING Bank N.V. to $132.5 million. The proceeds from the upsizing will be utilized to partially finance the purchase of STI Lombard (currently bareboat chartered-in) and refinance the existing indebtedness on an MR product tanker (2015 built).
Executed a loan facility for $34.5 million with BNP Paribas. The facility bears interest at LIBOR plus a margin of 1.95% per annum, and the proceeds were utilized to partially finance the purchase of STI Memphis and refinance the existing indebtedness on STI Battery.
Paid a quarterly cash dividend on the Company’s common stock of $0.125 per share in December 2015.
Reached agreements with Hyundai Mipo Dockyard of South Korea (“HMD”) in October 2015 to construct four MR product tankers for $36.0 million each with deliveries scheduled in the third and fourth quarters of 2017.
Sold the 2007 built Handymax product tanker, STI Highlander, for a selling price of $19.35 million in October 2015.

Agreement to Sell Five MR Product Tankers

In February 2016, the Company reached an agreement with an unrelated third party to sell five 2014 built MR product tankers (STI Powai, STI Lexington, STI Chelsea, STI Olivia and STI Mythos) for approximately $33.3 million each. The sales of two vessels are expected to close in March 2016, and the sales of the remaining three vessels are expected to close in the second quarter of 2016. The Company expects to record a write-down of approximately $3.2 million during the first quarter of 2016 in connection with the entry into this agreement.

$36.0 Million Scotiabank Credit Facility

In November 2015, the Company received a commitment from Scotiabank Europe plc for a loan facility of up to $36.0 million. The facility will bear interest at LIBOR plus a margin of 1.50% per annum, and the proceeds are expected to be used to refinance the existing indebtedness on one LR2 product tanker (2015 built).

The facility has a final maturity of three years from the drawdown date and is subject to customary conditions precedent and the execution of definitive documentation.

$34.5 Million BNP Paribas Credit Facility

In December 2015, the Company executed a senior secured term loan facility for $34.5 million with BNP Paribas. The facility bears interest at LIBOR plus a margin of 1.95% per annum, and the proceeds were used to partially finance the purchase of STI Memphis and to refinance the existing indebtedness on STI Battery.

The facility has a 15 year repayment profile and a final maturity of five years from the signing date of the loan for each vessel. The terms and conditions, including covenants, are similar to those in the Company’s existing credit facilities.

Upsizing of ING Credit Facility

In January 2016, the Company received a commitment to upsize its previously announced $87.0 million credit facility with ING Bank N.V. to $132.5 million. The facility bears interest at LIBOR plus a margin of 1.95% per annum, and the proceeds from the upsizing are expected to be used to partially finance the purchase of STI Lombard (currently bareboat chartered-in) and refinance the existing indebtedness on an MR product tanker (2015 built).

The terms and conditions, including covenants, are similar to those in the Company’s existing credit facilities.

$250 Million Securities Repurchase Program

In May 2015, the Company’s Board of Directors authorized a new Securities Repurchase Program to purchase up to an aggregate of $250 million of the Company’s common stock and bonds, which currently consist of its (i) Convertible Notes, which were issued in June 2014, (ii) Unsecured Senior Notes Due 2020 (NYSE: SBNA), which were issued in May 2014, and (iii) Unsecured Senior Notes Due 2017 (NYSE: SBNB), which were issued in October 2014. This program replaces the Company’s stock buyback program that was previously announced in July 2014 and was terminated in conjunction with this new repurchase program.

Since January 2015 through the date of this press release, the Company has acquired the following:

an aggregate of 10,573,315 of its common shares that are being held as treasury shares at an average price of $8.49 per share (9,826,676 shares were purchased at an average price of $8.53 under the May 2015 $250 million Securities Repurchase Program; the remaining shares were purchased in the first quarter of 2015 under the previous buyback program). There are 173,035,794 shares outstanding as of February 26, 2016.
$1.5 million face value of its Convertible Notes at an average price of $1,088.10 per $1,000 principal amount (all of the Convertible Notes were purchased under the May 2015 $250 million Securities Repurchase Program).

The Company has $164.5 million remaining under its Securities Repurchase Program as of the date of this press release. The Company expects to repurchase any 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 program to repurchase any securities.

Time Charter-out Update

In December 2015, the Company entered into time charter-out agreements with an unrelated third party on two ice class 1A Handymax product tankers, STI Poplar and STI Pimlico. The term of each agreement is for three years at $18,000 per day. These charters commenced in January and February 2016, respectively.

In October 2015, the Company entered into time charter-out agreements with an unrelated third party on two ice class 1B MR product tankers, STI Notting Hill and STI Westminster. The term of each agreement is for three years at $20,500 per day. These charters commenced in November 2015 and December 2015, respectively.

In October 2015, the Company entered into a time charter-out agreement with an unrelated third party for an LR2 product tanker, STI Rose. The term of the agreement is for three years at $28,000 per day. This charter commenced in February 2016.

Time Charter-in Update

In February 2016, the Company extended the time charter on an LR1 tanker that is currently time chartered-in. The term of the agreement is for an additional year at $17,250 per day effective March 2016.

In November 2015, the Company declared an option to extend the charter on an LR2 product tanker that is currently time chartered-in for an additional year at $22,600 effective February 2016.

In October 2015, the Company declared an option to extend the time charter on an MR product tanker that is currently time chartered-in for an additional year at $17,500 per day effective January 2016. The Company also has an option to extend the charter for an additional year at $18,000 per day.

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