Scorpio Tankers Posts $31.5 Million First Quarter Net Loss

Scorpio Tankers

Scorpio Tankers 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 (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.

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