Scorpio Tankers Inc. Announces Financial Results for the First Quarter of 2016 and Declaration of a Quarterly Dividend

MONACO--(Marketwired - April 27, 2016) - Scorpio Tankers Inc. (NYSE: STNG) ("Scorpio Tankers," or the "Company") today reported its results for the three months ended March 31, 2016 and declaration of a quarterly dividend.

Results for the three months ended March 31, 2016 and 2015

For the three months ended March 31, 2016, the Company's adjusted net income was $30.5 million (see Non-IFRS Measures section below), or $0.19 basic and $0.18 diluted earnings per share, which excludes (i) a $2.2 million loss on sales of vessels and write-down of vessels held for sale, (ii) a $1.8 million write-off of deferred financing fees, (iii) a $1.0 million unrealized gain on derivative financial instruments and (iv) a $0.6 million gain recorded on the repurchase of $5.0 million face value of the Company's Convertible Senior Notes due 2019 (the "Convertible Notes"). The adjustments aggregated to an increase of adjusted net income by $2.4 million or $0.02 basic and $0.01 diluted earnings per share. For the three months ended March 31, 2016, the Company had net income of $28.0 million, or $0.17 basic and diluted earnings per share.

The diluted weighted average number of shares considers the potentially dilutive shares relating to the Company's Convertible Notes representing 32,002,761 potential common shares that the Company may issue upon conversion (see below for further information).

For the three months ended March 31, 2015, the Company's adjusted net income was $39.3 million (see Non-IFRS Measures section below), or $0.26 basic and $0.24 diluted earnings per share, which excludes a gain of $2.0 million related to the closing of the sales of three vessels and an unrealized loss on derivative financial instruments of $0.6 million. The adjustments aggregated to a decrease of adjusted net income by $1.4 million, or $0.01 basic and diluted loss per share. For the three months ended March 31, 2015, the Company had net income of $40.7 million, or $0.27 basic and $0.25 diluted earnings per share.

Declaration of Dividend

On April 27, 2016, the Company's Board of Directors declared a quarterly cash dividend of $0.125 per share, payable on June 24, 2016 to all shareholders as of May 11, 2016 (the record date). As of April 27, 2016, there were 173,035,794 shares outstanding.

Diluted Weighted Number of Shares

Diluted earnings per share is determined using the if-converted method. Under this method, the Company assumes that the Convertible Notes (which were issued in June 2014) are converted into common shares at the beginning of each period and the interest and non-cash amortization expense associated with these notes of $5.5 million during the three months ended March 31, 2016, are not incurred. Conversion is not assumed if the results of this calculation are anti-dilutive. 

For the three months ended March 31, 2016, the Company's basic weighted average number of shares were 160,471,857. The Company's diluted weighted average number of shares were 165,680,353 excluding the impact of the Convertible Notes and 197,620,040 under the if-converted method. Earnings per share for the three months ended March 31, 2016 does not consider the effect of the Convertible Notes as the if-converted method was anti-dilutive. Adjusted earnings per share (see Non-IFRS Measures section below) for the three months ended March 31, 2016 was calculated using the if-converted method as the effect of which was dilutive. The Convertible Notes are currently ineligible for conversion. 

Summary of Recent and First Quarter Significant Events:

• Below is a summary of the voyages fixed thus far in the second quarter of 2016:
  • For the LR2s in the pool: approximately $23,000 per day for 43% of the days
  • For the LR1 in the pool: approximately $18,000 per day for 38% of the days
  • For the MRs in the pool: approximately $18,000 per day for 39% of the days
  • For the Handymaxes in the pool: approximately $12,000 per day for 34% of the days
• Below is a summary of the TCE revenue earned during the first quarter of 2016:
  • For the LR2s in the pool: $27,392 per day 
  • For the LR1s in the pool: $25,078 per day 
  • For the MRs in the pool: $18,573 per day 
  • For the Handymaxes in the pool: $15,855 per day
• Reduced the Company's outstanding debt by $109.5 million between January 1, 2016 and April 26, 2016.
• Took delivery of STI Grace, an LR2 product tanker that was under construction from Daehan Shipbuilding Co., Ltd ("DHSC") and STI Lombard, an LR2 product tanker that was previously bareboat chartered-in, in March and April 2016, respectively.
• Reached an agreement with an unrelated third party to sell five 2014 built MR tankers for $33.3 million each. Two of these sales closed in the first quarter of 2016, one sale closed in April 2016, and the remaining two sales are expected to close in the second quarter of 2016. 
• Time chartered-in three ice class 1A Handymax product tankers, each for three years at $15,600 per day. 
• Repurchased $5.0 million face value of the Company's Convertible Notes for $831.05 per $1,000 principal amount.
• Repurchased an aggregate of 2,299,606 of the Company's common shares since January 1, 2016 at an average price of $5.96 per share; the repurchased shares are being held as treasury shares.
• Paid a quarterly cash dividend on the Company's common stock of $0.125 per share in March 2016.
• Amended and restated the Company's previously announced $87.0 million credit facility with ING Bank N.V. to increase the borrowing capacity to $132.5 million. The proceeds from the upsizing were utilized in April 2016 to partially finance the purchase of STI Lombard and refinance the existing indebtedness on STI Osceola.

Vessel deliveries

In April 2016, the Company took delivery of STI Lombard, an LR2 product tanker that was previously bareboat chartered-in, and paid the remaining 90% of the purchase price, or $53.1 million, upon delivery. The Company drew down $26.5 million from its ING Credit Facility to partially finance this transaction. 

In March 2016, the Company took delivery of STI Grace, an LR2 product tanker from DHSC. The Company drew down $26.0 million from its ING Credit Facility to finance the delivery of this vessel. 

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 Lexington, STI Mythos, STI Chelsea, STI Olivia and STI Powai) for $33.3 million each. The sales of STI Lexington and STI Mythos closed in the first quarter of 2016, the sale of STI Chelsea closed in April 2016 and the sales of STI Powai and STI Olivia are expected to close in the second quarter of 2016. The Company recorded an aggregate loss on sale of vessels and a write-down of vessels held for sale of $2.2 million during the first quarter of 2016 in connection with this agreement. 

As part of these sales, the Company repaid $36.2 million in secured debt in the first quarter of 2016 and $18.4 million in April 2016. The Company expects to repay $36.7 million in secured debt as part of the sales of the remaining two vessels before the end of the second quarter of 2016. 

Upsizing of ING Credit Facility

In March 2016, the Company amended and restated its previously announced $87.0 million credit facility with ING Bank N.V. to increase the borrowing capacity to $132.5 million. The facility bears interest at LIBOR plus a margin of 1.95% per annum, and the proceeds from the upsizing were used in April 2016 to partially finance the purchase of STI Lombard and refinance the existing indebtedness on STI Osceola.

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.

Since January 1, 2016 through the date of this press release, the Company has repurchased the following:

• an aggregate of 2,299,606 of its common shares at an average price of $5.96 per share; the repurchased shares are being held as treasury shares. There are 173,035,794 shares outstanding as of April 27, 2016.
• $5.0 million face value of its Convertible Notes at an average price of $831.05 per $1,000 principal amount.

The Company has $160.4 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-in Update

In April 2016, the Company exercised its option to extend the charter on an MR product tanker that is currently time chartered-in for an additional year at $16,350 per day effective May 2016.

In March 2016, the Company entered into time charter-in agreements with an unrelated third party on three ice class 1A Handymax product tankers. Each agreement is for three years at $15,600 per day and the Company has two consecutive one year options to extend the agreements at $16,500 per day and $17,500 per day, respectively. These vessels were delivered in March 2016. In addition, the Company has the option to time charter-in up to four additional ice class 1A Handymax product tankers under the same terms.

In March 2016, the Company extended the charters on two ice class 1B Handymax product tankers that are currently time chartered-in, each for one year at $17,000 per day effective April and June 2016, respectively.

In March 2016, the Company exercised its option to extend the charter on an MR product tanker that is currently time chartered-in for an additional year at $16,200 per day effective May 2016.

In February 2016, the Company extended the charter on an LR1 product 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. 

Conference Call

The Company will have a conference call on April 27, 2016 at 10:30 AM Eastern Daylight Time and 4:30 PM Central European Summer Time.

Participants should dial into the call 10 minutes before the scheduled time using the following numbers: 1-888-205-6875 (U.S.) or +1-913-312-0685 (International). The conference participant passcode is 2946006. 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://www.webcaster4.com/Webcast/Page/610/14769

Current Liquidity
As of April 26, 2016, the Company had $164.8 million in cash.

Debt
A rollforward of the Company's debt balance from January 1, 2016 through the date of this press release, is set forth below:

Newbuilding Program

During the first quarter of 2016, the Company made $72.3 million of installment payments on its newbuilding vessels.

The Company currently has 11 newbuilding vessel orders (eight MRs and three LR2s) with DHSC, Hyundai Mipo Dockyard Co., Ltd. ("HMD") and Sungdong Shipbuilding and Marine Engineering Co., Ltd. ("SSME"). The estimated second quarter of 2016 and future payments are as follows*:

*These are estimates only and are subject to change as construction progresses.

Explanation of Variances on the First Quarter of 2016 Financial Results Compared to the First Quarter of 2015

For the three months ended March 31, 2016, the Company recorded net income of $28.0 million compared to net income of $40.7 million for the three months ended March 31, 2015. The following were the significant changes between the two periods:

• Time charter equivalent, or 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 charters, 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, 2016 and 2015:

• TCE revenue increased $6.2 million to $164.8 million. This increase was driven by an increase in the average number of operating vessels (owned and time chartered-in) to 90.1 from 84.0 for the three months ended March 31, 2016 and 2015, respectively. This increase was offset by a decrease in time charter equivalent revenue per day to $20,203 per day from $21,138 per day for the three months ended March 31, 2016 and 2015, respectively (see the breakdown of daily TCE below). This was primarily driven by a decrease in TCE revenue per day in our Handymax and MR operating segments, as the mild winter in the northern hemisphere, along with lower utilization in U.S. Gulf Coast refineries resulted in dampened demand for the Company's MR and ice class 1A Handymax tankers as compared to the same period in 2015. 

• Vessel operating costs increased $10.5 million to $48.0 million from $37.5 million for the three months ended March 31, 2016 and 2015, respectively. This increase was primarily driven by an increase in the Company's owned fleet to an average of 79.8 vessels from 63.0 vessels for the three months ended March 31, 2016 and 2015, respectively. Overall vessel operating costs per day remained consistent, increasing slightly to $6,612 per day from $6,583 per day for the three months ended March 31, 2016 and 2015, respectively (see the breakdown of daily vessel operating costs below). 

• Charterhire expense decreased $13.1 million to $15.6 million from $28.7 million for the three months ended March 31, 2016 and 2015, respectively. This decrease was primarily driven by a decrease in the Company's time chartered-in fleet to an average of 10.3 vessels from 21.0 vessels for the three months ended March 31, 2016 and 2015, respectively.

• Depreciation expense increased $8.8 million to $30.2 million from $21.4 million for the three months ended March 31, 2016 and 2015, respectively. This increase was the result of an increase in the average number of owned vessels to 79.8 from 63.0 for the three months ended March 31, 2016 and 2015, respectively.

• General and administrative expenses increased $3.3 million to $17.0 million from $13.7 million for the three months ended March 31, 2016 and 2015, respectively. This increase is primarily due to the growth in the Company's owned fleet to an average of 79.8 vessels from an average of 63.0 vessels during the three months ended March 31, 2016 and 2015, respectively.

• Loss from sale vessels and write down of vessels held for sale of $2.2 million for the three months ended March 31, 2016 is attributable to the aforementioned agreement to sell five 2014 built MR product tankers. The gain on sale of vessels of $2.0 million for the three months ended March 31, 2015 relates to the sales of Venice, STI Harmony and STI Heritage, which closed in March, April and April of 2015, respectively. 

• Financial expenses increased $7.1 million to $25.2 million from $18.1 million primarily as a result of:
  • an increase in average debt outstanding to $2.1 billion from $1.7 billion for the three months ended March 31, 2016 and 2015, respectively; 
  • a decrease in the amount of interest capitalized of $0.6 million; 
  • a write-off of $1.8 million of deferred financing fees as a result of (i) the sales, and corresponding debt repayments on the amounts borrowed for STI Lexington and STI Mythos, (ii) the refinancing of the amounts borrowed for STI Battery and (iii) the repurchase of $5 million face value of the Company's Convertible Notes in March 2016. 

• Unrealized gains and losses on derivative financial instruments relate to the change in the fair value of the profit or loss agreement on one of the Company's time chartered-in vessels with a third party who neither owns nor operates the vessel. 

• Financial income for the three months ended March 31, 2016 primarily consists of the gain recorded when the Company repurchased $5.0 million face value of the Company's Convertible Notes for $831.05 per $1,000 principal amount in March 2016.

Dividend Policy and Securities Repurchase Program

Dividend Policy

The declaration and payment of dividends is subject at all times to the discretion of the Company's Board of Directors. The timing and amount of dividends, if any, depends on the Company's earnings, financial condition, cash requirements and availability, fleet renewal and expansion, restrictions in the loan agreements, the provisions of Marshall Islands law affecting the payment of dividends and other factors.

The Company's dividend history is as follows: 

On April 27, 2016, the Scorpio Tankers' Board of Directors declared a quarterly cash dividend of $0.125 per share, payable on June 24, 2016 to all shareholders as of May 11, 2016 (the record date). As of April 27, 2016 there were 173,035,794 shares outstanding.

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 1, 2016 through the date of this press release, the Company has repurchased the following:

• an aggregate of 2,299,606 of its common shares at an average price of $5.96 per share; the repurchased shares are being held as treasury shares. There are 173,035,794 shares outstanding as of April 27, 2016.
• $5.0 million face value of its Convertible Notes at an average price of $831.05 per $1,000 principal amount.

The Company has $160.4 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.

About Scorpio Tankers Inc.

Scorpio Tankers Inc. is a provider of marine transportation of petroleum products worldwide. Scorpio Tankers Inc. currently owns 78 product tankers (20 LR2, 14 Handymax, and 44 MR tankers) with an average age of 1.5 years and time charters-in 12 product tankers (two LR2, one LR1, four MR and five Handymax tankers). The Company has contracted for 11 newbuilding product tankers (eight MR and three LR2 tankers). The three LR2s are expected to be delivered in 2016 (one per quarter), and the eight MRs are expected to be delivered throughout 2017. The Company has also reached an agreement to sell two of its 2014 built MR product tankers. Additional information about the Company is available at the Company's website www.scorpiotankers.com, which is not a part of this press release.

Non-IFRS Measures

This press release describes adjusted net income and adjusted EBITDA, which are not measures prepared in accordance with IFRS (i.e. "Non-IFRS" measures). The Non-IFRS measures are presented in this press release as we believe that they provide investors with a means of evaluating and understanding how the Company's management evaluates the Company's operating performance. These Non-IFRS measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with IFRS.

Adjusted net income

Adjusted EBITDA

Forward-Looking Statements

Matters discussed in this press release may constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts. The Company desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection with this safe harbor legislation. The words "believe," "anticipate," "intends," "estimate," "forecast," "project," "plan," "potential," "may," "should," "expect," "pending" and similar expressions identify forward-looking statements.

The forward-looking statements in this press release are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, our management's examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections. We undertake no obligation, and specifically decline any obligation, except as required by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

In addition to these important factors, other important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the failure of counterparties to fully perform their contracts with us, the strength of world economies and currencies, general market conditions, including fluctuations in charter rates and vessel values, changes in demand for tanker vessel capacity, changes in our operating expenses, including bunker prices, drydocking and insurance costs, the market for our vessels, availability of financing and refinancing, charter counterparty performance, ability to obtain financing and comply with covenants in such financing arrangements, 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, vessels breakdowns and instances of off-hires and other factors. Please see our filings with the Securities and Exchange Commission for a more complete discussion of these and other risks and uncertainties.