Scorpio Tankers Inc. Announces Financial Results for the Second Quarter of 2017

Monaco - Sept. 18, 2017

Scorpio Tankers Inc. (NYSE:STNG) ("Scorpio Tankers," or the "Company") today reported its results for the three and six months ended June 30, 2017.

Results for the three months ended June 30, 2017 and 2016
For the three months ended June 30, 2017, the Company's adjusted net loss (see Non-IFRS Measures section below) was $17.0 million, or $0.09 basic and diluted loss per share, which excludes (i) a $23.4 million loss on sales of vessels and write-down of vessel held for sale, (ii) $32.5 million of transaction costs related to the merger with Navig8 Product Tankers Inc ("NPTI"), (iii) a $5.4 million gain recorded upon on the purchase of the four subsidiaries of NPTI that own four LR1 tankers (see Merger with Navig8 Product Tankers Inc below), and (iv) a $0.8 million write-off of deferred financing fees. The adjustments resulted in an aggregate reduction of the Company’s net loss by $51.3 million or $0.28 basic and diluted earnings per share. For the three months ended June 30, 2017, the Company had a net loss of $68.3 million, or $0.38 basic and diluted loss per share.

For the three months ended June 30, 2016, the Company's adjusted net income was $6.6 million (see Non-IFRS Measures section below), or $0.04 basic and diluted earnings per share, which excludes (i) a $3.7 million write-off of deferred financing fees, (ii) a $0.4 million unrealized gain on derivative financial instruments, (iii) a $0.4 million gain recorded on the repurchase of $5.0 million aggregate principal amount of the Company's Convertible Senior Notes due 2019 (the "Convertible Notes") and (iv) a $0.1 million gain on sales of vessels. The adjustments resulted in an aggregate increase of net income by $2.7 million or $0.02 basic and diluted earnings per share. For the three months ended June 30, 2016, the Company had net income of $3.8 million, or $0.02 basic and diluted earnings per share.

Results for the six months ended June 30, 2017 and 2016
For the six months ended June 30, 2017, the Company's adjusted net loss was $28.5 million (see Non-IFRS Measures section below), or $0.17 basic and diluted loss per share, which excludes (i) a $23.4 million loss on sales of vessels and write-down of vessel held for sale, (ii) $32.5 million of transaction costs related to the merger with NPTI, (iii) a $5.4 million gain recorded upon on the purchase of the four NPTI subsidiaries that own four LR1 tankers, and (iv) a $0.9 million write-off of deferred financing fees. The adjustments resulted in an aggregate reduction of the Company's net loss by $51.3 million or $0.30 basic and diluted loss per share. For the six months ended June 30, 2017, the Company had a net loss of $79.8 million, or $0.46 basic and diluted loss per share.

For the six months ended June 30, 2016, the Company's adjusted net income (see Non-IFRS Measures section below) was $37.0 million, or $0.23 basic and $0.22 diluted earnings per share, which excludes (i) a $2.1 million loss on sales of vessels, (ii) a $5.5 million write-off of deferred financing fees, (iii) a $1.4 million unrealized gain on derivative financial instruments and (iv) a $1.0 million aggregate gain recorded on the repurchase of $10.0 million aggregate principal amount of the Convertible Notes. The adjustments resulted in an aggregate increase of net income by $5.2 million or $0.03 basic and diluted earnings per share. For the six months ended June 30, 2016, the Company had net income of $31.9 million, or $0.20 basic and $0.19 diluted earnings per share.

Declaration of Dividend
On September 13, 2017, the Company's Board of Directors declared a quarterly cash dividend of $0.01 per share, payable on or about September 29, 2017 to all shareholders as of September 25, 2017 (the record date). As of September 15, 2017, there were 280,218,861 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 and $11.0 million during the three and six months ended June 30, 2017, respectively, are not incurred. Conversion is not assumed if the results of this calculation are anti-dilutive.

For the three and six months ended June 30, 2017, the Company's basic weighted average number of shares were 181,378,540 and 172,096,465, respectively. The weighted average number of shares, both diluted and under the if-converted method, were anti-dilutive for the three and six months ended June 30, 2017 as the Company incurred net losses.

For the three and six months ended June 30, 2016, the Company's basic weighted average number of shares were 161,381,900 and 160,931,752, respectively. The Company's diluted weighted average number of shares for those periods were 165,943,795 and 166,306,290, respectively which excludes the impact of the Convertible Notes since the if-converted method was anti-dilutive. As of the date hereof, the Convertible Notes are not eligible for conversion.

Summary of Recent and Second Quarter Significant Events

• Entered into definitive agreements to acquire NPTI and its fleet of 12 LR1 and 15 LR2 product tankers in exchange for 55 million shares of common stock and the assumption of NPTI's debt. Four of the LR1 product tankers were acquired on June 14, 2017, and the remaining vessels were acquired upon the closing of the merger on September 1, 2017. See "Merger with Navig8 Product Tankers Inc" below.
• Issued 50 million shares of common stock in an underwritten public offering at an offering price of $4.00 per share for net proceeds of approximately $188.7 million, after deducting underwriters' discounts and offering expenses. This offering closed on May 30, 2017 and was a condition to closing the merger with NPTI.
• Below is a summary of the average daily TCE revenue and duration for voyages fixed thus far in the third quarter of 2017 as of the date hereof:
-     For the LR2s in the pool: approximately $13,500 per day for 87% of the days (excludes vessels acquired from NPTI on September 1, 2017 that are currently operating in the Navig8 Alpha8 Pool and are expected to transition to the Scorpio LR2 Pool before the end of October 2017).
-     For the LR1s in the pools: approximately $11,900 per day for 80% of the days (includes the 4 LR1 vessels that were acquired from NPTI on June 14, 2017 which operated in the Navig8 LR8 Pool for all or a portion of the third quarter of 2017 and excludes vessels acquired from NPTI on September 1, 2017 that are currently operating in the Navig8 LR8 Pool and are expected to transition to the Scorpio LR1 Pool before the end of October 2017).
-     For the MRs in the pool: approximately $12,800 per day for 90% of the days.
-     For the ice-class 1A and 1B Handymaxes in the pool: approximately $9,100 per day for 90% of the days.


• Below is a summary of the average daily TCE revenue earned during the second quarter of 2017:
-     For the LR2s in the pool: $14,508 per revenue day
-     For the LR1s in the pools: $8,889 per revenue day (includes the four LR1s purchased from NPTI on June 14, 2017 and operated in the Navig8 LR8 pool through June 30, 2017)
-     For the MRs in the pool: $12,823 per revenue day
-     For the Handymaxes in the pool: $11,384 per revenue day
• Sold and leased back three 2013 built MR product tankers, STI Beryl, STI Le Rocher and STI Larvotto, to an unaffiliated third party for a sales price of $87.0 million in aggregate in April 2017. As part of this transaction, the Company repaid the remaining amount outstanding of $42.1 million on its 2011 Credit Facility.
• Sold two 2013 built MR product tankers, STI Emerald and STI Sapphire, to an unaffiliated third party for an aggregate sales price of $56.4 million. The sale of STI Emerald closed in June 2017 and the sale of STI Sapphire closed in July 2017. As part of this transaction, the Company repaid $27.6 million on its BNP Paribas Credit Facility in June 2017.
• Took delivery of STI Bosphorus, STI Leblon and STI La Boca, three MR product tankers that were under construction, from Hyundai Mipo Dockyard Co. Ltd. of South Korea ("HMD"). STI Bosphorus was delivered in April 2017 and STI Leblon and STI La Boca were delivered in July 2017. As part of these deliveries, the Company drew down $20.4 million, $21.0 million and $21.0 million in April, June and July 2017, respectively, from its 2017 Credit Facility to partially finance the purchase of these vessels.
• Refinanced the four vessels collateralized under the DVB Credit Facility by repaying $86.8 million and drawing down $81.4 million from the DVB 2017 Credit Facility in April 2017.
• Issued $50.0 million of 8.25% Senior Unsecured Notes due June 2019 (the "Senior Notes due 2019") in March 2017 in an underwritten offering and issued an additional $7.5 million of Senior Notes due 2019 in April 2017 when the underwriters fully exercised their option to purchase additional Senior Notes due 2019 under the same terms and conditions.
• Completed a cash tender offer of the Company's 7.50% Senior Unsecured Notes due October 2017 (the "Senior Notes due 2017") in April 2017 and repurchased $6.3 million aggregate principal amount of the Senior Notes due 2017.
• Paid a quarterly cash dividend on the Company's common stock of $0.01 per share in June 2017.

Merger with Navig8 Product Tankers Inc
On May 23, 2017, the Company entered into a definitive agreement to acquire NPTI, including its fleet of 12 LR1 and 15 LR2 product tankers for 55 million common shares of the Company and the assumption of NPTI's debt. The key events, and corresponding timeline were as follows:
• On May 30, 2017, the Company issued 50 million shares of common stock in an underwritten public offering at an offering price of $4.00 per share for net proceeds of approximately $188.7 million, after deducting underwriters' discounts and offering expenses. The completion of this offering was a condition to closing the merger with NPTI.
• On June 14, 2017, the Company acquired certain of NPTI’s subsidiaries that own four LR1 tankers for an aggregate acquisition price of $156.0 million, consisting of $42.2 million of cash and $113.8 million of assumed indebtedness (including accrued interest). The cash portion of the acquisition price (after considering cash flows from operations) formed part of the balance sheet of the combined company upon the closing of the merger on September 1, 2017.
• On September 1, 2017, the merger closed, and the Company acquired the remaining eight LR1 and 15 LR2 tankers. All of the vessels acquired from NPTI are expected to enter the Scorpio Group pools before the end of October 2017.
• All of NPTI’s lenders and leasing companies consented to the merger prior to closing, and the Company assumed NPTI's aggregate outstanding indebtedness of $806.4 million as of the date of closing. A description of such indebtedness, which includes obligations due under NPTI’s sale and leaseback arrangements, may be found further below under the section ‘Debt’.
• In the second quarter of 2017, the Company recorded $32.5 million of merger transaction costs, which included costs to terminate NPTI's commercial management agreement and administrative services agreement with the Navig8 Group (a related party affiliate of NPTI) along with legal fees and advisory fees.
-     Approximately $6.0 million of this amount may be settled with the Navig8 Group through the issuance of two warrants, which may be exercised for an aggregate of up to 1.5 million common shares of the Company, to Navig8 Limited, a company affiliated with Navig8 Product Tankers Inc. The first warrant, which may be exercised to purchase up to 222,224 common shares, was issued on June 9, 2017 in connection with the acquisition of four LR1 tankers of NPTI prior to the closing of the merger. The second warrant, which may be exercised to purchase up to an aggregate of 1,277,776 common shares, was issued on the date of the closing of the merger. Each warrant is exercisable on a pro-rata basis upon the redelivery of each NPTI vessel from the applicable Navig8 Group product tanker pool. Pursuant to the terms of the two warrants the Company, at its option, may elect to pay cash in lieu of issuing shares upon exercise of the two warrants. As of September 15, 2017, the Company has issued 611,116 shares to Navig8 Limited and made no cash payments in connection with the redelivery of 11 NPTI vessels and the corresponding warrant exercises.
• As part of the closing of the merger, NPTI’s Series A Cumulative Redeemable Perpetual Preferred Stock ("NPTI Preference Shares") was redeemed for $39.5 million.

Sale and leaseback of three vessels
In April 2017, the Company sold and leased back, on a bareboat basis, three 2013 built MR product tankers, STI Beryl, STI Le Rocher and STI Larvotto to Bank of Communications Financial Leasing (the “Buyers”). The sales price was $29.0 million per vessel and the Company bareboat chartered-in the vessels for a period of up to eight years at $8,800 per day per vessel.

The Company has the option to purchase these vessels beginning at the end of the fifth year of the agreements through the end of the eighth year of the agreements. Additionally, a deposit of $4.35 million per vessel was retained by the Buyers and will either be applied to the purchase price of the vessel if a purchase option is exercised, or refunded to the Company at the expiration of the agreement (as applicable). The Company fully repaid the outstanding balance of $42.1 million on the 2011 Credit Facility and recorded a loss on sales of vessels of $14.2 million in the second quarter of 2017 as a result of these sales. These transactions are being accounted for as sales and operating leasebacks.

Sale of two vessels
In April 2017, the Company reached an agreement with an unrelated third party to sell two 2013 built, MR product tankers, STI Emerald and STI Sapphire, for a sales price of $56.4 million in aggregate. The sale of STI Emerald closed in June 2017, and the sale of STI Sapphire closed in July 2017. As a result of this transaction, the Company recorded an aggregate loss on sale and write down of vessel held for sale of $9.1 million. Additionally, the Company repaid the aggregate outstanding debt for both vessels of $27.6 million on its BNP Paribas Credit Facility in June 2017 and wrote-off $0.5 million of deferred financing fees during the second quarter of 2017 as a result of this repayment.

Time Charter-in Update
In June 2017, the Company entered into a new time charter agreement on a 2015 built, LR2 product tanker for six months at $14,750 per day. The Company also has an option to extend the charter for an additional six months at $15,750 per day.

In May 2017, the Company entered into a new time charter agreement on a 2013 built, MR product tanker that was previously time chartered-in by the Company for six months at $13,000 per day effective June 2017. The Company also has the option to extend the charter for an additional six months at $13,250 per day and should the first option be exercised, an option to extend the charter for an additional year at $14,500 per day.

$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, which were issued in June 2014, (ii) Unsecured Senior Notes Due 2020 (NYSE:SBNA), which were issued in May 2014, (iii) Unsecured Senior Notes Due 2017 (NYSE:SBNB), which were issued in October 2014, and (iv) Unsecured Senior Notes Due 2019 (NYSE:SBBC), which were issued in March 2017.

Since January 1, 2017 through the date of this press release, we acquired an aggregate of 250,419 of our Senior Notes due 2017 for aggregate consideration of $6.3 million, which was the result of the cash tender offer of such notes that commenced in conjunction with the March 2017 issuance of the Company's Senior Notes due 2019 and concluded in April 2017.

As of the date hereof, the Company has the authority to purchase up to an additional $147.1 million of its securities under its Securities Repurchase Program. The Company expects to 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.

Current Liquidity
As of September 15, 2017, the Company had $161.2 million in unrestricted cash and cash equivalents.

Drydock Update
During the third quarter of 2017, five of the Company’s 2012 built MR product tankers were drydocked in accordance with their scheduled, class required special survey. These vessels were offhire for an aggregate of 90 days and the aggregate estimated drydock cost is approximately $5.2 million.

The Company has five MRs that are scheduled for drydock throughout 2018 and estimates that these vessels will be offhire for an aggregate of 100 days and an aggregate cost of approximately $4.0 million.

Full report

Scorpio Tankers Inc. press release