Scorpio Tankers Inc. — Form 20-F summary
Reporting period: Fiscal year ended December 31, 2019. Although the request references 2019 Q4, this is an annual filing; it does not provide a clear standalone fourth-quarter income statement or cash-flow set. The filing reports that tanker rates strengthened in the fourth quarter.
Business context
Scorpio Tankers transports refined petroleum products worldwide. Its fleet primarily earns spot-linked revenue through commercial pools, leaving results exposed to volatile tanker rates. The audited financial statements are stated to be prepared under IFRS as issued by the IASB, although the filing’s accounting-basis checkbox identifies U.S. GAAP; this discrepancy is worth verifying.
Key financial metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Vessel revenue | $704.3 million | $585.0 million |
| Operating income | $130.0 million | $10.5 million |
| Net loss | $48.5 million | $190.1 million |
| Basic and diluted loss per share | $0.97 | $5.46 |
| Operating cash flow | $209.5 million | $57.8 million |
| Investing cash flow | $(207.0) million | $(52.7) million |
| Financing cash flow | $(393.9) million | $402.1 million |
| Cash and cash equivalents at year-end | $202.3 million | $593.7 million |
| Current and non-current debt, including finance leases, net of deferred fees | $2,552.5 million | $2,910.3 million |
| IFRS 16 lease liabilities | $570.0 million | Not separately reported |
| Shareholders’ equity | $1,977.0 million | $1,839.0 million |
Operating margin was approximately 18.5% in 2019, versus 1.8% in 2018; net margin was approximately negative 6.9%, versus negative 32.5%. These percentages are calculated from reported revenue and income figures. Year-end current assets were $303.0 million against current liabilities of $486.2 million (current ratio approximately 0.62). The filing reports approximately $3.1 billion of interest-bearing debt and lease obligations at December 31, 2019, including IFRS 16 liabilities.
Average daily TCE revenue rose 31% to $16,682 from $12,782, while revenue days declined 8% to 41,852. Vessel operating costs per day increased 2% to $6,563. Dividends declared were $0.40 per common share for 2019.
Material changes versus 2018
- Revenue increased 20%, primarily reflecting improved product-tanker markets and higher TCE rates, partly offset by fewer revenue days.
- Operating income improved to $130.0 million. Net loss narrowed by $141.6 million, helped by improved operations and the absence of 2018’s $17.8 million loss on exchange of convertible notes.
- Operating cash flow rose by $151.7 million. Cash declined by $391.3 million over the year, principally alongside debt repayments and $204.0 million of drydock, scrubber and ballast-water-system expenditures.
- The September 2019 Trafigura transaction added leasehold interests in 19 product tankers for an aggregate stated value of $803 million. At closing, 15 vessels had been delivered; four were under construction. The company assumed lease obligations and issued shares as consideration.
- IFRS 16 adoption brought lease assets and liabilities onto the balance sheet and changed expense presentation. The company recorded $26.9 million of right-of-use asset depreciation and $11.4 million of lease-related interest expense in 2019.
Outlook, risks and unusual items
- Liquidity and maturities: At filing, $53.75 million of 6.75% senior notes were due in May 2020 and portions of the ABN AMRO facility were scheduled to mature in the third quarter of 2020. Management said it believed resources were adequate for at least 12 months, while warning that weaker conditions could require asset sales or other liquidity measures. The filing reports that the company was in compliance with its financial covenants at year-end.
- COVID-19 uncertainty: Management said the pandemic had reduced global oil and refined-product demand and increased market volatility. Higher tanker rates in March 2020 following OPEC production increases were noted, but the duration and financial impact were unknown and could be material in 2020.
- Market exposure: Spot-oriented pool employment exposes earnings to freight-rate cycles, seasonality, oil trade flows and tanker capacity. A $1,000-per-day change in spot rates across vessel classes was estimated to change 2019 operating income by approximately $41.7 million.
- Debt and interest-rate exposure: Much of the debt bears floating rates. Management estimated that a one-percentage-point increase in floating rates would raise annual interest expense by $26.6 million based on year-end 2019 floating-rate debt. Financing agreements include collateral-value, liquidity and other covenants, plus cross-default provisions.
- Capital commitments and impairment: The company spent $204.0 million on drydock, scrubber and ballast-water-treatment programs in 2019 and disclosed $68.6 million of firm purchase commitments at year-end, excluding installation costs. No vessel impairment was recorded, but sensitivity analysis indicated a potential $44.1 million impairment from a 1-point increase in the discount rate or $76.1 million from a 5% decline in forecast time-charter rates.
- Related parties: Commercial, technical and administrative management and the Scorpio Pools are related to the company. Pool revenue was $691.9 million in 2019; investors should consider the associated governance and counterparty exposures.
- Other unusual items: The company repaid $142.7 million of convertible notes due 2019 and $57.5 million of senior notes due 2019 during 2019. The audit identified vessel impairment assessment as a critical audit matter because of the significant estimation involved.
Most important facts for investors to verify
- Standalone Q4 2019 operating results and rates; the annual filing does not provide a clear standalone-quarter financial summary.
- How the May 2020 notes and 2020 bank maturities were refinanced or repaid, and subsequent liquidity and covenant headroom.
- The continuing effects of COVID-19 and oil-market changes on spot rates, utilization, cash generation and vessel values.
- Actual scrubber and ballast-water-system costs, completion schedule, fuel-cost savings and related financing drawdowns.
- Trafigura lease economics and delivery status of the remaining vessel, alongside the effect of lease liabilities on leverage and cash obligations.
- Impairment assumptions and vessel values, particularly given the disclosed sensitivity to charter rates and discount rates.
- The accounting-basis discrepancy between the cover-page checkbox and the IFRS basis described for the audited financial statements.