Scorpio Tankers Inc. — FY2018 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing. Financial statements are audited and prepared under IFRS. Unless noted otherwise, amounts are U.S. dollars.
Business context and reporting period
Scorpio Tankers transports refined petroleum products worldwide. At year-end, it owned or finance-leased 109 product tankers and chartered in additional vessels. Most owned vessels operated in Scorpio-managed pools, which principally serve the spot market. The filing’s share and per-share figures reflect the one-for-ten reverse split effective January 18, 2019.
Financial and operating performance
| Metric | FY2018 | FY2017 |
|---|---|---|
| Vessel revenue | $585.0 million | $512.7 million |
| Operating income / (loss) | $10.5 million | $(44.9) million |
| Net loss | $(190.1) million | $(158.2) million |
| Basic and diluted loss per share | $(5.46) | $(7.35) |
| Operating cash flow | $57.8 million | $41.8 million |
| Cash and cash equivalents at year-end | $593.7 million | $186.5 million |
| Debt, net of deferred financing fees | $2,910.3 million | $2,767.2 million |
| Shareholders’ equity | $1,839.0 million | $1,685.3 million |
Revenue increased 14%, mainly as the expanded fleet contributed more revenue days, including vessels acquired from Navig8 Product Tankers Inc. (NPTI). Total revenue days rose 18% to 45,366, while average daily TCE fell 3% to $12,782. Operating income recovered to positive territory; its approximate margin was 1.8%, versus an operating loss margin of about 8.8% in 2017. Net loss nevertheless widened 20%, with sharply higher financing expense and a $17.8 million loss on exchanging convertible notes among the main factors. Net loss margin was approximately 32.5% of revenue.
Vessel operating costs rose 21% to $280.5 million, chiefly reflecting more operating days as the fleet expanded; cost per day was broadly stable at $6,463. Depreciation increased 25% to $176.7 million. Financial expenses rose 61% to $186.6 million, including $145.9 million of interest payable. Average daily pool TCE declined 3% to $12,557; rates weakened in the MR, LR1 and LR2 segments, while Handymax improved.
Operating cash flow increased to $57.8 million. Investing activities used $52.7 million, including $26.7 million for drydock, scrubber and ballast-water system payments. Financing activities provided $402.1 million, substantially reflecting the October share offering and financing transactions. Cash increased by $407.2 million during the year. At year-end, current assets were $687.3 million and current liabilities $447.2 million; cash was about 1.33 times current liabilities. These measures do not capture restricted cash or the timing and terms of obligations.
Material changes versus the prior comparable period
- Vessel revenue rose $72.3 million, while TCE per day fell from $13,146 to $12,782, illustrating that fleet growth—not stronger average rates—drove the revenue increase.
- Fleet expansion following the 2017 NPTI merger and newbuilding deliveries increased average owned or finance-leased vessels to 108.9 from 88.0.
- Financing expense increased $70.4 million as average debt rose, LIBOR increased, and the company wrote off financing fees following refinancings and note exchanges.
- Cash increased substantially, supported in part by $319.6 million of net proceeds from an October 2018 equity offering. The offering included purchases by related parties.
- Debt and lease financing shifted materially: the company raised new sale-and-leaseback financing and repaid secured facilities. The filing reports $2.91 billion of debt net of deferred financing fees at year-end, alongside $593.7 million of cash.
Outlook, management commentary, risks and unusual items
Management said tanker-market conditions were difficult through much of 2018, with freight rates at their lowest levels since 2009, but reported improvement late in 2018 and into 2019. It believed cash, operating cash flows and borrowing availability would cover liquidity needs for at least 12 months from the filing’s approval date, while warning that weaker market conditions could require vessel sales, refinancing or additional capital. The filing gives no specific earnings or rate guidance.
- Debt maturities after year-end: $57.5 million of 8.25% senior notes due 2019 were redeemed in full on March 18, 2019. At December 31, 2018, $145.0 million face value of 2.375% convertible notes due July 2019 remained after exchanges; the filing also reports a $2.3 million face-value repurchase in March 2019. $203.5 million face value of 3.0% convertible notes mature in May 2022. The 6.75% senior notes due 2020 had $53.75 million outstanding at year-end.
- Floating-rate exposure: A one-percentage-point increase in floating rates was estimated to increase annual interest expense by about $23.1 million based on year-end 2018 debt. LIBOR transition and refinancing risks are also discussed.
- Environmental investment: Contracts covered scrubber retrofits for 77 vessels at $116.1 million, excluding installation costs, and purchase of 55 ballast-water systems for $36.2 million. Firm future payments for both programs totaled $131.9 million at year-end, excluding installation costs and options. Benefits from scrubbers depend partly on fuel-price spreads, availability and regulation.
- Asset values and covenants: Broker-based market values were below carrying values for many vessels, but management recognized no impairment after value-in-use testing. A 1% higher discount rate was estimated to produce a $0.3 million impairment; a 5% reduction in forecast charter rates, $0.4 million. Secured debt includes collateral and financial covenants, cross-default provisions and restrictions on dividends.
- Market and operating risks: Earnings are exposed to spot-rate and vessel-value volatility, tanker supply and demand, fuel prices, off-hire, counterparty performance, environmental rules, and geopolitical or trade disruptions. The company also noted related-party dependence and potential conflicts involving its commercial, technical and administrative managers.
- Accounting and unusual items: IFRS 15 adoption changed voyage revenue and cost recognition; management reported only a small 2018 income-statement effect. IFRS 16 adoption from 2019 was expected to recognize a $48.7 million right-of-use asset and $50.9 million lease liability for certain bareboat commitments. No vessel impairment was recognized in 2018.
- Distributions and capital: The company paid $0.40 per share in 2018 and declared a $0.10 quarterly dividend for March 2019. Dividend decisions remain discretionary and are subject to cash availability, law and financing covenants.
Important facts for investors to verify
- How the $145.0 million convertible-note maturity due July 2019 was funded or otherwise addressed after the filing date, and the precise status of subsequent repurchases or refinancing.
- Current covenant headroom, collateral values and liquidity after the 2019 note redemption, scheduled debt service and scrubber and ballast-water spending.
- Whether the reported improvement in tanker rates persists and translates into higher realized TCE, operating cash flow and profitability across the fleet.
- Actual scrubber installation costs, financing, compliance timetable and realized fuel savings; also the cost and timing of ballast-water system installation.
- Related-party pool revenues, management fees and working-capital balances, plus governance oversight of transactions with Scorpio affiliates.
- The effects of the reverse split and equity issuance on share count, dilution and per-share comparisons; reported historical share data is split-adjusted.