Scorpio Tankers Inc. reported its results for the three and six months ended June 30, 2024. The Company also announced that its board of directors (the “Board of Directors”) has declared a quarterly cash dividend on its common shares of $0.40 per share.

Results for the three months ended June 30, 2024 and 2023

For the three months ended June 30, 2024, the Company had net income of $227.3 million, or $4.54 basic and $4.34 diluted earnings per share.

For the three months ended June 30, 2024, the Company had adjusted net income (see Non-IFRS Measures section below) of $188.4 million, or $3.77 basic and $3.60 diluted earnings per share, which excludes from net income a $43.3 million, or $0.87 per basic and $0.83 per diluted share, gain on sales of vessels and a $4.4 million, or $0.09 per basic and $0.08 per diluted share, write-off or acceleration of the amortization of deferred financing fees related to unscheduled debt and lease payments and debt extinguishment costs on certain lease financing obligations.

For the three months ended June 30, 2023, the Company had net income of $132.4 million, or $2.50 basic and $2.40 diluted earnings per share.

For the three months ended June 30, 2023, the Company had adjusted net income (see Non-IFRS Measures section below) of $133.3 million, or $2.51 basic and $2.41 diluted earnings per share, which excludes from net income a $0.9 million, or $0.02 per basic and diluted share, write-off or acceleration of the amortization of deferred financing fees on certain lease financing obligations and related debt extinguishment costs.

Results for the six months ended June 30, 2024 and 2023

For the six months ended June 30, 2024, the Company had net income of $441.5 million, or $8.84 basic and $8.45 diluted earnings per share.

For the six months ended June 30, 2024, the Company had adjusted net income (see Non-IFRS Measures section below) of $394.9 million, or $7.90 basic and $7.56 diluted earnings per share, which excludes from net income a $54.7 million, or $1.09 per basic and $1.05 per diluted share, gain on sales of vessels and a $8.1 million, or $0.16 per basic and $0.15 per diluted share, write-off or acceleration of the amortization of deferred financing fees related to unscheduled debt and lease payments and debt extinguishment costs on certain lease financing obligations.

For the six months ended June 30, 2023, the Company had net income of $325.6 million, or $5.93 basic and $5.69 diluted earnings per share.

For the six months ended June 30, 2023, the Company had adjusted net income (see Non-IFRS Measures section below) of $328.9 million, or $5.99 basic and $5.75 diluted earnings per share, which excludes from net income a $3.3 million, or $0.06 per basic and diluted share, write-off or acceleration of the amortization of deferred financing fees on certain lease financing obligations and related debt extinguishment costs.

Declaration of Dividend

On July 29, 2024, the Company’s Board of Directors declared a quarterly cash dividend of $0.40 per common share, with a payment date of September 13, 2024 to all shareholders of record as of August 15, 2024 (the record date). As of July 29, 2024, there were 53,175,099 common shares of the Company outstanding.

Emanuele Lauro, Chairman and Chief Executive Officer commented, “The Company’s balance sheet and cash flow generation potential continue to improve. In the second quarter, we repaid $399 million of debt and reduced our daily cash break evens to $12,500. Additionally, we’ve agreed to convert our 2023 $225.0 million Credit Facility to a revolving credit facility and committed to prepaying our $64 million credit facility with BNP Paribas and Sinosure. These initiatives could potentially reduce our daily cash break-even rates by over $1,000.”

Summary of Second Quarter 2024 and Other Recent Significant Events

• Below is a summary of the average daily Time Charter Equivalent (“TCE”) revenue (see Non-IFRS Measures section below) and duration of contracted voyages and time charters for the Company’s vessels (both in the pools and outside of the pools) thus far in the third quarter of 2024 as of the date hereof (See footnotes to “Other operating data” table below for the definition of daily TCE revenue):
• Below is a summary of the average daily TCE revenue earned by the Company’s vessels during the second quarter of 2024:
• On July 29, 2024, the Company’s Board of Directors replenished and increased the 2023 Securities Repurchase Program to purchase up to an aggregate of $400 million of the Company’s securities which, in addition to its common shares also consist of its Senior Unsecured Notes Due 2025 (NYSE: SBBA).
• In July 2024, the Company reached an agreement with the lenders on its 2023 $225.0 Million Credit Facility to convert the $174.2 million outstanding balance remaining on this facility from a term loan to a revolving credit facility. This amendment is expected to give the Company the flexibility to make unscheduled repayments that can be re-drawn in the future subject to a quarterly amortization profile. This amendment is subject to the execution of definitive documentation and is expected to close in the third quarter of 2024.
• In July 2024, the Company submitted notice to repay the outstanding balance on its BNPP Sinosure Credit Facility. The outstanding balance on this facility is $64.2 million and the facility currently bears interest at SOFR plus a blended margin (between the Commercial and Sinosure facilities) of 2.91% per annum. This prepayment is expected to occur in September 2024.
• In June 2024, the Company made an unscheduled prepayment on its 2023 $1.0 Billion Credit Facility of $223.6 million which was applied against the eight quarterly principal payments of the term loan falling due between the third quarter of 2024 and second quarter of 2026.
• During June and July 2024, the Company repurchased an aggregate of 1,397,966 of its common shares in the open market at an average price of $78.16 per share.
• During the second quarter of 2024, the Company entered into agreements to sell five MR product tankers (four 2012 built and one 2013 built). The 2012 built vessels (three of which are scrubber fitted), STI Garnet, STI Onyx, STI Ruby, and STI Topaz, were contracted to be sold for $142.5 million in aggregate to three separate buyers. The 2013 built vessel, STI Beryl (which is not scrubber fitted), was contracted to be sold for $36.6 million. The Company will make no debt repayments associated with these sales as these vessels are unencumbered. The sale of STI Garnet closed in July 2024 and the remaining vessel sales are expected to close within the third quarter of 2024.
• In July 2024, the Company closed the previously announced sale of its 2015 built MR product tanker, STI Manhattan, for $40.8 million. There was no debt repayment as a result of this sale as this vessel was replaced by one of its unencumbered vessels, STI Notting Hill, as collateral on the 2023 $1.0 Billion Credit Facility.
• In April and May 2024, the Company closed the previously announced sales of its 2013 built MR product tankers, STI Larvotto and STI Le Rocher, respectively, for $36.15 million each. There was no debt repayment as a result of these sales as these vessels are unencumbered.
• From April 1, 2024 through the date of this press release, the Company made $341.8 million in previously announced unscheduled debt and lease repayments.

Securities Repurchase Program

From April 1, 2024 through July 29, 2024, the Company repurchased 1,397,966 of its common shares in the open market at an average price of $78.16 per share under the 2023 Securities Repurchase Program.

On July 29, 2024, the Company’s Board of Directors replenished and increased the 2023 Securities Repurchase Program to purchase up to an aggregate of $400 million of the Company’s securities which, in addition to its common shares also consist of its Senior Unsecured Notes Due 2025 (NYSE: SBBA). This program resets the program that was previously replenished on November 9, 2023.

There is $400 million available under the 2023 Securities Repurchase Program as of July 29, 2024.

Diluted Weighted Number of Shares

The computation of earnings per share is determined by taking into consideration the potentially dilutive shares arising from the Company’s equity incentive plan. These potentially dilutive shares are excluded from the computation of earnings per share to the extent they are anti-dilutive.

For the three and six months ended June 30, 2024, the Company’s basic weighted average number of shares outstanding were 50,024,615 and 49,964,944, respectively. For the three and six months ended June 30, 2024, the Company’s diluted weighted average number of shares outstanding were 52,354,175 and 52,237,114, respectively, which included the potentially dilutive impact of restricted shares issued under the Company’s equity incentive plan.

Current Liquidity

As of July 29, 2024, the Company had $279.5 million in unrestricted cash and cash equivalents and $288.2 million of availability under the revolving portion of the 2023 $1.0 Billion Credit Facility. Within the next two weeks, the Company is expected to receive approximately $90 million from the Scorpio pools with respect to the monthly cash distribution for July 2024.

Debt

The following table sets forth the unscheduled debt and lease repayments that the Company completed during the second quarter of 2024.

Set forth below is a summary of the principal balances of the Company’s outstanding indebtedness as of the dates presented:

Explanation of Variances on the Second Quarter of 2024 Financial Results Compared to the Second Quarter of 2023

For the three months ended June 30, 2024, the Company recorded net income of $227.3 million compared to net income of $132.4 million for the three months ended June 30, 2023. The following were the significant changes between the two periods:

• 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 voyages, time charters, and pool charters), and it provides useful information to investors and management. The following table sets forth TCE revenue for the three months ended June 30, 2024, and 2023:
• TCE revenue for the three months ended June 30, 2024 increased by $45.9 million to $373.5 million, from $327.6 million for the three months ended June 30, 2023. Overall, the average daily TCE revenue increased to $38,813 per vessel during the three months ended June 30, 2024, from $32,154 per vessel during the three months ended June 30, 2023. The average number of vessels was 108.7 during the three months ended June 30, 2024 as compared to 113.0 during the three months ended June 30, 2023.
• TCE revenue for the three months ended June 30, 2024 remained robust as the cyclical strength in the product tanker market, combined with the ton mile expansion triggered by recent geopolitical events, resulted in an increase in daily spot TCE rates across all of the Company’s vessel classes. Daily spot TCE rates for the Company’s LR2 vessels benefited from strong global distillate demand and increasing ton miles as vessels continue to be re-routed around the Cape of Good Hope due to conditions in the Red Sea. Daily spot TCE rates on the Company’s Handymax and MR vessel classes saw a modest spill-over effect from the conditions in the Red Sea, with their performance primarily driven by seasonally high refinery utilization and export volumes, reflecting a year-over-year increase in the demand for refined petroleum products.
• TCE revenue for the three months ended June 30, 2023 was robust despite a decline in daily TCE rates when compared to the same period in the prior year. The second quarter of 2022 reflected several key events and market conditions, which provided multiple catalysts simultaneously and resulted in a counter-seasonal spike in daily TCE rates. The second quarter of 2023 (particularly the latter half) reflected a more normalized seasonal pattern whereby extended refinery maintenance, lower refining margins and a reduction in arbitrage opportunities all led to reduced refinery throughput and decreased volumes from major export regions. Nevertheless, on a seasonally adjusted basis, demand for the Company’s vessels remained resilient, driven by low inventory levels, a modest newbuilding orderbook, and growing underlying consumption for refined petroleum products.
• Vessel operating costs for the three months ended June 30, 2024, increased by $0.4 million to $79.3 million, from $78.9 million for the three months ended June 30, 2023. Overall, the average daily vessel operating costs increased to $8,017 per vessel for the three months ended June 30, 2024 from $7,669 per vessel for the three months ended June 30, 2023. The increase is concentrated within the LR2 segment which has been driven by higher repairs and maintenance costs, coupled with disruptions in trading patterns that have impacted the costs of sourcing and transporting spare parts.
• Depreciation expense – owned or sale leaseback vessels for the three months ended June 30, 2024, increased by $4.5 million to $46.7 million, from $42.2 million for the three months ended June 30, 2023. This increase was attributable to the exercise of purchase options on 21 lease financed vessels, which were previously accounted for under IFRS 16 – Leases throughout 2023 as reflected by the $8.5 million decrease in Depreciation expense – right of use assets for the three months ended June 30, 2024. The carrying values of these repurchased vessels were reclassified to Vessels and drydock from Right of use assets for vessels on the Company’s balance sheet and depreciation expense is recorded as a part of owned vessels as of the dates of each purchase. The combined decrease in depreciation expense of $4.0 million was due to the ten vessels that were either classified as held for sale or sold since June 30, 2023.
• General and administrative expenses for the three months ended June 30, 2024, increased by $9.9 million to $37.1 million, from $27.2 million for the three months ended June 30, 2023 due to an increase in non-cash restricted stock amortization resulting primarily from grants made in the second quarter of 2024. The stock price on the dates of the grants is used as the fair value for the accounting of the awards under IFRS. The awards granted to employees vest ratably in years three, four and five following the initial grant.
• Financial expenses for the three months ended June 30, 2024 decreased by $10.4 million to $33.3 million, from $43.7 million for the three months ended June 30, 2023. This decrease was primarily attributable to the overall reduction in interest expense on debt and sale leaseback arrangements due to the Company’s focus on deleveraging. The Company’s average indebtedness decreased to $1.3 billion during the three months ended June 30, 2024, as compared to $2.0 billion during the three months ended June 30, 2023. Additionally:
• The Company recorded $4.4 million of debt extinguishment related costs during the three months ended June 30, 2024, as compared to $0.9 million during the three months ended June 30, 2023; and
• The amortization of deferred financing fees and accretion increased to $2.7 million during the three months ended June 30, 2024, as compared to $1.7 million during the three months ended June 30, 2023, primarily due to the entrance into new credit facilities during 2023.

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 the amount of dividends, if any, depends on the Company’s earnings, financial condition, cash requirements and availability, fleet renewal and expansion, restrictions in loan agreements, the provisions of Marshall Islands law affecting the payment of dividends and other factors.

On July 29, 2024, the Company’s Board of Directors declared a quarterly cash dividend of $0.40 per common share, with a payment date of September 13, 2024 to all shareholders of record as of August 15, 2024 (the record date). As of July 29, 2024, there were 53,175,099 common shares of the Company outstanding.

Conflict in Ukraine and Middle East

The ongoing military conflict in Ukraine has had a significant direct and indirect impact on the trade of refined petroleum products. This conflict has resulted in the United States, United Kingdom, and the European Union, among other countries, implementing sanctions and executive orders against citizens, entities, and activities connected to Russia. Some of these sanctions and executive orders target the Russian oil sector, including a prohibition on the import of oil and refined petroleum products from Russia to the United States, United Kingdom or the European Union, and a prohibition on a variety of specified services related to the maritime transport of Russian Federation origin crude oil and petroleum products, including trading/commodities brokering, financing, shipping, insurance (including reinsurance and protection and indemnity), flagging, and customs brokering, which took effect in December 2022 and February 2023 respectively. An exception exists to permit such services when the price of the seaborne Russian oil does not exceed the relevant price cap; but implementation of this price exception relies on a recordkeeping and attestation process that requires each party in the supply chain of seaborne Russian oil to demonstrate or confirm that oil has been purchased at or below the price cap. The Company cannot foresee what other sanctions or executive orders may arise that affect the trade of petroleum products.

Furthermore, the conflict and ensuing international response has disrupted the supply of Russian oil to the global market, and as a result, the price of oil and petroleum products has experienced significant volatility. The Company cannot predict what effect the higher price of oil and petroleum products will have on demand, and while thus far the impact has been favorable, it is possible that the current conflict in Ukraine could adversely affect the Company’s financial condition, results of operations, and future performance.

Additionally, since December 2023, there have been multiple drone and missile attacks on commercial vessels transiting international waters in the southern Red Sea by groups believed to be affiliated with the Yemen-based Houthi rebel group purportedly in response to the ongoing military conflict between Israel and Hamas. Recent attacks on U.S. military installations in Jordan and other locations in the middle east, the continuing military actions by the U.S. government and certain of its allies against the Houthi rebel group, which the U.S. government believes to be supported by the government of Iran, and the ongoing military conflict between Israel and Hamas continue to threaten the political stability of the region and may lead to further military conflicts, including continued hostile actions towards commercial shipping in the region. We cannot predict the severity or length of the current conditions impacting international shipping in this region and the continuing disruption of the trade routes in the region of the Red Sea. While thus far the impact of these events has been favorable to the demand for our vessels, it is also possible that it could have a material and adverse impact on our results of operations in the future.

Source: Scorpio Tankers Inc.