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D’Amico Says Tanker Market Fundamentals Point to A Strong Market Recovery, With the Additional Boost of the IMO 2020 Effect

The Board of Directors of d’Amico International Shipping S.A. (Borsa Italiana: DIS) (the Company, d’Amico International Shipping or the Group), a leading international marine transportation company operating in the product tanker market, today examined and approved the first quarter 2019 financial results.

MANAGEMENT COMMENTARY
Paolo d’Amico, Chairman and Chief Executive Officer of d’Amico International Shipping S.A. commented: ‘In the first quarter of the year, DIS posted a Net result of US$ (5.5) million vs. US$ (3.6) million achieved in the first quarter of 2018. However, excluding some non-recurring effects and the application of IFRS 16, DIS’ results would have been US$ 2.4 million better than in the same period of last year. DIS realized a daily average spot rate of US$ 13,583 in Q1 2019, which is US$ 858/day higher than the level achieved in Q1 2018 and US$ 2,785/day better than the full-year average of 2018. This result reflects the improving fundamentals of the product tanker market. During the first quarter, we also benefited from 46.4% time-charter coverage at an average daily rate of US$ 14,604. We have noticed a growing interest from oil-majors and trading houses for time-charter contracts at increasing levels and this demonstrates leading charterers’ strong belief in the market’s recovery prospects.

Our total blended daily TCE (spot and time-charter) was US$ 14,057 in Q1 2019 vs. US$ 13,446 of Q1 2018 and US$ 12,184 for the full-year 2018. We maintain a very positive outlook on the product tanker market, a view supported almost unanimously by industry analysts and key players. Demand for seaborne trade of refined oil products is expected to be strong in 2019, driven by a substantial increase in refinery capacity and by the new IMO regulations, which limit the sulphur content in bunker fuels to 0.5% from January 2020, further stimulating demand for our vessels, already from the second half of 2019. In addition, the forecasts are positive also on the supply side, with limited annual net fleet growth (below 2%) in the segments we operate in (MRs and LR1s), over the next two years.

Following the execution of our important feet renewal program, which entailed investments of around US$755 million and which is almost finalised, as well as the weak markets of the last few years, to fully benefit from the upcoming market recovery, we believed it was important to strengthen our financial structure and liquidity position. With this objective, in Q1 2019 we launched a share capital increase, which was fully subscribed; we are pleased with this result and confident that the investors that participated in the offering will be rewarded’.

Image: d’Amico International Shipping S.A.

Carlos Balestra di Mottola, Chief Financial Officer of d’Amico International Shipping S.A. commented:
‘In Q1 2019, we continued to improve our liquidity position through sale and sale-and-lease-back deals. In detail: i) we finalized the sale and lease back of one of our LR1 vessels, generating net cash proceeds of US$ 10.2 million in January, relative to financing the vessel though the previously committed loan facility; ii) we agreed the sale of one MR vessel owned by DM Shipping (a JV in which DIS has an indirect interest of 51%), generating approximately US$ 12.3 million in net cash for the JV company at the beginning of April; iii) we finalized the sale and lease back of one of our MR ships, generating an additional US$ 9.6 million in net cash as at the end of April.

In addition, in the month of April DIS successfully concluded its equity capital increase, amounting to around US$49.8 million. The rights issue was initially 97.3% subscribed, with the remaining shares sold through a private placement a few days later, resulting in a fully subscribed offering and allowing the Company to strengthen substantially its equity and liquidity position. DIS is now almost at the end of its long-term investment plan with the last vessel expected to be delivered in Q3 2019, entailing a residual CAPEX of approximately US$ 31.6 million, of which only US$ 11.1 million should be financed with own funds and the rest with committed bank debt.

This, coupled with lower debt repayment starting from 2020, should contribute to a significant improvement in our free cash-flow generation, as well as to a rapid deleveraging of our balance sheet. The various activities we have undertaken, aimed at achieving a more robust capital structure, will position our Company favourably to fully benefit from the next positive cycle and create value for our shareholders.’

FINANCIAL
REVIEW SUMMARY OF THE RESULTS IN THE FIRST QUARTER 2019
Product tanker market conditions remained healthy in January 2019 following strong improvements in late 2018. According to Clarksons, average clean MR spot earnings fell 10% m-o-m to average around the mid teens in January, but were still up significantly from the full year 2018 average. The opening of some arbitrage trades in late 2018 to January 2019 (particularly West to East naphtha flows) has provided support, along with firm growth in US product exports. The product tanker market eased back in February. Average clean MR spot earnings fell, with Chinese New year contributing to a lull in earnings in the East in the first part of the month. However, overall earnings in the first two months of the year were up by significantly compared to the 2018 average. In March, product demand was supported by strong flows into West Africa. Planned and unplanned refinery outage in the US Atlantic coast reduced domestic production, limiting exports, but contributing to an increase in imports of gasoline. In March, the Asian and Middle Eastern markets also experienced some improvement, with demand for Indian coastal business opening up to non-Indian flag ships and healthy demand into East Africa. The one-year time-charter rate is always the best indicator of spot market expectations.

The improved sentiment in Q4 raised the rate at the end of the year to around US$ 13,500 per day for conventional
(non-Eco) MRs and to around US$15,000 per day for Eco MRs. In Q1 2019 this trend continued with the one-year rates rising further and settling at the end of the period at around US$ 14,000 per day and US$ 15,500 per day for conventional and Eco MRs, respectively. DIS’

Net Result was negative for US$ (5.5) million in Q1 2019 vs. a Net Loss of US$ (3.6) million posted in the same quarter of 2018. Excluding results on disposal and non-recurring financial items from Q1 2019 and Q1 2018, as well as the effects of IFRS 16 from Q1 2019, DIS’ Net result would have been US$ (4.4) million in the first quarter of the current year compared with US$ (6.8) million recorded in the same period of 2018. Therefore, excluding the effects of the application of IFRS 16 and such non-recurring effects, DIS’ Q1 2019 Net result would have been US$ 2.4 million higher than in the same quarter of last year.

In fact, in terms of spot performance, DIS achieved a daily spot rate of US$ 13,583 in Q1 2019, 7% better than US$ 12,726 achieved in Q1 2018 and 26% higher than the overall spot average of last year. In addition, the Q1 2019 spot result was affected by an approximately US$ 0.7 million negative adjustment on prior year voyages, which corresponds to about US$ 330/day on DIS’ daily average for its spot vessels. At the same time, 46.4% of DIS’ total employment days in Q1 2019, were covered through ‘time-charter’ contracts at an average daily rate of US$ 14,604 (Q1 2018: 31.7% coverage at an average daily rate of US$ 15,001).

Such good levels of time charter coverage is one of the pillars of DIS’ commercial strategy and allows it to mitigate the effects of the spot market volatility, securing a certain level of earnings and cash generation even throughout the negative cycles. DIS’ total daily average rate (which includes both spot and time-charter contracts) was US$ 14,057 in the first quarter of 2019 compared with US$ 13,446 achieved in the same quarter of the previous year. In Q1 2019, DIS ‘gross capital expenditures’ amounted to US$ 30.6 million, in relation to the delivery of 1 newbuilding LR1 vessel.

Since 2012, DIS has ordered a total of 22 ‘Eco-design’ product tankers1 (10 MR, 6 Handy-size and 6 LR1 vessels), of which 21 vessels have been already delivered as at the end of Q1 2019. This corresponds to an overall investment plan of approximately US$ 755.0 million and is in line with the Group’s strategy to modernize its fleet through new-buildings with an eco-design.
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Source: d’Amico International Shipping

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