DIS recorded its second consecutive profitable quarter in Q3’14 and its best spot results since Q2’13

The Board of Directors of d’Amico International Shipping S.A., a leading international marine transportation company operating in the product tanker market, examined and approved Q3 and 9M 2014 Results.

MANAGEMENT COMMENTARY
Marco Fiori, Chief Executive Officer of d’Amico International Shipping commented: ‘I am happy to announce DIS second consecutive quarter in the black. After a difficult start of the year, we have been seeing a gradual improvement of Product tanker rates up to Q3’14, leading to a very positive outlook for the last quarter of the current year. At the same time and apart from short -term volatility in the freight market rates, I am still very confident about the perspectives of the product tanker industry in the medium and long term. I refer in particular to factors such as the US ever growing role as a net exporter of products and the increased refining capacity in the Middle and Far East which both will further expand the tonne/mile demand. In this scenario, I firmly believe DIS has been implementing a successful commercial strategy. While on the one hand we have increased our time charter coverage during 2014, securing already a good percentage of DIS future revenues at profitable rates (over 50% in excess of US$ 14,700 for FY 2014), on the other hand we have also been active in expanding our fleet, allowing us to be ready to take the maximum advantage of what we think it will be a rewarding market. In fact, on the side of our significant 16 ships investment plan in the last generation of MR “Eco vessels”, we have been seeking growth also in our time charter-in tonnage. Between August and November 2014, we have taken 11 new time charter-in vessels for 1 year contracts, plus extending options, all at historically low rates (around US$ 13,000/day). These additions led today’s DIS total fleet to almost 49 operated vessels, placing the Company amongst the top players of the industry. We intend to employ these TC-In vessels mainly on the spot market and I expect all these transactions will start
delivering positive results starting already from the next quarter.’

Giovanni Barberis, Chief Financial Officer of d’Amico International Shipping and of d’Amico Group commented:
‘DIS confirmed its solid financial structure throughout the first three quarters of the current year. Our significant US$ 490.7 million investment plan has been already fully financed with primary financial institutions and as of today we have already funded the entire equity portion due on the newbuilding plan. We are particularly satisfied also about the 11 TC-In vessels we have taken delivery between Q3 and Q4’14. In fact, these transactions will reduce the average cost of DIS TC-In Fleet and our overall breakeven’.

FINANCIAL REVIEW
SUMMARY OF THE RESULTS IN THE THIRD QUARTER AND NINE MONTHS OF 2014
Product tanker markets gradually improved throughout the third quarter from Q2 2014 levels, as US refined product exports have increased up to 3.5 million b/d during Q3 2014, which equates to an increase of 400,000 b/d from Q2 levels. The Arbitrage to Europe remained tight and the exports were shipped shorter distances maintaining a healthy supply of tonnage, curtailing any improvement in rates and products tanker demand growth in the Atlantic basin. Asian markets remained relatively stable and kept average returns up. The main support came from a very steady demand for products into Australasia. China returned to a net exporter of Products as domestic demand slowed. Japanese gasoline exports shot up to record highs as bad weather and high retail prices curbed domestic demand.

South Korea’s product exports also increased in July and August, as domestic demand remained near year‐earlier levels.

DIS registered its second consecutive quarter in the black, with a Net Profit of US$ 0.3 million in Q3 2014, reducing the accumulated Net Loss of the 9 months of 2014 down to US$ 5.2 million (including US$ 6.5 million ‘result from disposal of vessels’ generated in the second quarter of the year). This compares to a Net Loss of US$ 3.7 million in Q3 2013 and a Net Profit of US$ 14.0 million in the 9 months of 2013 (including US$ 13.9 million ‘result from disposal of vessels’).

2014 has been affected so far by a weaker than expected product tanker market experienced especially in the first half of the year. In addition to the uncertain macroeconomic scenario, the product tanker spot market was negatively impacted by two seasonal effects: (i) the harsh winter in the US which increased domestic consumption of oil products, thus penalizing export and seaborne transportation, and (ii) the closure of several refineries in the US Gulf for maintenance, which took longer than expected and led to a further fall in US exports.

In this still challenging market scenario, DIS was able to generate a Daily Average Spot Return of US$13,867, which is the best spot performance in 5 consecutive quarters, almost US$ 1,200 per day higher than the first half of the current year and more than US$ 1,000 per day better than Q4 2013. The Average Spot Rate of the 9 months of 2014 was US$ 13,133 compared to Clarkson’s ‘2014 YTD Clean MR Average Earnings’ of US$ 9,793 at the end of September.

At the same time, DIS was able to mitigate the short-term weakness of the market, thanks to a high YTD ‘coverage ratio’ of 53% at an average daily rate of US$ 14,724.

DIS shares the positive view of several shipping analysts on the good medium term perspective for the industry. DIS firmly believes that the positive market fundamentals remain unchanged and are mainly driven by the US becoming a net exporter of oil-products, together with the shift of the world refining capacity towards the Middle/Far-East, increasing tonne-mile demand.

In light of this confirmed positive outlook on the product tanker market, DIS constantly seeks further growth by expanding also its TC-In fleet every time the opportunity arises. In Q3 2014, DIS agreed to take in Time Charter for a 1 year contract with extending options, 9 more vessels, of which 6 were already delivered in the course of the third quarter.

DIS had ‘capital expenditures’ of US$ 163.2 million in the first 9 months of 2014, mainly in relation to its newbuilding plan. As of today DIS has ordered a total of 16 ‘Eco design’ product tankers1 (10 MR and 6 Handysize vessels), of which 61 vessels were already delivered in 9 months 2014 and 1 further ship is expected to be delivered in the fourth quarter the current year. This corresponds to an overall investment plan of approximately US$ 490.7 million and reaffirms the Company’s strategy to modernize its fleet through newbuildings with eco-innovative design. Such strategy is also in line with the clear objective of the 2012 share capital increase of maintaining DIS strong financial structure while implementing a significant growth plan. Half of DIS newbuilding orderbook has already been fixed on long-term Time Charter Contracts with two Oil-majors and a leading refining company, all at profitable levels.

At the same time, DIS continued the fleet renewal program also through the sale of its oldest vessels. During the current year, DIS finalized the sale of the Handysize product tanker vessel M/T Cielo di Parigi (built in 2001 by Daedong Shipbuilding South Korea), generating a net ‘Result on disposal’ of US$ 6.5 million.

DIS 9 months 2014 Net Results benefitted also from a good treasury performance and the gain arising from the US Dollar conversion of the Japanese Yen denominated debt.

According to new International Financial Reporting Standards (IFRS 10, 11, 12), effective January 1 2014, DIS investments in two jointly controlled entities (DM Shipping Limited and Eco Tankers Limited) are treated as Joint Venture and the equity method of accounting will be applied, instead of the previous proportional consolidation method. Based on this, 2013 figures have been restated in order to have a fair comparison with the current year.

OPERATING PERFORMANCE
Time charter equivalent earnings were US$ 52.3 million in Q3 2014 vs. US$ 46.2 million in Q3 2013 while the amount for the first 9 months of 2014 was US$ 147.4 million and slightly higher than US$145.5 million registered in the same period last year. The increase in TCE Earnings compared to 2013, was mainly due to the higher average number of vessels operated in 2014.

As shown in the following table, Daily TCE Earnings were around 3.7% lower in the 9 months 2014, compared to the same period last year. In particular, the Daily Average Spot Return for DIS was US$13,133 in 9 months 2014 compared to US$ 13,984 achieved in 9 months 2013, on the back of the weaker than expected product tanker market experienced especially in the first quarter of the current year.

Looking at the quarterly evolution of the spot results, DIS performed at a daily average of US$ 13,867 in Q3 2014, which appears to be the best spot performance in the last 5 consecutive quarters, with an improvement of almost US$ 1,200 per day compared to the average of the first half of 2014.

At the same time and according to its strategy, DIS maintained a high level of ‘coverage’ (fixed contracts) throughout the first 9 months of 2014, securing an average of 53% of its revenue at an Average Daily Fixed Rate of US$ 14,724. Other than securing revenue and supporting the operating cash flow generation, these contracts pursue the objective of strengthening DIS historical relationships with the main oil majors, which is one the pillars of its commercial strategy.

EBITDA amounted to US$ 6.0 million in Q3 2014 and US$ 20.2 million in the first 9 months of 2014, compared to US$ 5.1 million in Q3 2013 and US$ 37.5 million in 9 months 2013. Such variance is mainly due to the different capital gains realized in the two years (9 months 2014: US$ 6.5 million vs. 9 months 2013: US$ 13.9 million) and to the weaker product tanker market experienced especially in the first months of 2014, as disclosed above.

EBIT for the third quarter of the year was negative for US$ 3.4 million, compared to the operating loss of US$ 2.2 million booked in the same quarter of 2013. 9 months 2014 EBIT was negative for US$ 5.9 million vs. US$ 15.1 million positive result registered in the same period last year.

The Net Profit for Q3 2014 was US$ 0.3 million compared to a Net loss of US$ 3.7 million in Q3 2013, while 9 months 2014 Net Result was negative for US$ 5.2 million compared to the Net Profit of US$ 14.0 million posted in the same period of 2013.

CASH FLOW AND NET INDEBTEDNESS
DIS net cash flow for the period ended on September 30, 2014 was negative for US$ 6.3 million due to US$ 163.2 million gross capital expenditures, partially compensated by the proceeds from the sale of 1 vessel and by US$ 137.1 million positive net financing cash flow.
Cash flow from operating activities The variance compared to 9 months 2013 is directly related to the decrease in the EBITDA performance, caused by the weak product tanker market experienced especially in the first months of 2014.

Consolidated Net debt as at September 30, 2014 amounted to US$ 303.7 million vs. US$ 187.6 million at the end of 2013.

Source: d’Amico International Shipping