American Shipping : Fourth quarter 2021 results

AMERICAN SHIPPING COMPANY ASA

Fourth Quarter 2021 Report

Fourth Quarter 2021 Report

Lysaker, 25 February 2022, American Shipping Company ASA ("AMSC" or the "Company") announces results for the fourth quarter ending 31 December 2021.

HIGHLIGHTS

• Stable Q4 financial performance with bareboat revenue of USD 22.2 million, normalized EBITDA of USD 21.9 million and adjusted net profit of USD 4.3 million
• In December 2021, OSG declared its options to extend the lease term for two vessels by one year and provided notice of redelivery of three vessels in December 2022
• Backlog of secured bareboat revenue of USD 159.5 million with average weighted tenor of 1.8 years
• Declared Q4 dividend of USD 0.12 per share, supported by the Company's free cash flow

AMSC CEO, Pål Lothe Magnussen comments, "We are excited about the opportunity to redeploy three of our vessels in the Jones Act tanker market over the next several months. During Q4 and into Q1 we have seen a number of new charters both in the clean and crude trades, in addition to the emerging renewable diesel trade. We expect to see continued chartering activity during the year and the outlook for 2023 remains encouraging."

MAIN EVENTS DURING AND SUBSEQUENT TO THE FOURTH QUARTER

• Operating income: Operating income was stable at USD 12.1 million in Q4 2021 and USD 12.7 million in Q4 2020.
• Normalized EBITDA: Normalized EBITDA of USD 21.9 million for Q4 2021 consists of base bareboat revenue of USD 22.2 million, plus Deferred Principal Obligation ("DPO") of USD 0.8 million, less SG&A of USD 1.1 million. The comparative figure for Q4 2020 for normalized EBITDA was USD 22.2 million (consisting of base bareboat revenue of USD 22.2 million, plus DPO of USD 0.9 million, less SG&A of USD 0.9 million). See Note 14 for more detailed information.
• Adjusted net profit: Adjusted net profit of USD 4.3 million for Q4 2021 consists of net profit after tax, adjusted for non‐recurring items, currency fluctuations, mark‐to‐market of derivatives and changes to non‐cash deferred tax expenses. The comparative figure for Q 2020 was USD 5.0 million. See Note 14 for further details.
• Update on OSG bareboat charter terms: On 10th December 2021, the Company announced that OSG declared its options to extend the bareboat charter agreements for two vessels currently under charter from AMSC to OSG by one year, moving the new bareboat charter expiry date to December 2023. In addition, OSG provided notice not to extend the bareboat agreements for three vessels. These vessels will remain contracted with associated cash flows from OSG until the present charters expire in December 2022. Upon charter expirations and vessel redeliveries, the deferred payment obligations related to these three contracts of approximately USD 12 million will fall due and become immediately payable by OSG to AMSC.
• Dividends: On 18 November 2021, the Board authorized a quarterly dividend payment of USD 0.12 per share, the equivalent of NOK 1.0706 per share, to the shareholders on record as of 26 November, which was paid on 6 December 2021. The dividend was classified as a return of paid in capital.
  On 24 February 2022, the Board authorized a dividend payment of USD 0.12 per share to the shareholders on record as of 4 March 2022. The shares in AMSC will be traded ex. dividend from and including 3 March

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2022, and the dividend will be paid on or about 14 March 2022. The dividend is classified as a return of paid in capital.

• Dividend guidance: The Company's policy with respect to dividends is driven by the Board's commitment to return value to its shareholders while also prudently managing its balance sheet and maintaining financial flexibility to pursue growth and diversification opportunities. Dividend payments depend on, among other things, performance of existing contracts including outlook for profit share and ability to secure new contracts for redelivered vessels and will be considered in conjunction with the Company's financial position, debt covenants, capital requirements, and market conditions going forward.

FOURTH QUARTER FINANCIAL REVIEW

Condensed Income Statement

		unaudited
	Q4	Q4	Full Year
Amounts in USD million (except share and per share information)	2021	2020	2021	2020
Operating revenues	22.2	22.2	88.2	88.2
Operating profit before depreciation ‐ EBITDA	21.1	21.3	83.6	85.2
Normalized EBITDA	21.9	22.2	86.9	88.6
Operating profit ‐ EBIT	12.1	12.7	49.2	51.0
Net financial expense	(7.7)	(7.6)	(30.0)	(49.0)
Unrealized gain/(loss) on interest swaps	5.1	0.4	4.8	(0.4)
Net foreign exchange gain/(loss)	(0.1)	‐	(0.5)	‐
Profit/(loss) before income tax	9.4	5.5	23.5	1.6
Income tax expense	(0.1)	(0.1)	(0.2)	(0.4)
Non‐cash income tax (expense) / benefit	(6.9)	14.5	(9.9)	16.9
Net profit/(loss) for the period *	2.4	19.9	13.4	18.1
Adjusted net profit	4.3	5.0	18.8	15.9
Average number of common shares	60,616,505	60,616,505	60,616,505	60,616,505
Earnings/(loss) per share (USD)	0.04	0.33	0.22	0.30

* Applicable to common stockholders of the parent company

Fourth quarter results

AMSC's operating revenues for Q4 2021 and Q4 2020 were USD 22.2 million each. EBITDA was USD 21.1 million in Q4 2021 and USD 21.3 million in Q4 2020. EBIT was USD 12.1 million in Q4 2021 (USD 12.7 million in Q4 2020).

Net financial expense for Q4 2021 was USD 7.7 million (USD 7.6 million in Q4 2020). In Q4 2021, AMSC had an unrealized gain of USD 5.1 million on the mark‐to‐market valuation of its interest rate swap contracts related to its vessel financing (USD 0.4 million in Q4 2020).

AMSC had a net profit before tax for Q4 2021 of USD 9.4 million compared to USD 5.5 million in Q4 2020. Current income tax expense was USD 0.1 million each in Q4 2021 and Q4 2020. Deferred income tax expense was USD 6.9 million in Q4 2021 (USD 14.5 million benefit in Q4 2020). During the fourth quarter 2020, the Company recognized its net deferred tax assets in Norway that had not been previously recognized. Net profit for Q4 2021 was USD 2.4 million compared to USD 19.9 million in Q4 2020.

As of 31 December 2021, AMSC has approximately USD 467.8 million of federal net operating losses in carryforward in its U.S. subsidiaries and approximately USD 62.9 million of net operating losses in Norway. See Note 6 for more detailed information.

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The non‐cash deferred income tax benefit in the U.S. was the result of accelerated tax depreciation, which has created differences between accumulated depreciation for book and tax purposes, corresponding tax losses and unused interest expense deductions, the net of which is recognized as a deferred tax liability on the balance sheet.

Full year results

AMSC's operating revenues for the full year 2021 and 2020 were USD 88.2 million each. EBITDA was USD

1. million in 2021 and USD 85.2 million in 2020. EBIT was USD 49.2 million in the full year 2021 (USD

1. million in 2020).

Net financial expense for 2021 was USD 30.0 million (USD 49.0 million in 2020). The reduced expense is partially due to the refinancing of AMSC's debt during 2020, which included one‐time payments of USD

9.2 million for the call premium on the refinanced bonds, USD 1.9 million paid to terminate the interest rate swaps in connection with the bank debt refinancing, and a non‐cash write‐off of unamortized loan fees of USD 3.3 million

In 2021, AMSC had an unrealized gain of USD 4.8 million on the mark‐to‐market valuation of its interest rate swap contracts related to its vessel financing (USD 0.4 million loss in 2020).

AMSC had a net profit before tax for the full year 2021 of USD 23.5 million (USD 1.6 million loss for 2020). Current income tax expense for 2021 was USD 0.2 million (USD 0.4 million in 2020). Deferred income tax expense was USD 9.9 million in 2021 (USD 16.9 million benefit in 2020). Net profit for 2021 was USD 13.4 million compared to USD 18.1 million in 2020.

Condensed Statement of Financial Position

	unaudited
	31‐Dec	31‐Dec
Amounts in USD million	2021	2020 *
Vessels	615.1	649.5
Deferred tax assets	11.3	14.8
Interest‐bearing long term receivables (DPO)	7.3	23.3
Derivative financial assets	3.6	‐
Trade and other receivables	14.9	0.3
Cash held for specified uses	5.4	5.5
Cash and cash equivalents	55.9	30.3
Total assets	713.5	723.7
Total equity	149.2	161.3
Deferred tax liabilities	16.2	9.2
Interest‐bearing long term debt	511.8	516.9
Derivative financial liabilities	‐	1.2
Interest‐bearing short term debt	26.8	26.8
Deferred revenues and other payables	9.5	8.3
Total equity and liabilities	713.5	723.7

* Derived from audited financial statements

The decrease in Vessels from 31 December 2020 reflects depreciation of the Company's 10 vessels for 2021.

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During 2021, Overseas Shipholding Group, Inc. ("OSG") made repayments on the DPO of USD 3.3 million, of which USD 1.9 million is principal repayment. As of 31 December 2021, USD 13.3 million of the DPO balance was reclassified to short term trade and other receivables. See note 12 to the condensed consolidated financial statements for additional information on the DPO.

Cash held for specified uses includes minimum balances held in earnings accounts for each of the Company's respective bank loans.

Interest bearing debt as of 31 December 2021 was USD 538.6 million, net of USD 6.9 million in capitalized fees versus USD 543.6 million as of 31 December 2020. This debt relates to the bank financing for the Company's 10 vessels of USD 325.5 million and the unsecured bond of USD 220.0 million. AMSC was in compliance with all of its debt covenants as of 31 December 2021.

Outlook

The second half of 2021 has seen several time charter fixtures at firming rates and of durations ranging from 3 months to 5 years. Fixtures are concluded on the back of U.S. domestic demand for clean petroleum products returning to historical levels, increased demand for crude transportation and increasing demand for transportation of renewable diesel. Only one MR tanker remains in warm layup, down from eight last summer.

During the fourth quarter, demand for clean products in the USA has recovered to pre‐COVID levels. U.S. refinery utilization is still lagging somewhat, but is expected to improve as the global economic recovery continues.

Demand for crude oil transportation from the U.S. Gulf to the U.S. Northeast increased on the back of a widening spread between WTI priced in Houston and Brent/Bonny Light. We are optimistic that this trade will continue to grow as U.S. shale production increases driven by higher energy prices.

As previously predicted, the supply side of the market has retracted with two older tankers sold for scrap towards the end of 2021. Due to limited U.S. yard capacity and rising newbuilding costs, such vessels are unlikely to be replaced in the market for many years to come.

The long‐term fundamentals in the Jones Act tanker market remain positive. MR tankers are a reliable means of transportation and a key part of the infrastructure transporting fuel and crude oil across the USA. AMSC's 10 tankers are a key part of the Jones Act fleet and represent about 30% of the modern tankers. AMSC continues to enjoy downside protection with "come hell or high water" bareboat contracts, with three product tankers on contract until December 2022, six product tankers on contract until December 2023 and one shuttle tanker on contract until June 2025.

Risks

The risks facing AMSC principally relate to the operational and financial performance of OSG, re‐chartering risk as well as overall market risk. Following the December 2021 announcement, three vessels have bareboat charters expiring in December 2022, six vessels have bareboat charters expiring in December 2023, and one vessel is contracted through June 2025. Three vessels will be redelivered to AMSC upon expiration in December 2022. There is no guarantee that AMSC will be successful in finding alternative employment for the three vessels, and there could be additional costs and capital expenditures required to maintain the vessels.

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