American Shipping : Third quarter 2021

AMERICAN SHIPPING COMPANY ASA

Third Quarter 2021 Report

Third Quarter 2021 Report

Lysaker, 19 November 2021, American Shipping Company ASA ("AMSC" or the "Company") announces results for the third quarter ending 30 September 2021.

HIGHLIGHTS

• Stable Q3 financial performance with bareboat revenue of USD 22.3 million, normalized EBITDA of USD 22.3 million and adjusted net profit of USD 5.0 million
• Declared Q3 dividend of USD 0.12 per share, an increase of 20% compared to Q2 and supported by the Company's free cash flow
• Backlog of secured bareboat revenue of USD 170 million with average weighted tenor of 1.9 years

AMSC CEO, Pål Lothe Magnussen comments, "We are pleased to report a 20% increase in quarterly dividends supported by our stable financial performance. The Jones Act tanker market is continuing to improve and recently several vessels have been reactivated from warm layup while older vessels have been scrapped, resulting in an improving supply and demand balance. Short term market dynamics are encouraging and long term fundamentals remain attractive."

MAIN EVENTS DURING AND SUBSEQUENT TO THE THIRD QUARTER

• Operating income: Operating income was stable at USD 12.9 million in each of Q2 2021 and Q2 2020.
• Normalized EBITDA: Normalized EBITDA of USD 22.3 million for Q3 2021 consists of base bareboat revenue of USD 22.3 million, plus Deferred Principal Obligation ("DPO") of USD 0.8 million, less SG&A of USD 0.8 million. The comparative figure for Q3 2020 for normalized EBITDA was USD 22.4 million (consisting of base bareboat revenue of USD 22.2 million, plus DPO of USD 0.9 million, less SG&A of USD 0.7 million). See Note 14 for more detailed information.
• Adjusted net profit: Adjusted net profit of USD 5.0 million for Q3 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 Q3 2020 was USD 4.6 million. See Note 14 for further details.
• Dividends: On 19 August 2021, the Board authorized a quarterly dividend payment of USD 0.10 per share, the equivalent of NOK 0.8872 per share, to the shareholders on record as of 27 August, which was paid on 3 September 2021. The dividend was classified as a return of paid in capital.
  On 18 November 2021, the Board authorized an increased dividend payment of USD 0.12 per share to the shareholders on record as of 26 November 2021. The shares in AMSC will be traded ex. dividend from and including 25 November 2021, and the dividend will be paid on or about 6 December 2021. 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 will be considered in conjunction with the Company's financial position, debt covenants, capital requirements, and market conditions going forward.

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THIRD QUARTER FINANCIAL REVIEW

Condensed Income Statement

		unaudited
	Q3	Q3	Year to Date
Amounts in USD million (except share and per share information)	2021	2020	2021	2020
Operating revenues	22.3	22.2	65.9	66.0
Operating profit before depreciation ‐ EBITDA	21.5	21.5	62.5	63.8
Normalized EBITDA	22.3	22.4	65.0	66.4
Operating profit ‐ EBIT	12.9	12.9	37.1	38.3
Net financial expense	(7.8)	(19.0)	(22.3)	(41.4)
Unrealized gain/(loss) on interest swaps	(0.2)	(0.5)	(0.3)	(0.8)
Net foreign exchange gain/(loss)	(0.4)	‐	(0.4)	‐
Profit/(loss) before income tax	4.5	(6.6)	14.1	(3.9)
Income tax expense	(0.1)	(0.2)	(0.1)	(0.3)
Non‐cash income tax (expense) / benefit	(0.9)	2.3	(3.0)	2.4
Net profit/(loss) for the period *	3.5	(4.5)	11.0	(1.8)
Adjusted net profit	5.0	4.6	14.5	11.0
Average number of common shares	60,616,505	60,616,505	60,616,505	60,616,505
Earnings/(loss) per share (USD)	0.06	(0.07)	0.18	(0.03)

* Applicable to common stockholders of the parent company

Third quarter results

AMSC's operating revenues for Q3 2021 and Q3 2020 were USD 22.3 million and USD 22.2 million, respectively. EBITDA was USD 21.5 million each in Q3 2021 and Q3 2020. EBIT was USD 12.9 million in both Q2 2021 and Q2 2020.

Net financial expense for Q3 2021 was USD 7.8 million (USD 19.0 million in Q3 2020). The reduced expense is due to the refinancing of AMSC's debt during 2020, which included one‐off expenses of USD 10.9 million during Q3 2020.

In Q3 2021, AMSC had an unrealized loss of USD 0.2 million on the mark‐to‐market valuation of its interest rate swap contracts related to its vessel financing (USD 0.5 million in Q3 2020).

AMSC had a net profit before tax for Q3 2021 of USD 4.5 million (USD 6.6 million loss in Q3 2020). Income tax expense for Q3 2021 was USD 0.1 million (USD 0.2 million in Q3 2020). Non‐cash deferred income tax expense was USD 0.9 million in Q3 2021 (USD 2.3 million benefit in Q3 2020). Net profit for Q3 2021 was USD 3.5 million compared to USD 5.4 million loss in Q3 2020.

Year to date results

AMSC's operating revenues for the first nine months of 2021 and 2020 were USD 65.9 million and USD

66.0 million, respectively. EBITDA was USD 62.5 million year to date in 2021 and USD 63.8 million in the same period of 2020. EBIT was USD 37.1 million in the nine months ending 30 September 2021 (USD 38.3 million in the same period of 2020).

Net financial expense for the first nine months of 2021 was USD 22.3 million (USD 41.4 million in the first nine months of 2020). The reduced expense is due to the refinancing of AMSC's debt during 2020, as well

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as a USD 0.2 million gain on the bond tap issued at 101 of par recognized during Q2 2021. During Q1 2020, AMSC made a one‐time payment of USD 1.9 million to terminate the interest rate swaps in connection with the refinancing.

In 2021, AMSC had an unrealized loss of USD 0.3 million on the mark‐to‐market valuation of its interest rate swap contracts related to its vessel financing (USD 0.8 million loss in 2020).

AMSC had a net profit before tax for the nine months ending 30 September 2021 of USD 14.1 million (USD

3.9 million loss for the nine months ending 30 September 2020). Income tax expense for year to date 2021 was USD 0.1 million (USD 0.3 million in 2020). Non‐cash deferred income tax expense was USD 3.0 million in 2021 (USD 2.4 million benefit in 2020). Net profit for the first nine months of 2021 was USD 11.0 million compared to USD 1.8 million loss in the first nine months of 2020.

As of 31 December 2020, AMSC has approximately USD 517.6 million of federal net operating losses in carryforward in its U.S. subsidiaries and approximately USD 75.8 million of net operating losses in Norway. See Note 6 for more detailed information.

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 and corresponding tax losses, the net of which is recognized as a deferred tax liability on the balance sheet.

Condensed Statement of Financial Position

	unaudited
	30‐Sep		30‐Sep	31‐Dec
Amounts in USD million	2021		2020	2020 *
Vessels	624.1		658.1	649.5
Deferred tax assets	12.8		‐	14.8
Interest‐bearing long term receivables (DPO)	21.9		23.8	23.3
Trade and other receivables	0.9		0.1	0.3
Cash held for specified uses	1.7		0.5	0.9
Cash and cash equivalents	54.7		29.9	34.9
Total assets	716.1		712.4	723.7
Total equity	154.0		147.5	161.3
Deferred tax liabilities	10.7		8.9	9.2
Interest‐bearing long term debt	518.0		523.1	516.8
Derivative financial liabilities	1.5		1.6	1.2
Interest‐bearing short term debt	26.8		26.8	26.8
Deferred revenues and other payables	5.1		4.6	8.3
Total equity and liabilities	716.1		712.4	723.7

* Derived from audited financial statements

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

At year‐end 2020, AMSC recognized its Norwegian net deferred tax assets which had not previously been recognized.

During 2021, Overseas Shipholding Group, Inc. ("OSG") made repayments on the DPO of USD 2.5 million, of which USD 1.4 million is principal repayment. See note 12 to the condensed consolidated financial statements for additional information on the DPO.

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Interest bearing debt as of 30 September 2021 was USD 544.8 million, net of USD 7.4 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 332.2 million and the unsecured bond of USD 220.0 million. AMSC was in compliance with all of its debt covenants as of 30 September 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 seasonality for the upcoming winter season and the opening of societies in the USA and beyond. Four MR tankers have recently been reactivated from warm layup, leaving only four tankers in warm layup. The expectation is that the number of vessels in layup will be further reduced into next year on the back of a global economic recovery and tightening energy markets.

As previously predicted, the supply side of the market is now retracting with two older tankers being confirmed to go for scrap. Due to limited US yard capacity and rising newbuilding costs, such vessels are unlikely to be replaced in the market for many years to come.

During the third quarter, demand for clean products in the USA has almost fully recovered to pre‐COVID levels. U.S. refinery utilization is still lagging somewhat, partly due to higher than normal imports driven by low international product tanker rates and continued COVID‐19 impact on global energy and fuel markets making excess fuel available at low cost. US refinery utilization is expected to improve as the maintenance season is coming to an end and global economic recovery continues.

Crude oil cargoes from the U.S. Gulf to the U.S. North East remain subdued as the price spread between WTI and Brent/Bonny has not been sufficiently wide to support cargo volumes experienced prior to the pandemic. We remain optimistic that this trade will return to historical levels as U.S. shale production increases on the back of higher energy prices.

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 five product tankers secured until December 2022, four product tankers secured until December 2023 and one shuttle tanker secured 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.

AMSC's activities also expose the Company to a variety of other financial risks, including but not limited to, currency, interest rate, refinancing, and liquidity risk.

For further details of AMSC's risks, refer to the 2020 Annual Report.

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