Ardmore: Coronavirus impacting tanker rates

Ardmore

Ardmore Shipping Corporation yesterday announced results for the three and twelve months ended December 31, 2019.

Highlights and Recent Activity

Reported net income of $1.9 million for the three months ended December 31, 2019, or $0.06 earnings per basic and diluted share, as compared to a net loss of $17.0 million, or $0.51 loss per basic and diluted share, for the three months ended December 31, 2018. Net income for the three months ended December 31, 2019 includes a write-off of $0.5 million of deferred finance fees related to refinancing. Net loss for the three months ended December 31, 2018 includes a write-off of $1.9 million of deferred finance fees related to sale and leaseback transactions and the held for sale loss on the Ardmore Seatrader of $6.4 million. The Company reported EBITDA (see Non-GAAP Measures section) of $17.8 million for the three months ended December 31, 2019, as compared to $1.5 million for the three months ended December 31, 2018.

Reported Adjusted earnings (see Non–GAAP Measures section) of $2.5 million for the three months ended December 31, 2019, or $0.08 Adjusted earnings per basic and diluted share, as compared to Adjusted loss of $8.8 million, or $0.26 Adjusted loss per basic and diluted share, for the three months ended December 31, 2018. The Company reported Adjusted EBITDA (see Non-GAAP Measures section) of $17.8 million for the three months ended December 31, 2019, as compared to $7.8 million for the three months ended December 31, 2018.

Reported net loss of $22.9 million for the twelve months ended December 31, 2019, or $0.69 loss per basic and diluted share, as compared to a net loss of $42.9 million, or $1.31 loss per basic and diluted share, for the twelve months ended December 31, 2018. Net loss for the twelve months ended December 31, 2019 includes a write-off of $0.5 million of deferred finance fees related to refinancing and the loss on the sales of the Ardmore Seamaster and Ardmore Seafarer of $13.2 million. Net loss for the twelve months ended December 31, 2018 includes a write-off of $2.3 million of deferred finance fees due to sale and leaseback transactions and the held for sale loss on the Ardmore Seatrader of $6.4 million. The Company reported EBITDA (see Non-GAAP Measures section) of $40.1 million for the twelve months ended December 31, 2019, as compared to $22.8 million for the twelve months ended December 31, 2018.

Reported Adjusted loss (see Non–GAAP Measures section) of $9.2 million for the twelve months ended December 31, 2019, or $0.28 Adjusted loss per basic and diluted share, as compared to Adjusted loss of $34.3 million, or $1.04 Adjusted loss per basic and diluted share, for the twelve months ended December 31, 2018. The Company reported Adjusted EBITDA (see Non-GAAP Measures section) of $53.3 million for the twelve months ended December 31, 2019, as compared to $29.2 million for the twelve months ended December 31, 2018.

MR tankers earned an average TCE rate of $17,725 per day for the three months ended December 31, 2019, and $15,382 per day for the twelve months ended December 31, 2019. Chemical tankers earned an average TCE rate of $14,284 per day for the three months ended December 31, 2019, and $12,420 per day for the twelve months ended December 31, 2019.

Completed a refinancing of 12 vessels on improved terms, extending maturities until the end of 2024 and resulting in a cash release, after prepayment of debt and fees, to the Company of $15.9 million.

Declared a cash dividend of $0.05 per common share for the quarter ended December 31, 2019, based on the Company’s policy of paying out 60% of earnings from continuing operations as defined in Ardmore’s dividend policy. The dividend will be paid on February 28, 2020 to all shareholders of record on February 21, 2020.

Anthony Gurnee, the Company’s Chief Executive Officer, commented:

“The product tanker market has performed very well over the past few months with rates rising to levels not seen since 2015, as a consequence of IMO 2020 demand and winter market conditions, and underpinned by strong product tanker supply-demand fundamentals. Ardmore has returned to profitability in the fourth quarter, reporting Adjusted earnings of $2.5 million; the strong charter market has continued to drive rates up into the first quarter of 2020, with our performance now close to $20,000/day for our MR tankers and $19,600/day for chemical tankers with 55% and 65% fixed, respectively.

The coronavirus outbreak, of course, is a very troubling development, and as of last week is beginning to be felt in product tanker rates particularly in the Far East, but the extent and duration of the impact is not yet known. While the decline in China oil demand is reported to be significant, there are offsetting factors to consider for product tankers, including price arbitrage and volatility increasing oil trading activity, and lower bunker prices resulting in reduced voyage costs. On a human level, the situation is very worrying, and we are not alone in hoping that the virus can be contained and further illness minimized; on a business level, once the scare period is over, we expect to see a rebound in product tanker rates to levels merited by the very strong underlying fundamentals.”

Summary of Recent and Fourth Quarter 2019 Events

Fleet

Fleet Operations and Employment

As at December 31, 2019, the Company had 25 vessels in operation, including 19 Eco MR tankers ranging from 45,000 deadweight tonnes (Dwt) to 49,999 Dwt (15 Eco-Design and four Eco-Mod) and six Eco-Design IMO 2 product / chemical tankers ranging from 25,000 Dwt to 37,800 Dwt.

MR Tankers (45,000 Dwt – 49,999 Dwt)

At the end of the fourth quarter of 2019, the Company had 19 Eco MR tankers trading in the spot market. The Eco MR tankers earned an average TCE rate of $17,725 per day in the fourth quarter of 2019. The Company’s 15 Eco-Design MR tankers earned an average TCE rate of $18,149 per day in the fourth quarter of 2019, and the Company’s four Eco-Mod MR tankers earned an average TCE rate of $16,133 per day.

In the first quarter of 2020, the Company expects to have all revenue days for its MR Eco-Design and MR Eco-Mod tankers employed in the spot market. As of February 10, 2020, the Company had fixed approximately 55% of its total MR spot revenue days for the first quarter of 2020 at an average TCE rate of approximately $19,800 per day.

Product / Chemical Tankers (IMO 2: 25,000 Dwt – 37,800 Dwt)

At the end of the fourth quarter of 2019, the Company had six Eco-Design IMO 2 product / chemical tankers in operation, all of which were trading in the spot market. During the fourth quarter of 2019, the Company’s six Eco-Design product / chemical vessels earned an average TCE rate of $14,284 per day.

In the first quarter of 2020, the Company expects to have all revenue days for its Eco-Design IMO 2 product / chemical tankers employed in the spot market. As of February 10, 2020, the Company had fixed approximately 65% of its Eco-Design IMO 2 product / chemical tankers spot revenue days for the first quarter of 2020 at an average TCE rate of approximately $19,600 per day.

Financing

On December 16, 2019, the Company completed two previously announced new credit facilities for $201.5 million in the aggregate. The Company subsequently borrowed available amounts under the facilities and used the proceeds to refinance 12 vessels. The first facility includes a $100 million term loan and a $40 million revolving component. The Company used the proceeds from this facility to refinance eight ships. The second facility is a $61.5 million term loan and the Company used the proceeds to refinance four ships. These refinancings released to the Company a total of $15.9 million of cash after prepayment of debt and fees, extended debt maturity dates to the end of 2024, lowered the Company’s cost of debt, and increased the Company’s financial flexibility. The covenants and other conditions of the facilities are consistent with those of the Company’s other existing debt facilities.

Drydocking

The Company had 15 drydock days, including repositioning days, in the fourth quarter of 2019, in respect of one drydocking. Ardmore expects it will have 70 drydock days, including repositioning days, in the first quarter of 2020, in respect of three drydockings.

Dividend

On February 11, 2020, Ardmore’s Board of Directors declared a cash dividend of $0.05 per share for the quarter ended December 31, 2019, based on the Company’s policy of paying out dividends equal to 60% of earnings from continuing operations. For purposes of the Company’s policy of paying out dividends, earnings from continuing operations is defined as earnings per share reported under U.S. GAAP, as adjusted for unrealized and realized gains and losses and extraordinary items. The calculation of earnings from continuing operations for the three months ended December 31, 2019 includes an adjustment of earnings per share reported under U.S. GAAP for the write-off of $0.5 million, or $0.02 per share, of deferred finance fees related to refinancing. The dividend is payable on February 28, 2020 to all shareholders of record on February 21, 2020.

Board of Directors

Director Dr. Peter Swift, in line with the Company’s director retirement policy, is retiring from the board of directors and as a member of the board’s compensation committee, at the Company’s 2020 annual general meeting, which is expected to be held in May 2020. The Company’s retirement policy provides that directors will retire upon reaching 75 years of age. Dr. Swift’s career spans more than 50 years in the maritime industry, and he is presently serving on numerous international non-profit and charitable directorships, and he has served as a director of the Company since its initial public offering in July 2013. The Company has benefited greatly from Dr. Swift’s skills and expertise over the past six years, and the board of directors expresses its sincere thanks to him for his service to the Company and wishes him well in his retirement.

Results for the Three Months Ended December 31, 2019 and 2018

The Company reported net income of $1.9 million for the three months ended December 31, 2019, or $0.06 earnings per basic and diluted share, as compared to a net loss of $17.0 million, or $0.51 loss per basic and diluted share, for the three months ended December 31, 2018. Net income for the three months ended December 31, 2019 includes a write-off of $0.5 million of deferred finance fees related to refinancing. Net loss for the three months ended December 31, 2018 includes a write-off of $1.9 million of deferred finance fees related to sale and leaseback transactions and the held for sale loss on the Ardmore Seatrader of $6.4 million. The Company reported EBITDA (see Non-GAAP Measures section) of $17.8 million for the three months ended December 31, 2019, as compared to $1.5 million for the three months ended December 31, 2018.

The Company reported Adjusted earnings (see Non–GAAP Measures section) of $2.5 million for the three months ended December 31, 2019, or $0.08 Adjusted earnings per basic and diluted share, as compared to an Adjusted loss of $8.8 million, or $0.26 Adjusted loss per basic and diluted share, for the three months ended December 31, 2018. The Company reported Adjusted EBITDA (see Non-GAAP Measures section) of $17.8 million for the three months ended December 31, 2019, as compared to $7.8 million for the three months ended December 31, 2018.

Results for the Twelve Months Ended December 31, 2019 and 2018

The Company reported a net loss of $22.9 million for the twelve months ended December 31, 2019, or $0.69 loss per basic and diluted share, as compared to a net loss of $42.9 million, or $1.31 loss per basic and diluted share, for the twelve months ended December 31, 2018. Net loss for the twelve months ended December 31, 2019 includes a write-off of $0.5 million of deferred finance fees related to refinancing and the loss on the sales of the Ardmore Seamaster and Ardmore Seafarer of $13.2 million. Net loss for the twelve months ended December 31, 2018 includes a write-off of $2.3 million of deferred finance fees due to sale and leaseback transactions and the held for sale loss on the Ardmore Seatrader of $6.4 million. The Company reported EBITDA (see Non-GAAP Measures section) of $40.1 million for the twelve months ended December 31, 2019, as compared to $22.8 million for the twelve months ended December 31, 2018.

The Company reported Adjusted loss (see Non–GAAP Measures section) of $9.2 million for the twelve months ended December 31, 2019, or $0.28 Adjusted loss per basic and diluted share, as compared to Adjusted loss of $34.3 million, or $1.04 Adjusted loss per basic and diluted share, for the twelve months ended December 31, 2018. The Company reported Adjusted EBITDA (see Non-GAAP Measures section) of $53.3 million for the twelve months ended December 31, 2019, as compared to $29.2 million for the twelve months ended December 31, 2018.

Management’s Discussion and Analysis of Financial Results for the Three Months Ended December 31, 2019 and 2018

Revenue. Revenue for the three months ended December 31, 2019 was $60.7 million, an increase of $2.3 million from $58.4 million for the three months ended December 31, 2018.

The Company’s average number of owned vessels decreased to 25.0 for the three months ended December 31, 2019, from 28.0 for the three months ended December 31, 2018, resulting in revenue days of 2,280 for the three months ended December 31, 2019, as compared to 2,533 for the three months ended December 31, 2018. The Company had 25 and 28 vessels employed directly in the spot market as at December 31, 2019 and 2018, respectively. The decrease in revenue days resulted in a decrease in revenue of $5.9 million, while changes in spot rates resulted in an increase in revenue of $8.2 million for the three months ended December 31, 2019.

Voyage Expenses. Voyage expenses were $22.6 million for the three months ended December 31, 2019, a decrease of $7.5 million from $30.1 million for the three months ended December 31, 2018. Voyage expenses decreased primarily due to the decrease in the average number of owned vessels to 25.0 for the three months ended December 31, 2019, compared to 28.0 for the three months ended December 31, 2018.

TCE Rate. The average TCE rate for the Company’s fleet was $16,899 per day for the three months ended December 31, 2019, an increase of $4,810 per day from $12,089 per day for the three months ended December 31, 2018. The increase in average TCE rate was the result of higher spot rates and lower voyage expenses for the three months ended December 31, 2019. TCE rates represent net revenues (or revenue less voyage expenses) divided by revenue days.

Vessel Operating Expenses. Vessel operating expenses were $16.0 million for the three months ended December 31, 2019, a decrease of $1.4 million from $17.4 million for the three months ended December 31, 2018. This decrease is due to a decrease in the average number of vessels in operation for the three months ended December 31, 2019, and the timing of vessel operating expenses between quarters. Vessel operating expenses, by their nature, are prone to fluctuations between periods. Average fleet operating expenses per day, including technical management fees, were $6,707 per vessel for the three months ended December 31, 2019, as compared to $6,544 per vessel for the three months ended December 31, 2018.

Depreciation. Depreciation expense for the three months ended December 31, 2019 was $8.0 million, a decrease of $0.8 million from $8.8 million for the three months ended December 31, 2018. This decrease is primarily due to a decrease in the average number of owned vessels for the three months ended December 31, 2019.

Amortization of Deferred Drydock Expenditures. Amortization of deferred drydock expenditures for the three months ended December 31, 2019 was $1.4 million, an increase of $0.4 million from $1.0 million for the three months ended December 31, 2018. The increase is primarily due to an increased number of drydockings as the Company’s fleet ages. The deferred costs of drydockings for a given vessel are amortized on a straight-line basis to the next scheduled drydocking of the vessel.

General and Administrative Expenses: Corporate. Corporate-related general and administrative expenses for the three months ended December 31, 2019 were $3.6 million, an increase of $1.1 million from $2.5 million for the three months ended December 31, 2018. The increase is primarily due to the issuance of stock appreciation rights and restricted stock units in the first, second and fourth quarters of 2019.

General and Administrative Expenses: Commercial and Chartering. Commercial and chartering expenses are the expenses attributable to the Company’s chartering and commercial operations departments in connection with the Company’s spot trading activities. Commercial and chartering expenses for the three months ended December 31, 2019 were $0.7 million, an increase of $0.1 million from $0.6 million for the three months ended December 31, 2018.

Interest Expense and Finance Costs. Interest expense and finance costs include loan interest, finance lease interest, and amortization of deferred finance fees. Interest expense and finance costs for the three months ended December 31, 2019 were $6.7 million, a decrease of $2.0 million from $8.7 million for the three months ended December 31, 2018. Cash interest expense decreased by $0.6 million to $5.7 million for the three months ended December 31, 2019, from $6.3 million for the three months ended December 31, 2018. The decrease in interest expense and finance costs is primarily due to a decreased average LIBOR during the three months ended December 31, 2019, compared to the three months ended December 31, 2018. Amortization of deferred finance fees for the three months ended December 31, 2019 was $1.0 million, a decrease of $1.4 million from $2.4 million for the three months ended December 31, 2018. Included in the $1.0 million amount for the three months ended December 31, 2019, is a write-off of $0.5 million of deferred finance fees in relation to refinancings during such period. Included in the $2.4 million amount for the three months ended December 31, 2018, is a write-off of $1.9 million of deferred finance fees in relation to sale and leaseback transactions during such period.

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