Ardmore Shipping posts net loss of USD 13.7 million in 1H2018

Ardmore

Ardmore Shipping Corporation announced results for the three and six months ended June 30, 2018.

Highlights and Recent Activity

Reported a net loss of $8.6 million for the three months ended June 30, 2018, or $0.26 basic and diluted loss per share, as compared to a net loss of $1.9 million, or $0.06 basic and diluted loss per share, for the three months ended June 30, 2017. The Company reported EBITDA (see Non-GAAP Measures section below) of $7.6 million for the three months ended June 30, 2018, as compared to $12.9 million for the three months ended June 30, 2017.

Reported a net loss of $13.7 million for the six months ended June 30, 2018, or $0.42 basic and diluted loss per share, as compared to a net loss of $4.0 million, or $0.12 basic and diluted loss per share, for the six months ended June 30, 2017. The Company reported EBITDA (see Non-GAAP Measures section below) of $17.5 million for the six months ended June 30, 2018, as compared to $24.6 million for the six months ended June 30, 2017.

Completed refinancing of the Ardmore Endurance and Ardmore Enterprise, two 49,000 Dwt Eco-Design product tankers, under a sale and leaseback arrangement providing net proceeds, after prepayment of existing debt, of $10.3 million.

Spot and pool MR tankers earned an average of $11,510 per day for the three months ended June 30, 2018, and $12,086 per day for the six months ended June 30, 2018. Chemical tankers earned an average of $12,527 per day for the three months ended June 30, 2018, and $12,816 per day for the six months ended June 30, 2018.

We are maintaining our dividend policy of paying 60% of earnings from continuing operations. Consistent with this policy, the Company is not declaring a dividend for the second quarter of 2018.
Anthony Gurnee, the Company’s Chief Executive Officer, commented:

“In the second quarter we remained focused on operational efficiency under challenging charter market conditions. While the fundamentals of the product tanker market remain sound, a number of unrelated short-term factors came together to put downward pressure on cargo volumes and charter rates, particularly in the Atlantic Basin. Cargo flows from the US Gulf to Brazil and Mexico declined in the latter half of the second quarter as a result of domestic issues and consequent increases in local refinery throughput. Simultaneously, a significant build-up of West African product inventories during the first quarter further reduced cargo volumes and freight rates from Europe and the US during the second quarter.

Despite the impact of these short-term factors, the outlook for our sector remains positive. Driven by continued strong underlying oil demand growth of 1.4mbd for 2018 and 2019, ongoing refinery expansion, and low refined product inventory levels, we expect normal trading conditions to return to the product tanker market. Furthermore, we expect the changing regulations for bunker fuels which take effect from January 1, 2020 to result in a significant increase in seaborne volumes of refined products from mid-2019, providing a further boost to tonne mile demand. On the supply side, ongoing scrapping and the record-low orderbook for MRs should result in net fleet growth of less than 1% in 2018 and 2019. This pairing of strong tonne mile demand growth and very limited supply growth creates the conditions for a rebound in charter rates.

Meanwhile, we are focused on maintaining financial strength to ensure that the Company can take full advantage of opportunities that may arise. During the quarter, we completed a refinancing of two Eco-Design MRs under a sale and leaseback arrangement with a top- tier Asian financier on attractive terms comparable to our existing debt facilities. With our best-in-class cost structure, strong balance sheet, and modern, high-quality fleet, Ardmore is well positioned to deliver significant value to shareholders in a cyclical market recovery.

Summary of Recent and Second Quarter 2018 Events

Fleet

Fleet Operations and Employment

The Company has 28 vessels currently in operation, comprising 22 Eco MR tankers ranging from 45,000 Dwt to 49,999 Dwt (15 Eco-Design and seven 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 second quarter of 2018, the Company had 22 Eco MR tankers trading in the spot market or in pools. The Eco MR tankers earned an average of $11,510 per day in the second quarter of 2018. Overall for the quarter, our 15 Eco-Design MR tankers earned $10,600 per day, and our seven Eco-Mod MR tankers earned $12,579 per day.

In the third quarter of 2018, the Company expects to have all revenue days for its MR Eco-Design and MR Eco-Mod tankers employed in the spot market or in pools. As of July 31, 2018, the Company has fixed approximately 40% of its total MR spot and pool revenue days for the third quarter of 2018 at an average rate of approximately $10,000 per day.

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

At the end of the second quarter of 2018, the Company had six Eco-Design IMO 2 product / chemical tankers in operation, all of which were trading in the spot market. During the second quarter of 2018, across all employment types, the Company’s six Eco-Design product / chemical vessels earned an average daily rate of $12,527 per day.

In the third quarter of 2018, the Company expects to have all of its revenue days for its Eco-Design IMO 2 product / chemical tankers employed in the spot market. As of July 31, 2018, the Company has fixed approximately 40% of its Eco-Design IMO 2 product / chemical tankers spot revenue days for the third quarter of 2018 at an average rate of approximately $10,000 per day.

Financing

On June 26, 2018, two of ASC’s subsidiaries entered into an agreement for the sale and leaseback (under a finance lease arrangement) of the Ardmore Endurance and Ardmore Enterprise, resulting in net proceeds to the Company of $10.3 million after repayment of outstanding debt.

Drydocking

The Company had 35 drydock days in the second quarter of 2018. Ardmore expects 55 scheduled drydock days in the third quarter of 2018.

Dividend

Based on the Company’s policy of paying dividends equal to 60% of earnings from continuing operations, the Company’s Board of Directors has not declared a dividend for the quarter ended June 30, 2018, in which the Company reported a loss from continuing operations of $8.6 million. The Company’s Board of Directors reaffirmed its intention to maintain a policy of paying dividends equal to 60% of earnings from continuing operations moving forward. Earnings from continuing operations is defined as earnings per share (“EPS”) reported under U.S. GAAP, as adjusted for unrealized and realized gains and losses and extraordinary items.

Results for the Three Months Ended June 30, 2018 and 2017

The Company reported a net loss of $8.6 million, or $0.26 basic and diluted loss per share, for the three months ended June 30, 2018, as compared to a net loss of $1.9 million, or $0.06 basic and diluted loss per share, for the three months ended June 30, 2017. For the three months ended June 30, 2018, the Company reported EBITDA (see “Non-GAAP Measures” section below) of $7.6 million, a decrease of $5.3 million from $12.9 million for the three months ended June 30, 2017.

Results for the Six Months Ended June 30, 2018 and 2017

The Company reported a net loss of $13.7 million, or $0.42 basic and diluted loss per share, for the six months ended June 30, 2018, as compared to a net loss of $4.0 million, or $0.12 basic and diluted loss per share, for the six months ended June 30, 2017. For the six months ended June 30, 2018, the Company reported EBITDA (see “Non-GAAP Measures” section below) of $17.5 million, a decrease of $7.1 million from $24.6 million for the six months ended June 30, 2017.

Management’s Discussion and Analysis of Financial Results for the Three Months Ended June 30, 2018 and 2017

Revenue. Revenue for the three months ended June 30, 2018 was $52.4 million, an increase of $2.5 million from $49.9 million for the three months ended June 30, 2017.

Our average number of owned vessels increased to 28 for the three months ended June 30, 2018 from 27 for the three months ended June 30, 2017, resulting in revenue days of 2,505 for the three months ended June 30, 2018 as compared to 2,425 for the three months ended June 30, 2017.

We had 24 and 19 vessels employed directly in the spot market as at June 30, 2018 and June 30, 2017, respectively. For spot chartering arrangements, we had 2,141 revenue days for the three months ended June 30, 2018, as compared to 1,712 for the three months ended June 30, 2017. This increase in revenue days derived from spot chartering arrangements resulted in an increase in revenue of $10 million, while changes in spot rates resulted in a decrease in revenue of $2 million.

We had four and eight vessels employed under pool arrangements as at June 30, 2018 and June 30, 2017, respectively. Revenue days derived from pool arrangements were 364 for the three months ended June 30, 2018, as compared to 713 for the three months ended June 30, 2017. The decrease in revenue days in pool arrangements resulted in a decrease in revenue of $4.8 million, while changes in market conditions for the three months ended June 30, 2018, compared to the three months ended June 30, 2017, resulted in a decrease in revenue from pool arrangements of $0.7 million.

For vessels employed directly in the spot market, Ardmore typically pays all voyage expenses, and revenue is recognized on a gross freight basis, while under pool arrangements, the charterer typically pays voyage expenses, and revenue is recognized on a net basis.

Commissions and Voyage Related Costs. Commissions and voyage related costs were $24.2 million for the three months ended June 30, 2018, an increase of $6.1 million from $18.1 million for the three months ended June 30, 2017. Commissions and voyage related costs increased due to the increased number of revenue days derived from spot charter arrangements for the three months ended June 30, 2018.

Total revenue days increased to 2,505 for the three months ended June 30, 2018, as compared to 2,425 for the three months ended June 30, 2017. For spot chartering arrangements, we had 2,141 revenue days for the three months ended June 30, 2018 as compared to 1,712 for the three months ended June 30, 2017.

TCE Rate. The average TCE rate for our fleet was $11,503 per day for the three months ended June 30, 2018, a decrease of $1,463 per day from $12,966 per day for the three months ended June 30, 2017. The decrease in average TCE rate was primarily the result of lower spot rates for the three months ended June 30, 2018.

Vessel Operating Expenses. Vessel operating expenses were $16.1 million for the three months ended June 30, 2018, an increase of $1.1 million from $15.0 million for the three months ended June 30, 2017. This increase is due to an increase in the number of vessels in operation for the three months ended June 30, 2018, increased crewing costs due to differing crewing locations, and the timing of vessel operating expenses between quarters. Due to the nature of this expenditure, vessel operating expenses are prone to fluctuations between periods. Fleet operating costs per day, including technical management fees, were $6,328 for the three months ended June 30, 2018 as compared to $6,071 for the three months ended June 30, 2017.

Depreciation. Depreciation expense for the three months ended June 30, 2018 was $8.8 million, an increase of $0.3 million from $8.5 million for the three months ended June 30, 2017. This increase is primarily due to an increase in the average number of owned vessels to 28.0 for the three months ended June 30, 2018, from 27.0 for the three months ended June 30, 2017.

Amortization of Deferred Drydock Expenditure. Amortization of deferred drydock expenditure for the three months ended June 30, 2018 was $0.8 million, an increase of $0.2 million from $0.6 million for the three months ended June 30, 2017. The capitalized 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 June 30, 2018 were $3.7 million, an increase of $0.5 million from $3.2 million for the three months ended June 30, 2017. The increase is primarily due to a new stock appreciation award being issued in 2Q18.

General and Administrative Expenses: Commercial and Chartering. Commercial and chartering expenses are the expenses attributable to our chartering and commercial operations departments in connection with our spot trading activities. Commercial and chartering expenses for the three months ended June 30, 2018 were $0.8 million, an increase of $0.2 million from $0.6 million for the three months ended June 30, 2017. This increase reflects the expansion of chartering and commercial activities in our Singapore and Houston offices.

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 June 30, 2018 were $6.6 million, as compared to $5.7 million for the three months ended June 30, 2017. Cash interest expense increased by $1.1 million to $5.6 million for the three months ended June 30, 2018, from $4.5 million for the three months ended June 30, 2017. These increases in interest expense and finance costs are attributable to an increased average LIBOR during the three months ended June 30, 2018, compared to the three months ended June 30, 2017 as well as a change in our debt structure due to the new finance leases. Amortization of deferred finance fees for the three months ended June 30, 2018 was $1.0 million, a decrease of $0.2 million from $1.2 million for the three months ended June 30, 2017. Included in the $1.0 million is the write off of deferred finance fees in relation to the sale and leaseback transaction of $0.4 million.

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