Ardmore Shipping reports Q3 loss; short-term oil market dynamics continue to dominate product tanker market

Ardmore
Ardmore announced results for the three and nine months ended September 30, 2017.

Highlights

  • Reported a net loss of $4.6 million for the three months ended September 30, 2017, or $0.14 basic and diluted loss per share, as compared to a net loss of $4.8 million, or $0.14 basic and diluted loss per share, for the three months ended September 30, 2016. The Company reported EBITDA (see Non-GAAP Measures section below) of $10.1 million for the three months ended September 30, 2017, as compared to $7.2 million for the three months ended September 30, 2016.
  • Agreed to acquire a 47,500 Dwt 2008 Japanese-built product tanker. The acquisition is subject to completion of financing under a lease arrangement on terms acceptable to Ardmore and if successful, the vessel is expected to deliver to Ardmore in December 2017 or January 2018.
  • Completed a $15 million revolving credit facility in October, further enhancing our financial flexibility.
  • Spot and pool MR tankers earned an average of $12,970 per day and Eco-Design chemical tankers earned an average of $10,768 per day.
  • Maintaining our dividend policy of paying out 60% of earnings from continuing operations. Consistent with this policy, the Company is not declaring a dividend for the third quarter 2017.

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

“Short-term oil market dynamics continue to dominate the product tanker market; while this has been a significant negative for some time, we believe this is shifting to the positive with the impact of Hurricane Harvey abating and global oil inventories heading toward normal levels after an extended period of destocking. As a consequence, we believe the product tanker market is poised for a seasonal rebound this winter.

Beyond these near-term factors, underlying fundamentals are positive: global oil demand growth is strong and export-oriented refinery capacity is increasing to meet this demand. On the back of this, MR tonne mile demand growth is set to continue at about 5%, while supply growth is estimated to be 1.8% for 2017 and only 1.1% for 2018, which should rapidly tighten the MR supply-demand balance. In addition, shipyards and shipowners continue to be capital constrained and, as a consequence, we don’t anticipate any major ordering activity until a recovery is well underway.

Meanwhile, our focus continues to be on operating performance and cost efficiency. We are pleased to announce the acquisition of a high-quality Japanese MR built 2008; while this is just a single-ship acquisition, together with attractive lease financing, the transaction will provide a meaningful boost to earnings and cashflow and highlights our disciplined approach to growth and capital allocation.

We believe that a shift of short-term oil market dynamics, coupled with underlying strong demand growth and declining supply growth, is setting the stage for a seasonal rebound in the MR market. Ardmore’s strong balance sheet, modern fleet, and industry-leading cost structure put us in a very strong position to take advantage of a cyclical charter market recovery and to generate highly attractive returns and value for our shareholders.”

Summary of Recent and Third Quarter 2017 Events

Fleet

Fleet Operations and Employment

The Company has 27 vessels currently in operation, comprising 21 Eco MR tankers ranging from 45,000 Dwt to 49,999 Dwt (15 Eco-Design and six 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 third quarter of 2017, the Company had 21 Eco MR tankers trading in the spot market or in pools. The 21 spot or pool trading MR tankers, comprising 15 Eco-Design and six Eco-Mod, earned an average of $12,970 per day in the quarter. Overall for the quarter, our 15 Eco-Design MR tankers earned $12,938 per day, and our six Eco-Mod MR tankers earned $12,534 per day.

In the fourth quarter of 2017, 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 November 1, 2017, the Company has fixed approximately 35% of its total MR spot and pool revenue days for the fourth quarter 2017 at approximately $12,500 per day.

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

At the end of the third quarter of 2017, the Company had six Eco-Design IMO 2 product / chemical tankers in operation, all of which were trading spot or in pools. During the third quarter of 2017, across all employment types, the Company’s six Eco-Design product / chemical vessels earned an average daily rate of $10,768 per day in the quarter.

In the fourth quarter of 2017, the Company expects to have all of its revenue days for its Eco-Design IMO 2 product / chemical tankers employed in the spot market or in pools. As of November 1, 2017, the Company has fixed approximately 35% of its Eco-Design IMO 2 product / chemical tankers spot and pool revenue days for the fourth quarter 2017 at approximately $12,000 per day.

Drydocking

The Company had 12 drydock days in the third quarter of 2017. Ardmore expects approximately 20 scheduled drydock days in the fourth quarter of 2017.

Dividend

Based on the Company’s policy of paying out dividends equal to 60% of earnings from continuing operations, the Company’s Board of Directors has not declared a dividend for the quarter ended September 30, 2017, in which the Company experienced a loss from continuing operations of $4.6 million. The Company did not pay out dividends for the quarter ended September 30, 2016. The Company paid out $0.27 per share for the full year 2016. The Company’s Board of Directors reaffirmed its intention to maintain a policy of paying out 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 September 30, 2017 and 2016

The Company reported a net loss of $4.6 million, or $0.14 basic and diluted loss per share, for the three months ended September 30, 2017, as compared to a net loss of $4.8 million, or $0.14 basic and diluted loss per share, for the three months ended September 30, 2016. For the three months ended September 30, 2017, the Company reported EBITDA (see “Non-GAAP Measures” section below) of $10.1 million, an increase of $2.9 million from $7.2 million for the three months ended September 30, 2016.

Results for the Nine Months Ended September 30, 2017 and 2016

The Company reported a net loss of $8.7 million, or $0.26 basic and diluted loss per share, for the nine months ended September 30, 2017, as compared to a net income of $7.4 million, or $0.26 basic and diluted earnings per share, for the nine months ended September 30, 2016. For the nine months ended September 30, 2017, the Company reported EBITDA (see “Non-GAAP Measures” section below) of $34.7 million, a decrease of $8.6 million from $43.3 million for the nine months ended September 30, 2016.

Management’s Discussion and Analysis of Financial Results for the Three Months Ended September 30, 2017 and 2016

Revenue. Revenue for the three months ended September 30, 2017 was $48.7 million, an increase of $10.7 million from $38.0 million for the three months ended September 30, 2016.

The average number of owned vessels increased to 27.0 for the three months ended September 30, 2017, from 22.7 for the three months ended September 30, 2016, resulting in revenue days of 2,467 for the three months ended September 30, 2017, as compared to 2,046 for the three months ended September 30, 2016.

We had 19 and 16 vessels employed directly in the spot market as at September 30, 2017 and September 30, 2016, respectively. For spot chartering arrangements, we had 1,731 revenue days for the three months ended September 30, 2017, as compared to 1,016 for the three months ended September 30, 2016. This increase in revenue days derived from spot chartering arrangements resulted in an increase in revenue of $15.8 million, while movements in spot rates resulted in an increase in revenue of $0.9 million.

We had eight and 11 vessels employed under time charter and pool arrangements as at September 30, 2017 and September 30, 2016, respectively. Revenue days derived from time charter and pool arrangements were 736 for the three months ended September 30, 2017, as compared to 1,030 for the three months ended September 30, 2016. The decrease in revenue days in time charter and pool arrangements resulted in a decrease in revenue of $4.5 million, while a decrease in pool earnings for the quarter ended September 30, 2017 resulted in a decrease in revenue of $1.5 million.

In direct spot employment, all voyage expenses are borne by Ardmore as opposed to the charterer, while under time chartering and pool arrangements, the charterer typically pays voyage expenses.

For vessels employed directly in the spot market, revenue is recognized on a gross freight basis, while under time chartering and 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 $18.3 million for the three months ended September 30, 2017, an increase of $8.3 million from $10.0 million for the three months ended September 30, 2016. Commissions and voyage related costs increased due to the increased number of revenue days for the three months ended September 30, 2017, and in particular, the increased number of revenue days derived from spot charter arrangements for which we typically are responsible for all voyage expenses as opposed to the charterer. Revenue days increased to 2,467 for the three months ended September 30, 2017, as compared to 2,046 for the three months ended September 30, 2016. For spot chartering arrangements, we had 1,731 revenue days for the three months ended September 30, 2017, as compared to 1,016 for the three months ended September 30, 2016.

TCE Rate. The average TCE rate for our fleet was $12,376 per day for the three months ended September 30, 2017, a decrease of $1,513 per day from $13,889 per day for the three months ended September 30, 2016. The decrease in average TCE rate was the result of lower average time charter and spot rates for the three months ended September 30, 2017.

Vessel Operating Expenses. Vessel operating expenses were $16.3 million for the three months ended September 30, 2017, an increase of $2.6 million from $13.7 million for the three months ended September 30, 2016. This increase is primarily due to an increase in the number of vessels in operation for the three months ended September 30, 2017. 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 $6,538 for the three months ended September 30, 2017, as compared to $6,541 for the three months ended September 30, 2016.

Depreciation. Depreciation expense for the three months ended September 30, 2017 was $8.6 million, an increase of $1.3 million from $7.3 million for the three months ended September 30, 2016. The increase is primarily due to an increase in the average number of owned vessels to 27.0 for the three months ended September 30, 2017, from 22.7 for the three months ended September 30, 2016.

Amortization of Deferred Drydock Expenditure. Amortization of deferred drydock expenditure for the three months ended September 30, 2017 was $0.8 million, consistent with $0.8 million for the three months ended September 30, 2016. The capitalized costs of drydockings for a given vessel are depreciated 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 September 30, 2017 were $3.2 million, a decrease of $0.4 million from $3.6 million for the three months ended September 30, 2016. This decrease reflects a reduction in stock-based compensation expense in the three months ended September 30, 2017 compared to the three months ended September 30, 2016.

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 September 30, 2017 were $0.7 million, an increase of $0.2 million from $0.5 million for the three months ended September 30, 2016. This increase reflects the expansion of chartering and commercial activities in our Singapore and Houston offices, and an increased headcount in the commercial and chartering departments for the three months ended September 30, 2017.

Interest Expense and Finance Costs. Interest expense and finance costs include loan interest, capital lease interest, and amortization of deferred financing fees, and are net of capitalized interest. Interest expense and finance costs for the three months ended September 30, 2017 were $5.4 million, as compared to $3.9 million for the three months ended September 30, 2016. Cash interest expense increased by $1.5 million to $4.8 million for the three months ended September 30, 2017, from $3.3 million for the three months ended September 30, 2016. This increase in cash interest expense is attributable to an increased average LIBOR during the three months ended September 30, 2017 compared to the three months ended September 30, 2016 as well as a change in debt structure due to the new capital leases. Amortization of deferred financing charges for the three months ended September 30, 2017 was $0.6 million, as compared to $0.6 million for the three months ended September 30, 2016.

Liquidity

As of September 30, 2017, the Company had $45.8 million (December 31, 2016: $56.0 million) available in cash and cash equivalents. The following debt and capital lease liabilities (net of deferred finance fees) were outstanding as of the dates indicated:

As of

Sept 30, 2017

Dec 31, 2016

Debt

402,879,854

453,213,106

Capital Leases

43,117,876

9,130,650

Total

445,997,730

462,343,756

In October 2017, we entered into a $15 million revolving credit facility, further enhancing our financial flexibility. The facility is available for drawdown in the fourth quarter.

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