Ardmore Shipping Reports Q4 Loss

Ardmore

Ardmore Shipping Corporation announced results for the three and twelve months ended December 31, 2018.

Highlights and Recent Activity

Reported a net loss from continuing operations (see Non-GAAP Measures section below) of $8.8 million for the three months ended December 31, 2018, or $0.26 net loss from continuing operations per basic and diluted share, as compared to a net loss from continuing operations of $3.8 million, or $0.12 net loss from continuing operations per basic and diluted share, for the three months ended December 31, 2017. Reported a GAAP net loss of $17.0 million for the three months ended December 31, 2018 or $0.51 loss per basic and diluted share, as compared to a net loss of $3.8 million, or $0.12 loss per basic and diluted share, for the three months ended December 31, 2017. GAAP net loss includes $8.2 million related to a write-off of deferred finance fees and a loss on the sale of a vessel. The Company reported adjusted EBITDA (see Non-GAAP Measures section below) of $7.8 million for the three months ended December 31, 2018, as compared to $11.0 million for the three months ended December 31, 2017.

Reported a net loss from continuing operations (see Non-GAAP Measures section below) of $34.3 million for the twelve months ended December 31, 2018, or $1.04 net loss from continuing operations per basic and diluted share, as compared to a net loss from continuing operations of $12.0 million, or $0.36 net loss from continuing operations per basic and diluted share, for the twelve months ended December 31, 2017. Reported a GAAP net loss of $42.9 million for the twelve months ended December 31, 2018, or $1.31 loss per basic and diluted share, as compared to a net loss $12.5 million, or $0.37 loss per basic and diluted share, for the twelve months ended December 31, 2017. GAAP net loss includes $8.6 million related to write-off of deferred finance fees and loss on the sale of a vessel. The Company reported adjusted EBITDA (see Non-GAAP Measures section below) of $29.2 million for the twelve months ended December 31, 2018, as compared to $45.7 million for the twelve months ended December 31, 2017.

Spot MR tankers earned an average rate of $12,475 per day for the three months ended December 31, 2018, and $11,564 per day for the twelve months ended December 31, 2018. Chemical tankers earned an average rate of $10,779 per day for the three months ended December 31, 2018, and $11,406 per day for the twelve months ended December 31, 2018.

Completed financing transactions for seven vessels in the fourth quarter of 2018. The vessels included two 2015-built 37,000 Dwt Eco-design IMO 2 product and chemical tankers, and five 2014-built 50,000 Dwt Eco-design MR tankers, each of which were refinanced under finance lease arrangements. The net cash proceeds to the Company of these transactions, after prepayment of existing debt, were $32.7 million in the aggregate.

Agreed to terms for the sale of two vessels. The Ardmore Seatrader, a 2002-built 47,000 Dwt Eco-mod MR tanker, was sold for $8.3 million and delivered to the buyer on January 9, 2019. The Ardmore Seamaster, a 2004-built 45,840 Dwt Eco-mod MR tanker, is to be sold for $9.7 million and is expected to deliver to the buyer in February 2019.

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

“Ardmore successfully weathered very difficult market conditions in 2018 by maintaining its financial strength and keeping a clear focus on operational performance. We were pleased to see significant improvement in the market rate environment late in the year, with MR average TCE levels reaching a multi-year high of $17,500 / day in late December and with even better market conditions anticipated in 2019 as the impact of IMO 2020 begins to be felt.

The outlook for product demand is positive, supported by expected continued strong underlying oil consumption growth along with estimated global refinery capacity additions of 2.6 million barrels per day for 2019, the largest annual increase since the 1970s. In addition, a record-low orderbook combined with expected ongoing scrapping should result in MR net fleet growth of less than 1% per annum for the next few years, setting the stage for a sustained upturn.

Beyond these strong fundamentals, we expect a significant demand boost for product tankers commencing mid-2019 as the oil industry and shipping business respond to the IMO 2020 sulphur regulations. We expect this additional layer of product tanker demand, which some analysts expect to be 5% or more, to last up to two years until the market reaches a new equilibrium.

We remain intensely focused on operating performance, cost efficiency, and effective capital allocation. With a modern fleet, low-cost structure and strong balance sheet, we believe Ardmore is well positioned to take advantage of the anticipated charter market recovery and generate strong returns on investment for our shareholders.”

Summary of Recent and Fourth Quarter 2018 Events

Fleet

Fleet Operations and Employment

As at December 31, 2018, the Company had 28 vessels in operation, including 22 Eco MR tankers ranging from 45,000 deadweight tonnes (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. On January 9, 2019, the Company completed the sale of the Ardmore Seatrader and on February 1, 2019 the Company agreed to terms for the sale of the Ardmore Seamaster.

MR Tankers (45,000 Dwt – 49,999 Dwt)

At the end of the fourth quarter of 2018, the Company had 22 Eco MR tankers trading in the spot market. The Eco MR tankers earned an average of $12,475 per day in the fourth quarter of 2018. The Company’s 15 Eco-Design MR tankers earned an average rate of $12,894 per day, and the Company’s seven Eco-Mod MR tankers earned an average rate of $11,471 per day.

In the first quarter of 2019, 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 6, 2019, the Company has fixed approximately 45% of its total MR spot revenue days for the first quarter of 2019 at an average rate of approximately $15,500 per day.

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

At the end of the fourth 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 fourth quarter of 2018, the Company’s six Eco-Design product / chemical vessels earned an average rate of $10,779 per day.

In the first quarter of 2019, 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 February 6, 2019, the Company has fixed approximately 45% of its Eco-Design IMO 2 product / chemical tankers spot revenue days for the first quarter of 2019 at an average rate of approximately $14,000 per day.

Financing

In the fourth quarter of 2018, Ardmore completed financing transactions for the seven vessels listed below under finance lease arrangements. The Company has options to repurchase the vessels at various stages prior to maturity and the other terms and conditions of the financings are generally in line with Ardmore’s existing debt facilities:

The Ardmore Dauntless and Ardmore Defender, two 2015-built 37,000 Dwt Eco-design IMO 2 product / chemical tankers, were refinanced in a sale and leaseback transaction with Ocean Yield ASA having a lease term of 12 years.
The Ardmore Explorer and Ardmore Encounter, two 2014-built 50,000 Dwt Eco-design MR tankers, were refinanced in a sale and leaseback transaction with a top-tier Chinese financier having a lease term of seven years.
The Ardmore Seavanguard and Ardmore Exporter, two 2014-built 50,000 Dwt Eco-design MR tankers, were refinanced in a sale and leaseback transaction with a different top-tier Chinese financier having a lease term of seven years.
The Ardmore Engineer, a 2014-built 50,000 Dwt Eco-design MR tanker, was refinanced in a sale and leaseback transaction with a high-quality financier in Japan having a lease term of 11 years.
The total net cash proceeds to the Company of these sale and leaseback transactions, net of fees and prepayments of senior debt secured by the vessels, were $32.7 million in the aggregate. Deferred finance fees of $1.9 million associated with the debt prepaid were written off in the fourth quarter of 2018.

Vessel Sales

In November 2018, Ardmore agreed terms for the sale of the Ardmore Seatrader. The sale price for the vessel was $8.3 million and the vessel delivered to the buyer on January 9, 2019. Ardmore recognized a loss of $6.4 million on the sale in the fourth quarter of 2018.

In February 2019, Ardmore agreed to terms for the sale of the Ardmore Seamaster. The sale price for the vessel is $9.7 million and the vessel is expected to deliver to the buyer in February 2019, at which time the sale price would be paid. Ardmore expects to recognize a loss of $6.5 million on the sale in the first quarter of 2019.

Drydocking

The Company had 31 drydock days in the fourth quarter of 2018. Ardmore expects it will have 75 scheduled drydock days in the first quarter of 2019.

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 December 31, 2018, in which the Company reported a loss from continuing operations. 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 December 31, 2018 and 2017

The Company reported a net loss of $17.0 million for the three months ended December 31, 2018, or $0.51 loss per basic and diluted share, as compared to a net loss of $3.8 million, or $0.12 loss per basic and diluted share, for the three months ended December 31, 2017, reflecting a loss on sale of the Ardmore Seatrader, the write-off of deferred finance fees in relation to the sale and leaseback transactions and a loss from continuing operations. The Company reported EBITDA (see Non-GAAP Measures section below) of $1.4 million for the three months ended December 31, 2018, as compared to $11.0 million for the three months ended December 31, 2017.

The Company reported a net loss from continuing operations (see Non – GAAP Measures section below) of $8.8 million for the three months ended December 31, 2018, or $0.26 net loss from continuing operations per basic and diluted share, as compared to a net loss from continuing operations of $3.8 million, or $0.12 net loss from continuing operations per basic and diluted share, for the three months ended December 31, 2017. The Company reported adjusted EBITDA (see Non-GAAP Measures section below) of $7.8 million for the three months ended December 31, 2018, as compared to $11.0 million for the three months ended December 31, 2017.

Results for the Twelve Months Ended December 31, 2018 and 2017

The Company reported a net loss of $42.9 million for the twelve months ended December 31, 2018, or $1.31 loss per basic and diluted share, as compared to a net loss of $12.5 million, or $0.37 loss per basic and diluted share, for the twelve months ended December 31, 2017, reflecting a loss on sale of the Ardmore Seatrader, the write-off of deferred finance fees in relation to the sale and leaseback transactions and a loss from continuing operations. The Company reported EBITDA (see Non-GAAP Measures section below) of $22.8 million for the twelve months ended December 31, 2018, as compared to $45.7 million for the twelve months ended December 31, 2017.

The Company reported a net loss from continuing operations (see Non-GAAP Measures section below) of $34.3 million for the twelve months ended December 31, 2018, or $1.04 loss per basic and diluted share, as compared to a net loss from continuing operations of $12.0 million, or $0.36 loss per basic and diluted share, for the twelve months ended December 31, 2017. The Company reported adjusted EBITDA (see Non-GAAP Measures section below) of $29.2 million for the twelve months ended December 31, 2018, as compared to $45.7 million for the twelve months ended December 31, 2017.

Management’s Discussion and Analysis of Financial Results for the Three Months Ended December 31, 2018 and 2017

Revenue. Revenue for the three months ended December 31, 2018 was $58.4 million, an increase of $10.6 million from $47.8 million for the three months ended December 31, 2017.

The Company’s average number of owned vessels increased to 28 for the three months ended December 31, 2018 from 27 for the three months ended December 31, 2017, resulting in revenue days of 2,533 for the three months ended December 31, 2018 as compared to 2,438 for the three months ended December 31, 2017.

The Company had 28 and 19 vessels employed directly in the spot market as at December 31, 2018 and December 31, 2017, respectively. For spot chartering arrangements, the Company had 2,533 revenue days for the three months ended December 31, 2018, as compared to 1,704 for the three months ended December 31, 2017. This increase in spot chartering revenue days resulted in an increase in revenue of $18.7 million, while changes in the employment of vessels between pool and spot resulted in an increase in revenue of $1.3 million.

The Company had zero and eight vessels employed under third-party pool arrangements as at December 31, 2018 and December 31, 2017, respectively. Revenue days derived from pool arrangements were zero for the three months ended December 31, 2018, as compared to 734 for the three months ended December 31, 2017. Removing all vessels from third-party pool arrangements during 2018 resulted in a decrease in pool revenue of $9.4 million for the three months ended December 31, 2018.

For vessels employed directly in the spot market, the Company 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 $30.1 million for the three months ended December 31, 2018, an increase of $12.6 million from $17.5 million for the three months ended December 31, 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 December 31, 2018. This increase in revenue days is a result of removing all vessels from third party pool arrangements during 2018.

Total revenue days increased to 2,533 for the three months ended December 31, 2018, as compared to 2,438 for the three months ended December 31, 2017. For spot chartering arrangements, we had 2,533 revenue days for the three months ended December 31, 2018, as compared to 1,704 for the three months ended December 31, 2017.

TCE Rate. The average TCE rate for our fleet was $12,089 per day for the three months ended December 31, 2018, a decrease of $494 per day from $12,583 per day for the three months ended December 31, 2017. The decrease in average TCE rate was primarily the result of lower spot rates for the three months ended December 31, 2018.

Vessel Operating Expenses. Vessel operating expenses were $17.4 million for the three months ended December 31, 2018, an increase of $1.3 million from $16.1 million for the three months ended December 31, 2017. This increase is due to an increase in the average number of vessels in operation for the three months ended December 31, 2018. Vessel operating expenses by their nature are prone to fluctuations between periods. Average fleet operating costs per day, including technical management fees, were $6,544 for the three months ended December 31, 2018 as compared to $6,269 for the three months ended December 31, 2017.

Depreciation. Depreciation expense for the three months ended December 31, 2018 was $8.8 million, an increase of $0.2 million from $8.6 million for the three months ended December 31, 2017. This increase is primarily due to an increase in the average number of owned vessels to 28.0 for the three months ended December 31, 2018, from 27.0 for the three months ended December 31, 2017.

Amortization of Deferred Drydock Expenditure. Amortization of deferred drydock expenditure for the three months ended December 31, 2018 was $1.0 million, consistent with $1.0 million for the three months ended December 31, 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 December 31, 2018 were consistent at $2.5 million for the three months ended December 31, 2018 and 2017.

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, 2018 were consistent at $0.6 million for the three months ended December 31, 2018 and 2017.

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, 2018 were $8.7 million, as compared to $5.4 million for the three months ended December 31, 2017. Cash interest expense increased by $1.6 million to $6.3 million for the three months ended December 31, 2018, from $4.7 million for the three months ended December 31, 2017. These increases in interest expense and finance costs are attributable to an increased average LIBOR during the three months ended December 31, 2018, compared to the three months ended December 31, 2017 as well as a change in our debt structure due to new finance leases entered into as part of vessel financing transactions during 2018. Amortization of deferred finance fees for the three months ended December 31, 2018 was $2.4 million, an increase of $1.7 million from $0.7 million for the three months ended December 31, 2017. Included in the $2.4 million is $1.9 million write-off of deferred finance fees in relation to the sale and leaseback transactions.

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