Tuesday, 17 September 2019 | 22:06
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Ardmore Shipping Corporation Expects 5% Rise in Product Tanker Demand In the Next Few Months

Thursday, 01 August 2019 | 00:00

Ardmore Shipping Corporation announced results for the three and six months ended June 30, 2019.

Highlights and Recent Activity

– Reported a net loss from continuing operations (see Non-GAAP Measures section) of $3.4 million for the three months ended June 30, 2019, or $0.10 net loss from continuing operations per basic and diluted share, as compared to a net loss from continuing operations of $8.2 million, or $0.25 net loss from continuing operations per basic and diluted share, for the three months ended June 30, 2018. Reported a GAAP net loss of $9.9 million for the three months ended June 30, 2019 or $0.30 loss per basic and diluted share, as compared to a GAAP net loss of $8.6 million, or $0.26 loss per basic and diluted share, for the three months ended June 30, 2018. GAAP net loss for the three months ended June 30, 2019 includes the loss on the sale of the Ardmore Seafarer. The Company reported adjusted EBITDA (see Non-GAAP Measures section) of $12.3 million for the three months ended June 30, 2019, as compared to $8.0 million for the three months ended June 30, 2018.
– Reported a net loss from continuing operations (see Non-GAAP Measures section) of $5.9 million for the six months ended June 30, 2019, or $0.18 net loss from continuing operations per basic and diluted share, as compared to a net loss from continuing operations of $13.3 million, or $0.41 net loss from continuing operations per basic and diluted share, for the six months ended June 30, 2018. Reported a GAAP net loss of $19.1 million for the six months ended June 30, 2019 or $0.58 loss per basic and diluted share, as compared to a GAAP net loss of $13.7 million, or $0.42 loss per basic and diluted share, for the six months ended June 30, 2018. GAAP net loss for the six months ended June 30, 2019 includes the loss on the sales of the Ardmore Seatrader, Ardmore Seamaster and Ardmore Seafarer. The Company reported adjusted EBITDA (see Non-GAAP Measures section) of $25.9 million for the six months ended June 30, 2019, as compared to $17.9 million for the six months ended June 30, 2018.
– MR tankers earned an average TCE rate of $14,892 per day for the three months ended June 30, 2019 and $15,306 per day for the six months ended June 30, 2019. Chemical tankers earned an average TCE rate of $12,830 per day for the three months ended June 30, 2019, and an average of $12,529 per day for the six months ended June 30, 2019.
– Completed the sale of a vessel, the Ardmore Seafarer, a 2004-built 45,744 Dwt Eco-mod MR tanker, which the Company sold for $9.1 million and delivered to the buyer on May 24, 2019. Ardmore recognized a loss of $6.6 million on the sale in the second quarter of 2019.
– Commenced reporting of CO2 emissions for the Company’s fleet in line with the framework set out with the IMO’s Data Collection System initiated in January 2019. Ardmore is committed to transparency and contributing to the reduction of greenhouse gas (“GHG”) emissions from the shipping industry.
– 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 second quarter of 2019.

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

“We are pleased with our performance in the second quarter during what was expected to be a softer period as compared to the prior period’s winter market conditions. The second quarter reflected a typical seasonal decline marked by notably high refinery maintenance levels, with refineries frontloading maintenance in preparation for increased throughput during the second half of 2019 to meet demand for IMO 2020-compliant low sulfur fuels.

“Industry-wide preparations for IMO 2020 implementation are unfolding as expected; marine fuel providers are commencing clean-up of their logistics infrastructure and are preparing to stockpile low sulfur fuels in large quantities ahead of the switch-over, which so far is very limited in quantity but is expected to be in full-swing in September. One consequence of IMO 2020 preparations already is pricing and availability of HSFO, which is being impacted by reduced storage and barging capacity, as some capacity is already being taken out of service for the switchover to VLSFO. Overall, we estimate that the increases in refinery throughput and heightened oil trading activity will result in a roughly 5% additional layer of product tanker demand commencing in the next few months with the potential to last up to two years before markets reach equilibrium.

“In keeping with our ongoing commitment to environmental stewardship, we are commencing reporting our CO2 emissions this quarter. Beyond owning and operating a modern “eco” fleet, we have maintained a strict focus on fuel efficiency and environmental best practices throughout the Company’s history. We believe that a commitment to increased transparency by companies such as Ardmore will play an important role in encouraging positive and sensible legislative change toward reducing greenhouse gas (“GHG”) emissions from the shipping industry.”

Summary of Recent and Second Quarter 2019 Events

Fleet

Fleet Operations and Employment

As at June 30, 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. On May 24, 2019, the Company completed the sale of the Ardmore Seafarer.

MR Tankers (45,000 Dwt – 49,999 Dwt)

At the end of the second 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 $14,892 per day in the second quarter of 2019. The Company’s 15 Eco-Design MR tankers earned an average TCE rate of $14,945 per day, and the Company’s four Eco-Mod MR tankers earned an average TCE rate of $14,681 per day.

In the third 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 July 31, 2019, the Company has fixed approximately 40% of its total MR spot revenue days for the third quarter of 2019 at an average TCE rate of approximately $14,000 per day.

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

At the end of the second 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 second quarter of 2019, the Company’s six Eco-Design product / chemical vessels earned an average TCE rate of $12,830 per day.

In the third quarter of 2019, the Company expects to have all revenue days for its Eco-Design IMO 2 product / chemical tankers employed in the spot market. As of July 31, 2019, the Company has fixed approximately 40% of its Eco-Design IMO 2 product / chemical tankers spot revenue days for the third quarter of 2019 at an average TCE rate of approximately $12,000 per day.

Vessel Sales

In May 2019, Ardmore agreed terms for the sale of the Ardmore Seafarer. The sale price for the vessel was $9.1 million and the vessel delivered to the buyer on May 24, 2019. Ardmore recognized a loss of $6.6 million on the sale in the second quarter of 2019.

Drydocking

The Company had 42 drydock days, including repositioning days, in the second quarter of 2019 in respect of two drydockings. Ardmore expects it will have 15 drydock days, including repositioning days, in the third 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 June 30, 2019, in which the Company reported a loss from continuing operations. 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.

Results for the Three Months Ended June 30, 2019 and 2018

The Company reported a GAAP net loss of $9.9 million for the three months ended June 30, 2019, or $0.30 loss per basic and diluted share, as compared to a GAAP net loss of $8.6 million, or $0.26 loss per basic and diluted share, for the three months ended June 30, 2018. The Company reported EBITDA (see Non-GAAP Measures section) of $5.7 million for the three months ended June 30, 2019, as compared to $7.6 million for the three months ended June 30, 2018.

The Company reported a net loss from continuing operations (see Non–GAAP Measures section) of $3.4 million for the three months ended June 30, 2019, or $0.10 net loss from continuing operations per basic and diluted share, as compared to a net loss from continuing operations of $8.2 million, or $0.25 net loss from continuing operations per basic and diluted share, for the three months ended June 30, 2018. The Company reported adjusted EBITDA (see Non-GAAP Measures section) of $12.3 million for the three months ended June 30, 2019, as compared to $8.0 million for the three months ended June 30, 2018.

Results for the Six Months Ended June 30, 2019 and 2018

The Company reported a GAAP net loss of $19.1 million for the six months ended June 30, 2019, or $0.58 loss per basic and diluted share, as compared to a GAAP net loss of $13.7 million, or $0.42 loss per basic and diluted share, for the six months ended June 30, 2018. The Company reported EBITDA (see Non-GAAP Measures section) of $12.7 million for the six months ended June 30, 2019, as compared to $17.5 million for the six months ended June 30, 2018.

The Company reported a net loss from continuing operations (see Non–GAAP Measures section) of $5.9 million for the six months ended June 30, 2019, or $0.18 net loss from continuing operations per basic and diluted share, as compared to a net loss from continuing operations of $13.3 million, or $0.41 net loss from continuing operations per basic and diluted share, for the six months ended June 30, 2018. The Company reported adjusted EBITDA (see Non-GAAP Measures section) of $25.9 million for the six months ended June 30, 2019, as compared to $17.9 million for the six months ended June 30, 2018.

Management’s Discussion and Analysis of Financial Results for the Three Months Ended June 30, 2019 and 2018

Revenue. Revenue for the three months ended June 30, 2019 was $55.0 million, an increase of $2.6 million from $52.4 million for the three months ended June 30, 2018.

The Company’s average number of owned vessels decreased to 25.6 for the three months ended June 30, 2019 from 28.0 for the three months ended June 30, 2018, resulting in revenue days of 2,285 for the three months ended June 30, 2019 as compared to 2,505 for the three months ended June 30, 2018.

The Company had 25 and 24 vessels employed directly in the spot market as at June 30, 2019 and June 30, 2018, respectively. For spot chartering arrangements, the Company had 2,285 revenue days for the three months ended June 30, 2019 as compared to 2,141 for the three months ended June 30, 2018. This increase in revenue days derived from spot chartering arrangements resulted in an increase in spot market revenue of $3.2 million, while changes in spot rates resulted in an increase in revenue of $3.7 million.

The Company had zero and four vessels employed under third-party pool arrangements as at June 30, 2019 and June 30, 2018, respectively. Revenue days derived from pool arrangements were zero for the three months ended June 30, 2019, as compared to 364 for the three months ended June 30, 2018. Removing all vessels from third-party pool arrangements during 2018 resulted in a decrease in pool revenue of $4.3 million for the three months ended June 30, 2019.

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 time chartering and pool arrangements, the charterer typically pays voyage expenses and revenue is recognized on a net basis.

Commissions and Voyage Expenses. Commissions and voyage expenses were $23.3 million for the three months ended June 30, 2019, a decrease of $0.9 million from $24.2 million for the three months ended June 30, 2018. Commissions and voyage expenses decreased due to the decrease in the average number of owned vessels of 25.6 for the three months ended June 30, 2019, compared to 28.0 for the three months ended June 30, 2018.

TCE Rate. The average TCE rate for the Company’s fleet was $14,375 per day for the three months ended June 30, 2019, an increase of $2,872 per day from $11,503 per day for the three months ended June 30, 2018. The increase in average TCE rate was the result of higher spot rates and lower commissions and voyage expenses for the three months ended June 30, 2019. TCE rates represent net revenues (or revenues less commission and voyage expenses) divided by revenue days.

Vessel Operating Expenses. Vessel operating expenses were $14.9 million for the three months ended June 30, 2019, a decrease of $1.2 million from $16.1 million for the three months ended June 30, 2018. This decrease is due to a decrease in the average number of vessels in operation for the three months ended June 30, 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 $6,393 for the three months ended June 30, 2019 as compared to $6,328 for the three months ended June 30, 2018.

Depreciation. Depreciation expense for the three months ended June 30, 2019 was $8.0 million, a decrease of $0.8 million from $8.8 million for the three months ended June 30, 2018. This decrease is primarily due to a decrease in the average number of owned vessels to 25.6 for the three months ended June 30, 2019, from 28.0 for the three months ended June 30, 2018.

Amortization of Deferred Drydock Expenditure. Amortization of deferred drydock expenditure for the three months ended June 30, 2019 was $1.1 million, an increase of $0.3 million from $0.8 million for the three months ended June 30, 2018. 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, 2019 were $3.9 million, an increase of $0.2 million from $3.7 million for the three months ended June 30, 2018. The increase is primarily due to the issuance of new awards of stock appreciation rights and restricted stock units in the first and second 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 June 30, 2019 were $0.6 million, a decrease of $0.2 million from $0.8 million for the three months ended June 30, 2018. This decrease is primarily due to a decrease in staff costs due to headcount reduction in the second quarter of 2019.

Loss on sale of vessel. Loss on sale of vessel for the three months ended June 30, 2019 was $6.6 million, compared to zero for the three months ended June 30, 2018. This relates to the sale of the Ardmore Seafarer.

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, 2019 were $6.8 million, as compared to $6.6 million for the three months ended June 30, 2018. Cash interest expense increased by $0.7 million to $6.3 million for the three months ended June 30, 2019, from $5.6 million for the three months ended June 30, 2018. These increases in interest expense and finance costs are attributable to an increased average LIBOR during the three months ended June 30, 2019 compared to the three months ended June 30, 2018, as well as to a change in the Company’s 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 June 30, 2019 was $0.5 million, a decrease of $0.5 million from $1.0 million for the three months ended June 30, 2018. Included in the $1.0 million for the three months ended June 30, 2018 is a write-off of deferred finance fees in relation to sale and leaseback transactions of $0.4 million.

Consolidated Statement of Operations: Presentation Amendment

Pursuant to Accounting Standards Codification 360-10, Property, plant, and equipment, if a subtotal for Income from Operations is included in a statement of operations, gains or losses on the sale of long-lived assets that are not discontinued operations should be included in Income from Operations. In the past, the Company has voluntarily included in its Consolidated Statements of Operations a subtotal for Income from Operations. The Company has amended the presentation of its Consolidated Statement of Operations, commencing with the period ended June 30, 2019, to remove this subtotal. In the Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016, and for the quarterly period ended March 31, 2019, the Company had reflected gains and losses on vessel dispositions below Income from Operations subtotal, which was technically not the proper order of presentation as part of Income from Operations in accordance with U.S. GAAP. The Company is planning to restate its Consolidated Statements of Operations for these periods to remove the subtotal for Income from Operations. Ardmore considers gains and losses from vessel sales to be fundamentally different in nature from income derived from the chartering and operations of vessels and thus believes that removal of the subtotal for Income from Operations is a better representation of the financial performance of the Company.

Full Report

Source: Ardmore Shipping Corporation

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