Ardmore Shipping Corporation announced results for the three and six months ended June 30, 2022.
Highlights and Recent Activity
Reported a net profit of $28.8 million for the three months ended June 30, 2022, or $0.82 earnings per basic share and $0.81 earnings per diluted share, compared to a net loss of $8.2 million, or $0.24 loss per basic and diluted share, for the three months ended June 30, 2021. Adjusted for certain costs (see Adjusted earnings / (loss) in the Non-GAAP Measures section), we reported Adjusted earnings of $28.9 million, or $0.82 Adjusted earnings per basic share and $0.81 Adjusted earnings per diluted share, for the three months ended June 30, 2022, compared to an Adjusted loss of $7.7 million, or $0.23 Adjusted loss per basic and diluted share, for the three months ended June 30, 2021.
Reported a net profit of $21.0 million for the six months ended June 30, 2022 or $0.60 earnings per basic and diluted share, compared to a net loss of $16.7 million, or $0.50 loss per basic and diluted share, for the six months ended June 30, 2021. Adjusted for certain costs (see Adjusted earnings / (loss) in the Non-GAAP Measures section), we reported Adjusted earnings of $28.0 million, or $0.81 Adjusted earnings per basic and $0.80 Adjusted earnings per diluted share for the six months ended June 30, 2022, compared to an Adjusted loss of $16.2 million or $0.48 Adjusted loss per basic and diluted share, for the six months ended June 30, 2021.
MR tankers earned an average TCE rate of $30,480 per day for the three months ended June 30, 2022. Chemical tankers earned an average TCE rate of $20,254 per day for the three months ended June 30, 2022. With approximately 45% total revenue days fixed for the third quarter of 2022, the average TCE rate has increased to approximately $46,600 per day for MR tankers and $33,000 per day for Chemical tankers.
Completed the previously announced sale of two out of three vessels to Leonhardt & Blumberg for an aggregate price of $26.4 million. Both vessels were subsequently time-chartered back from the buyer for a period of 24 months at an attractive hire rate, plus a one-year extension option. The remaining vessel is scheduled to be delivered to Leonhardt & Blumberg on July 29, 2022 and will subsequently be time-chartered back for a period of 24 months, plus a one-year extension option.
Finalized terms for three new sustainability-linked senior loan facilities with our existing relationship banks for $308 million in the aggregate on improved terms and pricing. Aggregate proceeds of $293 million from two of the facilities will be used to refinance 19 vessels, including nine vessels currently financed under lease arrangements. The third loan is a sustainability-linked $15 million receivables facility which replaces Ardmore’s existing receivables facility scheduled to mature in July 2023. The three new financings will substantially reduce our interest cost, provide for significant flexibility and extend maturities through to mid-2027.
We have also announced separately today the planned departure of our current Chief Financial Officer Paul Tivnan and appointment of our new Chief Financial Officer Bart Kelleher, effective September 28, 2022. Paul and Bart will overlap and work closely together from September 1, 2022 to achieve an orderly and well-planned transition, including a thorough handover of all internal and external relationships.
Anthony Gurnee, the Company’s Chief Executive Officer, commented:
“We are pleased to report record earnings for the second quarter with net income of $29 million or $0.82 earnings per share, reflecting improved market conditions and MR TCE performance of $31,000 per day. The product tanker market has continued to strengthen so far into the third quarter, with our MR’s earning $46,600 with 45% of days booked, setting the stage for an even better quarter and an anticipated strong finish for the year.
We believe the strong product tanker market is being driven primarily by two factors: firstly, a multi-faceted energy crisis likely to persist for some time, with extreme price swings and supply issues for virtually all energy classes, low global energy inventories, and physical supply-demand dislocation for oil products driving tonne-mile demand; and secondly, improving demand / supply fundamentals, most notably the ongoing recovery of oil demand – in particular jet fuel – and the combined effect of supply constraints at shipyards and ongoing scrapping.
In addition to achieving strong commercial performance, we have been working to convert this into durable financial strength by refinancing substantially all of our debt on improved terms including sustainability-linked pricing, prepaying 12 higher-cost capital leases so that we have just two still outstanding, extending our debt maturities to 2027, and providing Ardmore with improved financial flexibility through revolving credit facilities.
Also today, we are announcing that, after 12 great years at Ardmore, our CFO Paul Tivnan has decided to leave the Company to broaden his experience and pursue further ambitions. Paul has been instrumental to what Ardmore has accomplished and has been a core part of the senior management team, and it has been a privilege to work with him over these many years. We wish him the very best as he passes the torch and moves on to the next chapter of his career.
At the same time, we are pleased to announce that Bart Kelleher has agreed to join Ardmore as CFO. Bart brings to Ardmore a wealth of experience in shipping and related industries across many functions, including notable financial sector and CFO experience, as well as expertise in the chemical sector as CEO of Chembulk Tankers. We are confident that he will play a pivotal role in driving Ardmore strategically and financially toward even greater future success.”
Summary of Recent and Second Quarter 2022 Events
Fleet
Fleet Operations and Employment
As at June 30, 2022, the Company had 27 vessels in operation (including three chartered-in vessels), including 21 MR tankers ranging from 45,000 deadweight tonnes (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. The Company has also been commercially managing three of Carl Büttner’s 24,000 Dwt chemical tankers since March 1, 2021.
MR Tankers (45,000 Dwt – 49,999 Dwt)
At the end of the second quarter of 2022, the Company had 21 MR tankers trading in the spot market or on time charters. The MR tankers earned an average TCE rate of $29,984 per day in the second quarter of 2022. In the second quarter of 2022, the Company’s 15 Eco-Design MR tankers earned an average TCE rate of $30,480 and the Company’s six Eco-Mod MR tankers earned an average TCE rate of $28,738 per day.
In the third quarter of 2022, the Company expects to have 7% of its revenue days for its MR Eco-Design tankers on time charter. The remaining 93% of days for its MR Eco-Design and all of its MR Eco-Mod tankers are expected to be employed in the spot market. As of July 27, 2022, the Company had fixed approximately 45% of its total MR revenue days for the third quarter of 2022 at an average TCE rate of approximately $46,600 per day.
Product / Chemical Tankers (IMO 2: 25,000 Dwt – 37,800 Dwt)
At the end of the second quarter of 2022, 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 2022, the Company’s six Eco-Design product / chemical vessels earned an average TCE rate of $20,254 per day.
In the third quarter of 2022, 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 27, 2022, the Company had fixed approximately 45% of its Eco-Design IMO 2 product / chemical tankers spot revenue days for the third quarter of 2022 at an average TCE rate of approximately $33,000 per day.
Drydocking
The Company had no drydock or repositioning days in the second quarter of 2022. The Company does not expect to have any drydock days in the third quarter of 2022.
Capital Allocation Policy
Consistent with the Company’s capital allocation policy, the Company is not declaring a dividend, in respect of its common shares, for the second quarter of 2022.
Vessel Sale and Time-Charter Back
The Company completed the previously announced sale of two out of three 2008-built Eco-mod MR tankers to Leonhardt & Blumberg. On June 2, 2022, the Ardmore Sealeader was delivered to the buyer and on July 14, 2022, the Ardmore Sealifter was delivered to the buyer. Both vessels were subsequently time-chartered back by the Company for a period of 24 months at attractive hire rates, plus a one-year extension option. The third vessel, the Ardmore Sealancer, is due to be delivered to the buyer on July 29, 2022 with the vessel to be subsequently time-chartered back for a period of 24 months, plus a one-year extension option. Following completion of all three sales and the repayment of financing associated with the vessels, the transactions are expected to generate net cash proceeds of approximately $15 million to the Company.
Financing
In June and July 2022, the Company finalized terms for three new sustainability-linked loan facilities for $308 million in the aggregate, with an additional $110 million accordion option subject to final approval. The first facility is a $185.0 million sustainability-linked revolving credit facility with Nordea Bank and Skandinaviska Enskilda Banken, the proceeds of which will be used to refinance 12 vessels, including six vessels currently financed under lease arrangements. The second facility is a $108 million sustainability-linked term loan with ABN AMRO Bank and Credit Agricole Corporate and Investment Bank, the proceeds of which will be used to finance seven vessels, including three vessels currently financed under lease arrangements. Both facilities are priced at Adjusted SOFR (LIBOR equivalent) plus a margin of 2.25% and mature in 2027. The new facilities will replace the current loans with the respective banks priced at LIBOR plus a margin of 2.4% which were scheduled to mature in December 2025. These refinancings are subject to final documentation which is expected to be completed, along with drawdown of all tranches by October 31, 2022.
The third facility is a new $15 million sustainability-linked receivables facility with ABN AMRO Bank, which is scheduled to mature in 2025 plus extension options. This facility replaces Ardmore’s existing receivables facility scheduled to mature in July 2023 and is priced in line with the expiring facility.
The covenants and other conditions of the three new facilities are expected to be consistent with those of the Company’s existing debt facilities. In addition, all three facilities contain a pricing adjustment feature linked to Ardmore’s performance on carbon emission reduction and other environmental and social initiatives. The facility’s targets for carbon emission reduction align with the International Maritime Organization’s targets for green house gas emissions reduction. The facilities reflect the Company’s current strong performance on Environmental Social Governance (“ESG”) initiatives, including (a) carbon emission levels which are significantly below the targets set out under the Poseidon Principles, (a global framework for responsible ship finance to help incentivize decarbonization in the shipping industry) and (b) having a very diverse workforce and being actively involved in the education and development of future seafarers. The pricing structure in the new facilities is expected to reward the Company for maintaining its carbon emission reduction trajectory and overall performance on ESG.
The Company issued 2,829,707 shares of its common stock, raising $20.5 million in net proceeds under its “at-the-market” program in the period from May to July 15, 2022, the proceeds of which were used for general corporate purposes including debt reduction.
Awards
On June 21, 2022, the Company was awarded the Marine Money Deal of the Year Award in respect of the formation of its E1 Marine joint venture and for its preferred equity issuance with Maritime Partners LLC, which transactions were completed in mid-2021. Separately, on June 24, 2022, the Company was ranked as the top tanker company and foreign private issuer of all public shipping companies for its ESG performance in the Webber Research 2022 ESG Scorecard.
COVID-19
In response to the COVID-19 pandemic, many countries, ports and organizations, including those where Ardmore conducts a large part of its operations, have implemented measures to combat the outbreak, such as quarantines and travel restrictions. Such measures have caused severe trade disruptions. In addition, the pandemic has resulted and may continue to result in a significant decline in global demand for refined oil products. As Ardmore’s business is the transportation of refined oil products on behalf of oil majors, oil traders and other customers, any significant decrease in demand for the cargo Ardmore transports could adversely affect demand for its vessels and services. The extent to which the pandemic may impact Ardmore’s results of operations and financial condition, including possible impairments, will depend on future developments, which are highly uncertain and cannot be predicted, including, among others, new information which may emerge concerning the virus and of its variants and the level of the effectiveness and delivery of vaccines and other actions to contain or treat its impact. Accordingly, an estimate of the impact of the COVID-19 pandemic on the Company cannot be made at this time.
Conflict in Ukraine
Russia’s invasion of Ukraine in February 2022 has disrupted supply chains and caused instability and significant volatility in the global economy.
Much uncertainty remains regarding the global impact of the conflict in Ukraine, and it is possible that such instability, uncertainty and resulting volatility could significantly increase our costs and adversely affect our business, including our ability to secure charters and financing on attractive terms.
As a result of Russia’s invasion of Ukraine, the United States, several European Union nations, the United Kingdom and other countries have announced unprecedented sanctions and other measures against Russia, Belarus and certain Russian and Belarussian entities and nationals.
The sanctions announced by the U.S. and other countries against Russia and, in some instances, Belarus include, among others, restrictions on selling or importing goods, services or technology in or from affected regions, travel bans and asset freezes impacting connected individuals and political, military, business and financial organizations in Russia, severing large Russian banks from U.S. /or other financial systems, and barring some Russian enterprises from raising money in the U.S. market. The U.S. has also banned the import of certain Russian energy products into the U.S., including crude oil, petroleum, petroleum fuels, oils, liquefied natural gas and coal. The U.S., EU nations and other countries could impose wider sanctions and take other actions. While it is difficult to anticipate the impact the sanctions announced to date may have on our business and us, these and any further sanctions imposed or actions taken by the U.S., EU nations or other countries, and any retaliatory measures by Russia in response, could lead to increased volatility in global oil demand which, could have a material impact on our business, results of operations and financial condition. In addition, it is possible that third parties with which we do business may be impacted by events in Russia and Ukraine, which could adversely affect us.
Results for the Three Months Ended June 30, 2022 and 2021
The Company reported a net profit of $28.8 million for the three months ended June 30, 2022, or $0.82 earnings per basic share and $0.81 earnings per diluted share, as compared to a net loss of $8.2 million, or $0.24 loss per basic and diluted share for the three months ended June 30, 2021.
Results for the Six Months Ended June 30, 2022 and 2021
The Company reported a net profit of $21.0 million for the six months ended June 30, 2022, or $0.60 earnings per basic share and diluted share, as compared to a net loss of $16.7 million, or $0.50 loss per basic and diluted share, for the six months ended June 30, 2021.
Management’s Discussion and Analysis of Financial Results for the three months ended June 30, 2022 and 2021
Revenue. Revenue for the three months ended June 30, 2022 was $107.1 million, an increase of $59.8 million from $47.3 million for the three months ended June 30, 2021.
The Company’s average number of operating vessels increased to 27.0 for the three months ended June 30, 2022, from 26.2 for the three months ended June 30, 2021.
The Company had one product tanker employed under time charter as at June 30, 2022, as compared to four as at June 30, 2021. Revenue days derived from time charters were 90 for the three months ended June 30, 2022, as compared to 361 for the three months ended June 30, 2021. The decrease in revenue days for time-chartered vessels resulted in a decrease in revenue of $3.6 million.
The Company had 2,348 spot revenue days for the three months ended June 30, 2022, as compared to 2,004 for the three months ended June 30, 2021. The Company had 26 and 23 vessels employed directly in the spot market as of June 30, 2022 and 2021, respectively. The increase in spot revenue days resulted in an increase in revenue of $7.1 million, while changes in spot rates resulted in an increase in revenue of $56.5 million for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021. The Company managed three third-party chemical tankers employed under spot trading as at June 30, 2022, compared with four as at June 30, 2021. This resulted in a decrease in revenue of $0.2 million.
Voyage Expenses. Voyage expenses were $41.2 million for the three months ended June 30, 2022, an increase of $20.7 million from $20.5 million for the three months ended June 30, 2021. An increase in bunker prices resulted in an increase of $16.2 million and an increase in spot revenue days resulted in an increase in associated costs of $4.5 million for the three months ended June 30, 2022.
TCE Rate. The average TCE rate for the Company’s fleet was $27,806 per day for the three months ended June 30, 2022, an increase of $16,010 per day from $11,796 per day for the three months ended June 30, 2021. The increase in average TCE rate was the result of higher spot rates for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021. TCE rates represent net revenues (or revenue less voyage expenses) divided by revenue days. Net revenue utilized to calculate TCE is determined on a discharge to discharge basis, which is different from how we record revenue under U.S. GAAP.
Vessel Operating Expenses. Vessel operating expenses were $15.9 million for the three months ended June 30, 2022, an increase of $0.8 million from $15.1 million for the three months ended June 30, 2021. Vessel operating expenses, by their nature, are prone to fluctuations between periods. Average fleet operating expenses per day, including technical management fees, were $7,036 per vessel for the three months ended June 30, 2022, as compared to $6,398 per vessel for the three months ended June 30, 2021. This is a result of higher costs due to additional crew changes in the current year as well as an overall increase in costs due to inflation for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021.
Charter Hire Costs. Total charter hire expense was $2.3 million for the three months ended June 30, 2022 an increase of $0.9 million from $1.4 million for the three months ended June 30, 2021. This increase is the result of the Company having three vessels chartered-in as at June 30, 2022, compared to one vessel chartered-in as at June 30, 2021. Total charter hire expenses in the second quarter of 2022 is comprised of an operating expense component of $1.2 million and a vessel lease expense component of $1.1 million.
Depreciation. Depreciation expense for the three months ended June 30, 2022 was $7.0 million, a decrease of $0.9 million from $7.9 million for the three months ended June 30, 2021. This decrease is a result of three vessels classified as held for sale in the second quarter of 2022, when we ceased depreciating them.
Amortization of Deferred Drydock Expenditures. Amortization of deferred drydock expenditures for the three months ended June 30, 2022 was $1.0 million, a decrease of $0.3 million from $1.3 million for the three months ended June 30, 2021. 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 June 30, 2022 were $4.3 million, consistent with $4.3 million for the three months ended June 30, 2021.
General and Administrative Expenses: Commercial and Chartering. Commercial and chartering expenses are the expenses attributable to Ardmore’s chartering and commercial operations departments in connection with its spot trading activities. Commercial and chartering expenses for the three months ended June 30, 2022 were $1.1 million, an increase of $0.4 million from $0.7 million for the three months ended June 30, 2021. The increase in costs was primarily due to an increase in travel related costs during the three months ended June 30, 2022 compared to the three months ended June 30, 2021.
Interest Expense and Finance Costs. Interest expense and finance costs for the three months ended June 30, 2022 were $4.9 million, an increase of $0.6 million from $4.3 million for the three months ended June 30, 2021 due to prepayment charges upon exercising the vessel purchase options for and prepayment of the related debt of the Ardmore Sealeader and Ardmore Sealifter. Cash interest expense increased by $1.2 million to $4.5 million for the three months ended June 30, 2022, from $3.3 million for the three months ended June 30, 2021. Amortization of deferred finance fees for the three months ended June 30, 2022 was $0.4 million, a decrease of $0.6 million from $1.0 million for the three months ended June 30, 2021.
