Q4 2020 Ardmore Shipping Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to Ardmore shipping fourth quarter and folio of 'twenty 'twenty earnings Conference call. Today's call is being recorded and an audio webcast and presentation are available in the Investor Relations section of the company's website Ardmore shipping dotcom.
We will conduct the question and answer session. After the opening remarks instructions will follow at that time of.
A replay of the conference call will be accessible anytime during the next two weeks by dialing 187734475 to nine or 141 to three 170 theater of eight eight.
And entering passcode 1015186 for the.
At this time, we've taught on the con call over to Anthony Gurnee, Chief Executive Officer of Ardmore shipping. Please go ahead.
Good morning, and welcome to Ardmore shipping fourth quarter and full year 2020 earnings call first of all the Astro CFO, Paul Timna and to describe the format for the call and discuss forward looking statements.
Thanks, Tony and welcome everyone before we begin the conference call I would like to direct all participants to our website of the Ardmore shipping dot com, where you'll find the links of this morning's fourth quarter and full year 2020 earnings release and presentation.
So on the other I would take about 15 minutes to go through the presentation and then open up the call to questions.
Turning to slide two please allow me to remind you that our discussion today contains forward looking statements actual results may differ materially from the results of projected from the forward looking statements on additional information concerning factors that could cause the actual results to differ materially from those in the forward looking statements is contained in the fourth quarter and full year 2000 of 'twenty earnings release, which is available on our website.
Now I'll turn the call back over to Tony Thanks, Paul So the first two outline of the format of today's call to begin with I'll discuss financial highlights and market developments then some comments on the energy transition Paul will discuss the product and chemical tanker fundamentals and provide a detailed performance update.
And then I'll conclude the presentation and we'll open up the call for questions.
I'm, turning first to slide four.
The last year started off strong with IMO 2020 rose to record highs with the Saudi oil price war and pandemic disruption.
And the new lows by yearend Nevertheless, resulting in overall positive adjusted net earnings of the point of 5 million or two cents per share and ardmore spot EMR performance of just under 16000 of day.
Fourth quarter financial results are reflective of the trough in product tanker rates with an adjusted loss of 13 million or <unk> 39 per share and spot EMR performance of 9600 per day.
Chemical tankers didn't enjoy the same volatility of them ours earlier in the year, but rates of fared better in the second half on earning just under 11000 of day or 11800 on of capital adjusted basis to the cost of an EVAR.
Yeah.
Meanwhile, Ardmore had been active and taking advantage of these volatile market conditions, we completed the sale of the Ardmore see Mariner just at the end of the year. This was replaced by the 'twenty 10, built Ardmore seafarer, which we purchased in the third quarter at an attractive price and a much lower breakeven rate of 11700 per day.
We completed financing for the Ardmore Seafarer with you of bank at LIBOR, plus 225 on our lowest bank spreads the bank spread to date we.
We took advantage of weak market conditions by carrying out six dockings in the fourth quarter.
We just recently fixed three of them ours on one of your time charters, the partly derisked near term cash flow.
We repurchased just under 100000 shares in the fourth quarter at a weighted average price of $2 of 91 cents per share.
And we've maintained the strong liquidity position and balance sheet with year end cash of just the just over 58 million and corporate leverage on a net debt basis of 50 per cent.
Turning to slide five on the market outlook.
Ardmore MLR spot performance has enjoyed a partial rebound so far this year on the back of the winter market activity and a modest economic recovery.
We expect continued challenging market conditions until the full economic recovery is underway largely dependent on the effectiveness and timing of the vaccine rollout.
Thereafter, we expect a rebound of charter rates, along with our financial performance in a recovering market.
With above trend ton mile demand growth characterized by a demand pull recovery with refined product draws leading the way of a crude activity and.
And oil market disruption of trading activities, creating longer voyages and getting refined products to the markets where they are needed.
Beyond the post pandemic recovery, we expect continued product tanker demand growth of 2030 with global economic growth and refinery activity away from points of consumption offsetting the initial impact of the energy transition.
As already mentioned chemical tankers of fared better than product tankers since the beginning of the rebound, which we expect to continue on a full recovery.
Meanwhile, product tanker supply growth remains constrained with net fleet growth of 1% to two per cent per annum for the foreseeable future.
And upcoming energy transition regulations, keeping a lid on new building activity.
While we're cautious about the first half of 'twenty 'twenty. One we believe the second half will bring improved conditions and should continue to build thereafter.
Turning then to slide six.
The global energy transition will have a profound impact on the shipping industry, including our seconds.
While this will unfold over years, the impact is already being felt through anticipated regulations and constraints on new building ordering activity.
Our view is that the transition represents more opportunity of the compliance challenge as reflected in our energy transition plan as of May.
Elements of which are as follows.
First we see significant opportunity for continued improvements in fuel efficiency as well as early adoption of zero carbon fuels, which ardmore will pursue in keeping with our current strategy.
Second many of our customers have similar incentives to Decarbonize and we'll approach this through closer collaboration with shipping companies, such as Ardmore, who were able to assist them in achieving their aims.
And third over time, our chartering activity will migrate more toward non fossil fuel cargos for which demand will continue to grow along with the global economy. In fact already 25 per cent of our business is non fossil fuel cargo.
The energy transition plan as the progressive initiatives, but at the same time, it's strategically consistent and focused on performance, which we will describe more fully on our upcoming 2020 sustainability report due out next week.
And on that note I'll hand, the call back over to Paul.
Thanks, Tony and starting off of the market fundamentals.
Just for the product and chemical tanker demand remains very positive.
And the economic rebound is widely expected post pandemic, but the world of bank of the IMF for expecting the global economy to expand by 4% this year with China alone forecast to grow by seven 9% in 2021.
Yeah, you are forecasting global oil demand to increase by 8% or seven 4 million barrels a day getting back to pre COVID-19 levels of 19, 9% of 100 million borrowed the day towards the end of this year and to grow by approximately eight five per cent per annum thereafter out to 2030.
Nope refining throughput is expected to increase this year by 6% or $4 5 million barrels a day further boosting cargo volumes.
On the ongoing trend in refinery dislocation is accelerating a small refineries gateway to new Mega scan export oriented refineries.
One 9 million borrowed the day of refinery capacity closed in 2020 in Europe, Americas, Japan, Philippines in Australia, while the five point statement of borrowers of new capacities coming on line between the end of 'twenty 'twenty, two 'twenty 'twenty, four and the middle East and China, resulting in greater voyage distances and Tom on the Mt.
Meanwhile, the product and chemical tanker supply is looking increasingly attractive.
The energy transition looks set to accelerate has significant turnover in the global fleece and the increased emissions and efficiency targets put pressure on older less efficient ships, resulting in more scrapping.
And to put it into perspective over 800 chips are 26 percentage of the product tanker phase would be over 20 years old and within the scrapping you zone in the next five years.
The current order book is already at all time lows prototypes of the order book of six 3% of 193 ships delivering over the next three years and we expect our.
The growth net of scrapping to be approximately one to two per cent per annum for the next two years.
Chemical tanker order book is three six per cent or 64 ships and net of scrapping. The expect of fleet growth is less than one per cent per annum for at least the next two years.
New ship ordering is expected to remain low until there is further clarity on propulsion technology on emissions regulations as well as an economic justification for ordering.
Moving to slide 10 for a summary of our quarterly performance on our financials.
We're reporting a profit of about 40 of 2020.
A very strong first half characterized by market volatility and oversupply.
Followed by a weaker second half, reflecting the impact of pandemic on oil demand.
As Tony mentioned charter rates have improved in the first few weeks at this year on we're currently trending higher than the fourth quarter.
For the full year and 2020, we're reporting adjusted earnings of $500000 or two cents per share, which excludes the losses on the state of the Ardmore <unk>.
Looking at our expense items operating expenses came in at $62 5 million for the year in line with last year, which was an exception of performance given the challenges of managing Covid.
Total overhead costs were $17 9 billion for the year of comprising corporate cash expenses of $11 9 million on commercial and chartering expenses of $3 million.
Costs were down year on year, primarily relates to travel on other COVID-19 related cost savings.
As mentioned before in many companies the commercial and chartering costs are incorporated into voyage expenses, which means that our corporate cost is the comparable overhead.
For a direct comparison or in terms of commercial overhead costs are running at approximately 50% of market race prevailing pool fees.
Interest costs came in well below budget for the full year, reflecting lower interest rates on completion of the fixed to floating swap in may of this year or last year car.
Currently 305 million or <unk> 75 per cent of our debt is fixed at a margin plus 32 basis points through may of 'twenty 'twenty three.
Depreciation and amortization totaled $38 4 million for the year.
In terms of guidance for the first quarter.
We expect the operating expenses to be approximately $16 million.
We expect overheads, incorporating commercial and corporate costs to the $4 5 million, including cash and noncash items.
We expect depreciation and amortization to come in of $10 million.
Interest and finance costs are approximately $4 million, including deferred finance fees amortize of 400000, and finally, we have one ship on time charter of rain and we expect chartering expenses to be $1 2 million from the first quarter of 'twenty one.
Overall, the Ardmore is cost structure is amongst the lowest of our peer group. Despite our smaller size with the significant incremental improvement possible through scale.
Turning to slide 11, we take a lot of charter rates.
As mentioned area of 2020 was the year of two half of.
A very strong first half followed by a much weaker second half and in spite of the challenges in the second half the eco design Mr's earned 15990 for the full year one of the fleet average came in at 15355.
It's important to point out that none of our Mars of scrubber centers.
Ignoring capital or operating costs associated with the scrubbers are estimates estimated that of scrubber fitted in EMR should generate a premium of two TCE of $600 of day for the fourth quarter and $1200 of day for the full year based on the spread between H SFO and Dallas F O over the period.
And looking across the quarterly performance for the various ship types Eco design Mr's reported TCE of 9600 in the fourth quarter, while the eco Mod chips reported 9050.
The chemical tankers performed very well on a relative basis and as with prior quarters, we presented the charter rates on the chemical ships on an actual on a capital adjusted basis.
The purpose here is to present the rates for the various vessel on a comparable basis to an EMR.
The methodology is simple we establish a bareboat equivalent rates of the shifts each quarter based on TCE. We then make an adjustment of the paperboard for the relative value of the shift to an EMR and then this is added or subtracted two the TCE rates again. This is one of the methods we use internally to assess relative TCE performance on its various waterfront contextualize on rates across different non.
On the classes.
Looking down the rates the chemical tankers reported of 10900 for the quarter on 11007 hundreds of on a capital adjusted basis.
And looking ahead as of today and already mentioned for the first quarter. We of 45 per cent of our days booked on the M of ours at an average of 11500 per day on the 11000 per day on the chemicals with 75 per cent of the days booked.
Moving to slide 12 per fleet and operations update.
Our fleet continues to perform well with all the COVID-19 challenges being carefully managed.
Cooling on seafarers welfare of remains of top priority.
Ardmore, along with other leading ship owners strongly supports the recently announced Neptune declaration in an effort to build awareness of the issues on pushed to accelerate crew changes and vaccinations for our seafarers.
In terms of fleet performance Ardmore is modern highly fuel efficiency continues its strong performance on emissions reduction and we remain well ahead of target set by the industry.
Our fate carbon emissions for 2020, we're 11% better than the preceding principle of targets and we have a continued focus on further improvements and investments in technology.
In addition of all of Ardmore fleet significantly outperforms the E X I targets currently under discussion by the I M O.
Meanwhile, we continue to invest in the fee to optimize operating performance, we completed dry dockings on six vessels in the fourth quarter, taking advantage of the weaker charter markets on all of the dockings were completed in the east, enabling more cost effective dry dockings.
Total capex for the full year 2020 was $10 6 million comprising nine dry dockings and advance payments for bottled water systems.
From a forecasting capex of seven 5 million for 2021 on dry dockings ballast water system treatment system installations on performance and hunting upgrades.
Finally, we're forecasting 9300 revenue days for 'twenty, 'twenty, one and as Tony mentioned with some recent fixtures. We currently have 12, 5% of of 2021 days fixed on time charter at market rates.
Turning to capital allocation on financial activity on slide 13.
We are continuing to focus on financial strength and liquidity on reporting cash of $58 4 million at the year end.
Total net debt at the end of December was 347 million of net leverage was 52% down year on year.
We completed the sale of the 2006 tenths of the Mariner for 10 million in January the net cash proceeds from the sale of the vessels were $5 4 million after of prepayment of debt.
We closed the five year of 10 million on for Saturday for the Ardmore Seafarer with Eagle Bank at LIBOR, plus 2.25% in December and we repurchased 100000 shares under our new share repurchase plan on a weighted average price of $2 91 per share during the open period in the fourth quarter.
Debt reduction and the financial strength remains.
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The facility.
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Our total.
The call back over to Tony.
Thanks, Paul.
2020 over all of those problems.
The rollout.
The performance.
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Tangible book.
The 70.
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Yeah.
All of them.
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We expect.
Yeah.
Just until the.
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2021.
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Part of your line of chopping off.
Hi.
Oh no.
The line of breaking off.
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Uh huh.
Could you try dialing back in.
Okay.
Okay.
Good day.
I would suggest you to reconnect to the call of gang.
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Okay.
Pardon me, ladies and gentlemen, please standby, while we really can.
Thank you for your operations.
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Okay, operator are we back on.
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Pardon me. This is the operator, we have reconnected the speaker from real cutting your brief Christine.
Okay. Thanks, So I think Paul it was almost done and the good news is I had a chance to completely rewrite the summary.
Here, we go so anyway.
So to summarize again 'twenty 'twenty overall was a notable year, but a rollercoaster in terms of the performance and a reminder of our earnings potential with our best of voyage coming into the 77000 today over 50 days.
While the market remains challenging rates have improved with the winter.
With winter conditions of the beginnings of economic recovery.
We do expect generally weak market conditions to persist.
Until a full global economic recovery is underway, which we anticipate will occur in the second half of 2021.
The time, we remain financially conservative with the strong cash reserves and keeping the focus on performance and cost control.
At the same time, we're also looking beyond the immediate challenges to the future opportunities and.
On a full market recovery and in the energy transition.
And as the final point.
Well you know, we all want to look forward to a brighter future we must not forget the hardships debt. The ongoing pandemic presents most of all three of our seafarers on but also the short stuff in lockdown and.
In the travel related quarantine on our behalf.
One of the acknowledged their sacrifices and thank them for the perseverance and their professionalism.
And on that we're happy to open up the call for questions.
We will now open for question and answer session to ask a question you May Press Star then one on your Touchtone phone, okay. Using a speakerphone. Please pick up your ham from before pressing the keys.
Any time Youre Crusher has been that trust and you would like to withdraw your question. Please press star two.
I will pause momentarily to assemble our roster.
The first question comes from Jon Chappell with Evercore. Please go ahead.
Thank you good afternoon everybody.
The 21st question, it's a little bit shorter term on that I'll switch to a longer term one of the time charter outs certainly that's something you guys have done recently and given your outlook for the market seems to be somewhat bottom ticking. Maybe you can just give us per.
First of all of the numbers around the time charters three one years, what the rate is roughly.
And then also the the thought process behind locking in for a year given your kind of.
Two time horizon theme on the on 2021 of the second half being much better.
Hey, John.
Yes.
Luckily trade wins has helped us out with an article.
Today on MLR time charter rates and the rates that we booked are consistent with that.
The reason why we're doing it is that we do think that there's it's going to be choppy for the next number of months.
We think the rate probably reflects how you know.
You know how on average the year is going to turn out of.
Which would suggest you know rates in the high teens.
During the year on a spot basis, so were pretty happy with the rates I think it helps us out and we don't think we're leaving a lot on the table.
Okay, and then just to be clear that 45 per cent of <unk> that you've given does that incorporate the time charter rates as well, which would obviously be much higher than the spot or is that just purely a what your ships in the spot market.
Yeah.
No John debt, that's incorporated that's the blended between the the time charter ships 70 on the spot ships.
The time charters were fixed during the quarter so.
Back to Q1 of a higher percentage of fixed days, but the towns of your question the.
The number of quoted is the blended between the Tc in the spot.
Do you have it on a pure spot basis.
On a pure spot basis.
There's a couple of hundred dollars of day and that's not much.
Given the way it's not episodic.
On a huge component of the first quarter.
Got it.
And then bigger picture and Tony I was going to ask before the call started.
Bottom of the market you have an optimistic outlook on the back half of its year on the rest of the decade.
Ending the year with $58 million of cash like it seems like this may be your time to to expand the fleet.
Then you had the slide on the energy transition and kind of your next steps as far as that goes how are you thinking about expanding the fleet at the bottom of the market. While also retaining capital on thinking about the next evolution of other its full fuel propulsion or any other steps necessary as part of the energy transition.
A good question, John I mean look.
There are a lot of competing priorities here and.
We also want to remain financially conservative right. So.
There's nothing I can articulate that's going to eliminate anything we see opportunities in the energy transition.
We think we've got a lot of upside and exposure.
You know two of recovering spot market.
And and we maintain our priority on on overtime.
Delevering.
Okay. Thanks, Tony Thanks, Paul.
Thanks, Sean.
As a reminder, if you have a question. Please press star then one to be trying to enter the queue.
The next question comes from Brian breakeven from Jefferies. Please go ahead.
Okay.
How the gentlemen, how's it going.
Hey, Randy.
Hey, So I guess following up on that I'm looking at slide eight obviously the outlook seems pretty attractive from both the supply and demand perspective, slide 11 markets still very close to the bottom. So what are your thoughts on maybe securing some additional time charter ins you know maybe not for a year, if you're just doing some outs for a year.
But the three and five year time charter in rate is only around 13580 or $14000 for Niko.
Or what's your appetite there for some longer term time charter ins.
Yes.
We are being a little weak.
We are being.
A bit more active in the time charter space, both in and out that will continue.
As we see opportunities and a lot of it's kind of you know sort of fixture of specific.
So.
I think everything you're saying mix of lot of sense. These are good ideas.
Have to wait and see what opportunities arise that Iraq that are actionable.
Got it okay. Yeah on paper looks good I guess the into practice.
So that's why you get the big Bucks.
Alright, and then I guess on the share repurchase plan, obviously nice to see that getting put to work. Although it was only for the.
$300000, so what determine that amount in the fourth quarter and on going forward is that the top priority for use of cash.
Hey, Randy.
I mean, I think look as Tony kind of laid out there's a lot of competing priorities for cash at the moment of the energy condition is a very exciting development.
The the opportunities to deploy capital there.
One of our top priorities is to maintain a strong liquidity position and pay down debt on is.
As also have you seen in the fourth quarter, we bought back some stock at a very attractive price so and of it remains of a tool in the toolbox, but we've got it we've got a balance on number of competing objectives and ultimately the the long term goal here is to build.
Average long term shareholder value and I think there'll be there'll be lots of opportunities in that and you know the share repurchase would be one of them, but yeah energy transition guidance is super exciting and that has potential to to create a lot of value here as well. So a lot of competing priorities I'm very pleased to get the share repurchase a little bit down in the fourth quarter.
It's there to be used again as and when we kind of see fit but by Tony said on the on the time charters were not going to ask.
Tip, our hand in advance.
Got it and then any rhyme or reason for that number or is that just kind of trading liquidity constraints.
Yeah.
Uh huh.
Little bit of that.
It was the the specific numbers 98000, and something so 100000, because we didn't we didn't just stop at 100000 zone.
It was purely a function of of markets and timing.
And where we were at that time.
Sounds good alright, yeah, Congrats obviously on the roller coaster, but a pretty solid year.
Thanks, Randy Thanks, Randy.
This concludes our question and answer session the conference of ours.
From now concluded. Thank you for attending today's presentation you may now disconnect.
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