Q1 2025 Ardmore Shipping Corp Earnings Call
Good morning ladies and gentlemen and welcome to Ardmore Shipping's first quarter 2025 earnings conference call. The rate call is being recorded and an audio webcast and presentation are available in the investor relations section of the company's website, Ardmoreshipping.com. We will conduct a question and answer session after the opening remarks.
Instructions will follow at that time.
A replay of the conference call will be accessible anytime during the next two weeks by dialing 1-8-8-8-660-6345 or 1-6-46
At this time, I will turn the call over to Gernot Ruppelt, Chief Executive Officer of Ardmore Shipping
Good morning and welcome to Ardmore Shipping's first quarter 2025 earnings call.
Speaker Change: First, let me ask our president and CFO , Bart Kelleher to discuss forward-looking statements.
Speaker Change: Thanks, Gernot. Turning to slide two, please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements.
Speaker Change: Additional information concerning factors that could cause the actual results to differ materially from those in the forward looking statements is contained in the first quarter of 2025 earnings release which is available on our website.
Speaker Change: And now we'll turn the call back over to Gernot. Thank you, Bart. Let me first outline the format of today's call, which you can see here on slide three.
Gernot Ruppelt: I'll start by discussing our first quarter highlights and our capital allocation policy. I will then hand the call over to Bart, who will cover the market outlook and provide an update on our financial and operational performance.
Gernot Ruppelt: Thereafter, I will conclude the presentation before opening up the call for questions.
Gernot Ruppelt: However, before we jump into the presentation, I want to pause for just a moment.
Gernot Ruppelt: And acknowledge that since we convened with many of you, during our investor day about three months ago, we all have witnessed an exceptionally busy new cycle and lived through volatile equity markets.
Gernot Ruppelt: There is much debate and speculation about what this means in terms of economic impact. Therefore, we want to highlight three key points about Ardmore and our industry at the start of this call.
Gernot Ruppelt: and we will cover this in greater detail during the presentation.
Gernot Ruppelt: The one, Ardmore's balance sheet, and our low-break even make us more robust than ever across a wide range of economic scenarios.
Gernot Ruppelt: Secondly, although broader markets experience turmoil, product freight markets have remained resilient.
Gernot Ruppelt: Already strong refining margins should be further supported by OPEC oil production increases.
and the Global Tanker Fleet is the oldest in decades.
Gernot Ruppelt: Third, our fleet composition, our lean operating platform and our capital structure are the results of deliberate strategic choices.
Gernot Ruppelt: Always guided by industry-leading governance and a balanced approach to allocating capital through the cycle.
Gernot Ruppelt: And with that, we return to our usual format, and direct your attention to slide 4.
Gernot Ruppelt: We are pleased to announce our first quarter results, delivering adjusted earnings of 5.6 million dollars or 14 cents per share
Gernot Ruppelt: Overall, market fundamentals remain constructive, despite macro headwinds with positive supply-side dynamics.
Gernot Ruppelt: Meanwhile, our financial strength allows us to dynamically execute on our capital allocation policy.
Gernot Ruppelt: Today, we declared another quarterly cash dividend consistent with our policy of paying out one third of adjusted earnings.
Furthermore, we are continuing to invest in our fleet.
Gernot Ruppelt: We have upgraded the tank coatings on our chemical tankers to further expand revenue opportunities by increasing cargo flexibility.
Gernot Ruppelt: Pass Quarter, we delivered Omar earnings of $20,900 per day and we remain focused on tight cost management, with a low cash break even level of $11,500 per day.
Moving to Slide 5
Our TCE performance reflects continued strength, defined typical seasonal norms.
Raids remain significantly above our cashbreak even double.
Gernot Ruppelt: Omar has earned $20,900 per day for the first quarter and 22,100 per day so far in the second quarter with 50% bucked.
Gernot Ruppelt: Meanwhile, all chemical tankers are experiencing a significant step-up, having earned $15,000 per day for the first quarter and earning $19,500 per day for the second quarter, with 60% of $15,000 per day for the second quarter and earning $15,000 per day for the second quarter
Gernot Ruppelt: Turning to slide six, where we discuss our longstanding capital allocation policy, which reflects our strategic through the cycle approach. We are committed to dynamically balancing the return of cash to shareholders with reinvestment in our fleet in order to enable sustainable value creation through the cycle.
Gernot Ruppelt: In the first quarter, we declared our 10th consecutive dividends since the re-initiation of our dividend policy in 2022.
Gernot Ruppelt: We continue to invest in efficiency projects across our fleet, achieving low payback periods in IRRs ranging from 20% to over 100%.
Gernot Ruppelt: We upgraded the coatings on four of our chemical tankers with the remaining two to be completed this quarter.
Disaligns with Ardmore's Trading Strategy
Gernot Ruppelt: It offers the flexibility to move deeper into the premium end of the cargo slate, boosting earnings accordingly.
With that, I'd like to hand it over to Bart
Bart Kelleher: Thanks, Gernot. Turning now to the market outlook in supply dynamics, starting with slide eight.
Bart Kelleher: Here we contrast an aging MR fleet and its natural replacement needs with the current order book.
Bart Kelleher: The chart on the left illustrates changes in the MR fleet over time
Currently, there's an exceptionally old fleet.
Bart Kelleher: Actually, it's the oldest fleet since the turn of the century with an average age of over 14 years.
Now moving to the chart on the right.
Bart Kelleher: More than half of this fleet will be over 20 years old in scrapping candidates within the next five years.
Bart Kelleher: In contrast, the current order book, delivering over the same time period, represents only 14% of the fleet.
Bart Kelleher: So the aging fleet is nearly four times the current order book.
Bart Kelleher: In addition, the pace of ordering has meaningfully decelerated since mid-2024 .
Bart Kelleher: In fact, only four MR orders were placed in the first quarter of this year.
Turning to Slide 9
Bart Kelleher: The pie charts on the left further depict the aging of Marfleet.
These older vessels trade at significantly lower utilization levels.
Bart Kelleher: The chart on the right highlights how they are typically empty over half of the time.
while we do expect an increase in scrapping.
Moving to Slide 10
Bart Kelleher: Both the U.S. Trade Representative Proposal to impose fees on Chinese vessels.
and the further expansion of Western sanctions are limiting supply.
Bart Kelleher: The USTR proposal is practically halting ordering activity in China and could impose a significant cost burden on Chinese tankers.
Bart Kelleher: Fortunately, in this evolving situation, this is not a concern for Ardmore.
Bart Kelleher: Our Korea and Japan build fleet continues to perform well and has full trading flexibility.
Bart Kelleher: In parallel, the additional step-ups and sanctions are also benefiting the compliant fleet.
Bart Kelleher: Over 2,000 tankers are currently either sanctioned and or operating in the dark fleet.
Bart Kelleher: These vessels are not properly insured, no longer available for compliant trades, it would have difficulty ever returning to the mainstream fleet.
The Affirmack segment is most impacted.
Encouraging more LR2 product tankers to enter the crude trade.
Bart Kelleher: These supply-side dynamics are reinforcing a two-tier market where Ardmore and our fully-compliant fleet stand to benefit.
Bart Kelleher: Moving to Slide 11, where we address demand fundamentals in greater detail.
Bart Kelleher: While U.S. tariffs and countermeasures have created uncertainty across the wider macroeconomy
Underline Tanker Demand Fundamentals Remain Supportive
Bart Kelleher: As shown in the chart on the upper right, refinery margins have been rising.
Bart Kelleher: Meanwhile, OPEC Plus is set to ratchet up production starting this month.
Bart Kelleher: Looking ahead, Market Projections indicate continued demand growth for oil products.
to meet global mobility and energy security needs.
Bart Kelleher: It's also important to note that global oil consumption has historically been more resilient through economic cycles than other areas of the economy.
In addition, dislocation of oil refineries remains an enduring trend.
Refining and Petrochemical Production has been shifting east.
Bart Kelleher: Now moving to Slide 13, and turning our attention to Ardmore's operating and financial performance.
The company continues to build upon its financial strengths.
Bart Kelleher: Once again, the chart on the bottom left highlights our focus on successfully reducing our cash breakeven level to $11,500 per day.
Bart Kelleher: In fact, it's actually $10,500 per day when excluding pro forma capex.
Bart Kelleher: This has been achieved in an elevated interest rate environment driven by effective cost control, lower debt levels, and access to revolving credit facilities.
Bart Kelleher: As always, Ardmore remains focused on optimizing performance, closely managing cost, and preserving a strong balance sheet.
Turning to Slide 14 for Financial Highlights
Bart Kelleher: For the first quarter, we reported Yvette Dyer of 18.5 million. It has mentioned earlier earnings per share of $0.14.
Bart Kelleher: We continue to frame EBITAR as an important comparable valuation metric against our IFRS reporting peers.
Bart Kelleher: In full reconciliation details can be found in the appendix on slide 25.
Bart Kelleher: Also, please refer to slide 26 in the Appendix for our second quarter guidance numbers.
Moving to Slide 15 for Fleet Operations
Bart Kelleher: while also fixing two seasonal time-sharter outs to cover the summer period at an average rate of $22,000 per day.
Bart Kelleher: As you can see from the chart on the right, we're making great progress on our required dry dockings.
Bart Kelleher: We're almost done with most of this work and we'll have minimal dockings from mid-2025 onwards.
Boosting Revenue Days in Enhancing Earnings Power
Bart Kelleher: Chappell expenditures for the fleet in 2025 are currently forecasted approximately 35 million.
Bart Kelleher: This includes 15 million of elective capex related to tank coatings and efficiency upgrades.
Gernot Ruppelt: As Gernot already mentioned, we're upgrading tank coatings on all of our chemical vessels to increase cargo versatility and further expand revenue opportunities.
with an expected return of conservatively over 20%.
Gernot Ruppelt: As we shared in greater detail at our investor day earlier this year, we continue realizing benefits from our investments in AI and digitalization tools.
Supporting Commercial and Operational Execution
Gernot Ruppelt: And as the new EU fuel regulations effectively pass through voyage expenses have come into force
Gernot Ruppelt: They are creating opportunities to further optimize fleet deployment and drive TCE levels.
Gernot Ruppelt: Moving to slide 16, where we highlight the power of our strong operating leverage.
To frame this in a simple manner,
For every $10,000 per day increase in TCE
We would make an additional $2.30 in EPS.
Gernot Ruppelt: That's a boost of nearly 100 million in free cash flow generation.
Gernot Ruppelt: Our modern high-quality fleet is well positioned to take full advantage of this earnings power.
Bart Kelleher: With that, I'm happy to hand the call back to Gernot and look forward to answering any questions at the end.
Gernot Ruppelt: Great, thank you, Bart. Moving to Slide 18, allow me to summarize three key points.
Gernot Ruppelt: Ardmore has a robust balance sheet, a strong operating platform, and a modern, highly efficient fleet, or built in Korea and Japan.
Gernot Ruppelt: Great markets have shown resilience, and our TCEs have remained significantly above our cash break even of $11,500 per day.
Gernot Ruppelt: And finally, Ardmore's deliberate and sensible strategic choices have been well-matched to the business cycle and are underpinned by industry leading corporate governance.
Gernot Ruppelt: Now, before I open up to call the questions, I would like to briefly draw your attention to internal leadership progression at Ardmore that we referenced this morning in our earnings
Gernot Ruppelt: For one, we have announced the long planned and well-deserved retirement of our COO Mark Cameron, which will be effective January 1st.
Gernot Ruppelt: Mark has been with Ardmore since its inception in 2010 and has been instrumental in developing our technical management and operations platform, contributing countless strategic achievements for Ardmore.
Gernot Ruppelt: We are grateful for Mark's many years of service and wish him the very best. Following a structured transition process, Mark will be succeeded by Robert Gainer, currently our SVP commercial.
Speaker Change: Robert has been with Ardmore for 10 years in multiple leadership and commercial roles.
Speaker Change: The previously sailed as Master Mariner on the Ardmore fleet before coming ashore in 2015.
Speaker Change: and in the US following, completed an Executive MBA from a Rasmus University in Watertonham. In his new role, Robert will hold the responsibilities of the existing COO role and the previous COO role.
Speaker Change: thereby combining under one leadership umbrella our integrated business activities across chartering commercial operations and fleet management.
Bart Kelleher: And finally, we are pleased to announce the completion of our CFO process, announced during last year's leadership transition at Ardmore and Bart's stepping up as president.
Bart Kelleher: Effective to Life First, John Russell, presently Ardmore's Finance Director, will take on the broader responsibility of CFO working closely with Bart.
Bart Kelleher: John has served Ardmore for seven years and has been involved with Ardmore's leadership team on all finance matters.
Bart Kelleher: He's a chartered accountant and holds multiple degrees in finance. We are pleased that once again, Ardmore was able to promote from within as we continue to develop talent in-house and build on our strong dynamic company culture.
Now with that, we now welcome your question.
Bart Kelleher: Thank you. Ladies and gentlemen, we will now begin the question and answer session.
Bart Kelleher: Should you have a question, please press the star button, follow with the number one on your telephone keypad. You will hear a prompt that your hand has been raised.
Bart Kelleher: And should you wish to cancel your request, please press the star button followed by the number two. And if you are using a speaker phone, please leave the handset before pressing any key.
One moment please for your first question.
Speaker Change: Our first question comes from John Chappell, from Everton, ISI. Please go ahead.
Thank you. Good afternoon.
Speaker Change: Gernot or Bart Gleet update question as it relates to some of the announcements you made today.
Speaker Change: on that $2 million spread time chartering, time charter out. I'm assuming that's the matter horn extending that contract for a year.
Speaker Change: Are there any other opportunities above and beyond that with the time charter in fleet? I know that the other three expire this summer. Do they have options? And as you contemplate exercising potentially those options, do you see other spread opportunities like that?
Speaker Change: Yeah, hi, John , and thanks for the question. Probably not going to be able to go into a whole level of detail because some of those are commercially sensitive, but we're constantly in touch with, you know, opportunities on both Charter Inn and Charter Out.
Speaker Change: as you have seen also on some of those seasonal charters out and it is a fragmented market where we will hopefully find other opportunities to create, you know.
Speaker Change: Interesting spreads by putting together, you know, different pieces in creative ways.
Speaker Change: on the other charted in ships, currently no options of such, but, you know...
Speaker Change: We've developed a really good, long-standing, operating relationship with the head-owner and we're certainly always trying to find a way to continue with those relationships.
Speaker Change: Thank you. Just to follow up, obviously a lot of uncertainty as you touched on at the beginning at the values have been a little bit volatile. I think there's a lot of question marks, not just the macro, but also.
Arrangements.
Speaker Change: Certainly something we're always tracking and monitoring John and we are connected, you know, through, you know.
a wide range of sources of deal flow.
Speaker Change: with business that's available in the market, but we've also built a good track record on vessel acquisitions and time-todders, where we have direct exposure to various counterparties.
Speaker Change: evaluated with, you know, appropriate rigor and discipline. There is a correction taking place on asset values and this is something we're tracking closely, but so far we haven't felt it was the right time to move ahead.
Alright, thanks for now.
Thank you.
Speaker Change: Thank you so much for that question. And again, should you have a question? Please press the star button. Follow bit number one on your telephone keypad.
Speaker Change: Again, if you have a question, please press the star button, follow bit number one on your telephone and keep it.
and our second question comes from Omar Nokta from Jeffries.
Please go ahead.
Omar Nocta: Hi, I Gernot and Bart. Just a couple of questions. Maybe just first on the measurement changes.
Just a quick kind of...
Omar Nocta: Manchin of that obviously there's been a lot of movement and as you mentioned it seems like a pretty deep bullpen you're working with at Ardmore.
Omar Nocta: promoting from within. Just want to get a sense from you if you're anticipating any changes, strategically or how the businesses run going forward with the updated, say,
Speaker Change: Yeah, hi Omar. Thank you for that question. Gives me a chance to just elaborate here a little bit more, you know, with with regard to Mark, you know strong strong contributor and and spend there since the inception of the company in 2010, you know has been in the air, I, I, I, I, I,
Speaker Change: It's hugely important, contributed to Ardmore's performance and is also really strongly recognized in the industry and somebody who would surely be missed.
Speaker Change: You know, we have, you know, built incredible amount of talent internally, always giving people the chance to progress and kind of step up and step in. And I think that's really part of the Ardmore culture and it's been kind of part of what...
Speaker Change: You can see throughout the organization, even though of course there are some of those opportunities then for people to progress.
Speaker Change: I like to think there's also a lot of continuity around Ardmore's strategy, around Ardmore's governance, around our values, and our approach to performance.
Speaker Change: So these things might evolve of course with, you know, what the market determines and where the opportunity lies but the foundational principles very much remain the same, even though people of course step up into different leadership ranks. So in a way the, you know,
Speaker Change: The greater sum of things that Ardmore is greater than any individual.
Okay, thank you. Thank you for that.
Speaker Change: Maybe just more on the market. You mentioned, I think Bart, you're talking about asset values. I believe it was Bart mentioning the no values have come off a bit.
Speaker Change: I guess there's been a sort of a jolt of optimism in the sector overall with OPEC bringing production back. Clearly, there's a view that that's going to be very supportive to the large crude tankers, but how do you think that filters its way into the MR market and product tankers, I guess, in general?
Speaker Change: Yeah, look overall, I think it's really important to remember that even though there has been this uncertainty and volatility in broader markets, we referenced at the start of the call that TCE's find their footing at the levels that we're reporting for the first quarter and guiding for the second quarter, which I believe is positive and if anything, you know. [inaudible]
and moving against the seasonal trends.
Speaker Change: OPEC, of course, production increases. There's an impact on crew tankers but also an impact on refining margins which you have seen even week on week have jumped again and already
Speaker Change: and of course with that, you know, refiners have a stronger incentive to produce, to refine cargoes and with that, of course, there should be incremental need to transport those cargoes
Speaker Change: So that's that both favorably on top of the surprise story that we we highlight it in the call, but again, you know, oldest, older speed in decades. An order book less than the third of prior peaks and at the same time.
Speaker Change: The, you know, the fleet that's aging out is three times the auto book, so very compelling in that sense.
Speaker Change: As far as market opportunities and pricing of assets is concerned, we are tracking a correction in second hand values, and as I had mentioned earlier, so far we are monitoring. But it is a really fragmented market, a lot of payers with...
Speaker Change: You know wide range of motivations to sell or to buy or and I think there will always be an opportunity with that and we believe also some of the you
Speaker Change: You know, broad uncertainty that we have registered here at the start of the year is also floating through in some of the the price ideas that are out there.
Rightfully.
Okay, very good. Thanks for not.
Thank you.