Ardmore Shipping Q4 2024 and Investor Day 2025 Earnings Call Transcript

Quartr
Provided by Quartr
February 13, 2025

There are 6 speakers on the call.

Operator

behalf of the Ardmore Board and its senior management team, let me welcome you all to our annual Investor Day Luncheon. Last year in my opening remarks, some of you may remember them, hopefully you don't, I noted that we lived in interesting times. And in many ways, we still live in interesting times. But there's also been a great number of changes since our last meeting. We're hopefully seeing maybe a more settled situation in The Middle East and possibly as of this morning

Speaker 1

to Okay.

Speaker 2

To

Operator

that we must keep our aim constantly focused on the future. As you'll hear this afternoon, Ardmore is focused squarely on the future. We remain committed to performance and progress, to innovation, to our well articulated capital allocation policy and to thoughtful and transparent governance. With that being said, you'll hear a lot about all those topics this afternoon. And I want to thank you again for your continued interest in and your support of Ardmore Shipping.

Operator

We remain solidly committed to being good stewards of your investment. And with that, I'll ask Gernet and Bart to come up and join me as they begin their remarks.

Speaker 2

Thank you, Curtis, and welcome, everyone. We're delighted you could join us today as we are pleased to update you on another great year for Ardmore. For those of you who are new in the audience, Slide five gives you a snapshot of our company today. Ardmore is listed on the New York Stock Exchange and our first rate governance is a cornerstone of who we are. It guides our values, our business principles and how we make decisions.

Speaker 2

Our core focus is on product and chemical tankers, which we operate through our globally integrated platform. And our performance based culture and emphasis on innovation is what consistently drives us to deliver outstanding results. Moving to Slide six, here is the outline of today's presentation. Bart and I will first guide you through our earnings highlights. We will then pivot to the Investor Day segment of the presentation.

Speaker 2

Here, we will focus on external market fundamentals before we give you a business update and a look under the hood. And finally, I'll offer some closing thoughts before opening up the meeting for questions. Turning first to Slide seven for highlights. We are pleased to report another successful year for Ardmore. Adjusted earnings were 120,000,000 or $2.84 per share for the full year and $10,300,000 or $0.25 per share for the fourth quarter.

Speaker 2

Our markets are experiencing continued strength as a result of tight supply and demand fundamentals, bolstered by ongoing geopolitical disruption. Meanwhile, Ortmo continues to execute on its long standing capital allocation policy. We repurchased 4% of our shares during the fourth quarter at an average price of $11.49 And today, we declared another quarterly cash dividend of $0.08 per share, consistent with our policy of paying out one third of adjusted earnings. We also remain committed to tight cost management and have achieved low cash breakeven levels of $11,500 per day. This positions us to benefit strongly from a wide range of market scenarios and across cycles.

Speaker 2

Moving to Slide eight. Our TCE performance reflects continued strength, and rates remain significantly above our cash breakeven level. Our MRs earned $22,700 per day for the fourth quarter and $23,400 per day so far in the first quarter with 55% booked. Our six chemical tankers earned $21,400 per day for the fourth quarter and $14,000 per day for the first quarter with 40% booked so far. And with this, I'll hand it

Speaker 1

over to Bart. Thanks, Gernat. Moving to Slide nine. Here we detail our continued focus on financial strength. Once again, the chart on the bottom left highlights a significant reduction in our cash breakeven levels, now standing at a low $11,500 per day.

Speaker 1

We've accomplished this through our effective cost control, lower debt levels and access to revolving credit facilities. As we will emphasize today, Ardmore remains focused on optimizing performance, closely managing costs and preserving a strong balance sheet. Turning to Slide 10 for financial highlights. Echoing Geronaut, we are pleased to report our continued strong performance with the adjusted earnings of $2.84 per share for the full year and $0.25 per share for the fourth quarter. We're correspondingly reporting strong EBITDAR and continue to frame this as an important comparable valuation metric against our IFRS reporting peers.

Speaker 1

Full reconciliation of this is presented in the appendix. Also, please refer to our first quarter guidance numbers in the appendix on Slide 45.

Speaker 2

Thanks, Bart. This concludes the earnings portion of the presentation, and we will now move on to the Investor Day section and begin with an outlook on the market. Key points: strong long term fundamentals in products and chemicals and and on top of that, geopolitical disruption, sanctions and regulatory shifts. Starting with Slide 12, the demand picture. Global oil demand accelerated in the fourth quarter and further robust growth is projected in 2025.

Speaker 2

The U. S. Economy is proving resilient with solid GDP and jobs growth. Meanwhile, the IEA is projecting oil supply growth of 1,100,000 barrels per day in 2025, even in the absence of OPEC unwinding its voluntary cuts. In the fourth quarter, we saw traders taking a step back.

Speaker 2

Lower refining margins and uncertainty in broader global markets resulted in a general risk off approach. There were fewer long haul cargos, particularly on east to west runs, and overall activity was somewhat muted. But things have started to pick up. In contrast to the uncertainty of the fourth quarter and a general wait and see attitude, market players are beginning to take positions. Trading firms are arbitraging shifting cargo flows, time charter activity is on the rise and very notably, refining margins have jumped.

Speaker 2

And all this should result in a fresh boost to tonne mile demand. Moving to Slide 13, where we provide an example of how tariffs create market inefficiencies adding to overall ton mile demand. As shown on the chart on the lower right, Canada currently accounts for 40% of gasoline deliveries to The U. S. East Coast.

Speaker 2

If tariffs are introduced on Canadian refined product imports, we would expect to see a significant portion of these volumes replaced from elsewhere, most likely Europe and West Africa. Already now, we have witnessed cargo activity in the Atlantic Basin as as a direct result. We can see from the chart on the upper right that voyage distances are six times greater for imports from Europe compared to Canada and even longer from West Africa. This is expected to happen in both directions whereby Canadian barrels would find new export markets that by definition are substantially further away, so both imports and exports traveling longer distances. It is impossible to overlook the strong parallels to the EU refined product embargo on Russian exports.

Speaker 2

And as we enter an era where we may see additional action taken on trades across numerous cargo routes, it is important to remember that this typically means more trading opportunities, longer waiting times, greater volumes of product on the water. All this fundamentally supports ton mile demand and thereby freight rates. On Slide 14, we take a step back and review longer term demand drivers. Dislocation of oil refineries remains an enduring trend. Refining and petrochemical production has been shifting East, which combined with refinery closures in the West, continues to drive incremental ton miles.

Speaker 2

Market projections reflect the sustained and increasing demand for refined oil products in order to meet global to

Speaker 1

fleet and its replacement needs with the current order book. The chart on the left provides an important visual of the changes in the MR fleet over time. Highlighted in the green quadrant, currently there is an exceptionally old fleet. In fact, it's the oldest fleet in recent history with an average age of fourteen years. Now moving to the chart on the right, more than half of the global MR fleet will

Speaker 2

to

Speaker 1

So as the Aframax fleet shrinks and creates a shortfall, a portion of these LR2s will naturally operate in the crude trades. Turning to Slide 16. The pie charts on the left further highlight the rapidly aging MR fleet. And as mentioned, more than 50% of the fleet will be over 20 years old within the five years. This aging fleet should

Speaker 2

to

Speaker 1

Last month, an additional 155 tankers were sanctioned by OFAC, bringing the total sanctioned tanker fleet to over 500 vessels and effectively halting further utilization of these ships. Specifically on the product tanker side, approximately a quarter of the total fleet has been sanctioned and or has participated in Russia trade. Notably, the Aframax segment has been most impacted with 20% of the fleet now under sanctions. And as you can see in the chart on the right, there's a clear trend line. The LR2s are increasingly shifting into dirty trades, widening the supply demand gap in the clean market.

Speaker 1

And please keep in mind, shifting from clean to dirty can be done on an ad hoc basis. But on the other hand, bringing ships back from dirty into refined product trades is costly and requires extensive tank cleaning and intermediate cargos. Overall, as the impact of sanctions continues to reverberate through markets, effective supply is reduced significantly and this benefits top tier tanker operators such as Ardmore. Moving to Slide 18. Here we highlight the growing complexity of the regulatory landscape.

Speaker 1

This is actually impacting supply and playing to Ardmore's strengths. The company was very well prepared for the recent fuel regulations in Europe. And even though the costs are treated as pass through voyage expenses, it's required significant planning by our team. This regulatory environment also enhances the returns on the energy efficiency investments that we have successfully completed over the past few years. We'll take a look at some concrete examples in the next section.

Speaker 1

Overall, while regulations can be a burden for some, they benefit companies such as Ardmore since we are positioned to manage them effectively and capture incremental earnings. Now moving to Slide 19. What does all this mean for us? In these volatile markets, we can experience significant jumps in charter rates and earnings. And for example, a $10,000 a day increase in rates is equivalent to an annual increase of about $2.3 in earnings per share and a boost of nearly $100,000,000 in free cash flow generation.

Speaker 1

Ardmore is very well positioned to harness this market volatility and translate it into earnings upside.

Speaker 2

Turning now to the business update, starting with an overview of our strategy on Slide 21. Ardmore's strategy is clear and well defined. We are a global owner and operator of product and chemical tankers with a particular focus on leveraging opportunities where products and chemicals overlap. This is an important part of Artemore's competitive advantage. It is one thing to simply buy tankers with chemical capabilities.

Speaker 2

Owning steel is easy, but managing and trading these vessels in a safe and efficient way is more complex, requires unique organizational capabilities that need to be built and developed over time. These more complex markets are harder to penetrate. And for us, this is one of the ways we differentiate ourselves as a business. Bartmoor features a fully integrated trading platform. Our talented Shoreside team strategically covers all our markets 20 fourseven out of three key locations.

Speaker 2

They work closely with our dedicated seafaring colleagues onboard our modern fuel efficient fleet. Thereby, we can transact close to our customers and execute voyages in close partnership with our vessels. All of this, of course, to maximize TCE. Inherent within our performance focus is a constant restlessness to innovate and improve. This permeates the entire organization.

Speaker 2

This reflected in how we upgrade our vessels physically to reduce fuel cost. It is about how we integrate artificial intelligence to enhance decision making, how we develop new trades, optimize voyage execution and experiment with new ideas, from large CapEx projects to everyday business processes. We will show you a few examples shortly, but other than our core values, at Ardmore, everything is always in motion, as we are always looking for ways to develop further. Why? Because we believe this is how we can best position Ardmore for the future, how we remain competitive regardless of market cycles how we continue building a great company and to that ultimately, of course, how we create long term shareholder value.

Speaker 2

Slide 22 reintroduces a concept which is core to our belief, performance and progress. The success of this philosophy is reflected in the key metrics highlighted on this slide. Both absolute and relative performance are crucial to us. Shown here, a key metric is our full year TCE of $30,300 per day. We place significant emphasis on hard performance measures, And this is how our team members are collectively measured and incentivized companywide.

Speaker 2

Cost discipline throughout the cycle and low debt have enabled us to achieve a historically low cash breakeven, dollars 11,500 per day as mentioned before. Strong earnings and low cost combined, this allows us to return a significant level of capital to our shareholders, equivalent to 23 of all market cap since the end of twenty twenty two. Under the progress banner, innovation mindset is at the center of what we do, where every voyage, every decision and every process offer opportunities to do things better. Our seafarers and shore staff work seamlessly together as one team, all that tied together by industry leading governance. Importantly, for us at Ardmore, the concept of performance and progress has never been about tradeoffs, where either performance would come at the cost of progress or progress would come at the cost of performance.

Speaker 2

On the contrary, we believe that one enhances the other. And we're happy to discuss this point further during Q and A, but in essence, we believe that strong governance also enables strong business performance. Slide 23 provides some more detail on that last point. Led by our experienced and extremely versatile Board, we recognize that robust corporate governance is crucial to ensure long term success. We are honored to be recognized once again as the top ranked tanker company on the Weber governance scorecard.

Speaker 2

And we are delighted that our principled approach continues to set the standard within the industry. And for anyone investing in Ardmore, we believe this is equally meaningful. Slide 24. It can't be said often enough. A key part of that governance is our long standing capital allocation policy.

Speaker 2

We are committed to utilizing our robust financial position to actively deliver on all of our allocation priorities. In the fourth quarter, we repurchased shares and declared our ninth consecutive dividend. We are continuing to reinvest in our business in meaningful ways. We continue to reduce debt. And building on our track record of accretive growth, we are developing and evaluating potential transactions in a measured and disciplined way.

Speaker 2

This policy reflects a sensible, cyclical approach to creating long term shareholder value. Okay, let's pivot a little bit. We promised you a look under the hood. And of course, on a day like today, I have to show you some maps. So moving on to Slide 25.

Speaker 2

We want to show you three real life examples of how we trade our ships. In this first example, we are looking at a vessel that had to be repositioned from Northern Europe all the way to China for a scheduled drydock. Through a deliberate repositioning plan that played out over five months, our team leveraged a number of creative voyage combinations. Those market access, advanced planning and tight execution enabled us to deliver the ship literally at the doorstep of the intended drydock with minimal ballast. Going back to the point that we just made about the strong alignment of our team, we managed to achieve a significant reduction in our drydocking cost, while at the same time, enabling strong on hire performance by collaborating across functional lines that would traditionally be divided.

Speaker 2

Bart will later cover our CapEx upgrades, but of course, we need to remember that these intelligent repositioning strategies amplify over a drydocking program. Turning to Slide 26. Here, you see a year without ballast. The green lines on this map reflect the voyages carrying cargo and the black lines show when the ship was empty. And when empty, the ship is not earning any money.

Speaker 2

We are, of course, quite pleased to see how hard it is to find that black line here on this map. This vessel was laden for almost the entire fourteen months period, resulting in an average TCE of $35,000 per day, well in excess of market earnings over that period. How can we achieve something like this? Well, a bit of luck, but more so strong team expertise and the right connections combined with utilizing our digital tools to enable fast and accurate commercial decision making. Turning to Slide 27.

Speaker 2

Here we have a visual of how we are leveraging emerging cargo trades beyond oil products on one of our chemical tankers. The voyage combination you see here includes edible oils and used cooking oils for biofuel production, among others. We discussed earlier our expertise in carrying non petroleum based cargoes as a deliberate strategy. Through that, we were able to achieve a TCE of over $35,000 per day over a five month period. This demonstrates the versatility of our chemical tankers, which Bart will cover a bit later when he takes us through the further enhancements we're doing to our tank coatings during the upcoming cycle.

Speaker 2

Slide 28, how do we achieve these results? Kind of provides a summary of what we just covered. But as a reminder, world class, fully integrated platform, high performance culture and a team that is constantly innovating to deliver premium earnings. Turning to Slide 29. This is a snapshot of our global setup, which we discussed before, efficiently covering our key markets in The Americas, in Europe and The Middle East and Asia.

Speaker 2

This enables us to engage a broad and diverse range of high quality customers. It's important to note that the vast majority of cargos transacted in the market every day are transported by these blue chip oil companies and major trading firms. They have extremely stringent regulations in terms of compliance and technical vetting. Ultimately, this is about having lots of trading options for Ardmore.

Speaker 1

And going strong today. The plan is a natural evolution of our strategy, focused on continuing to create value in an ever evolving market landscape, while reducing emissions along the way. The energy transition will take time. And so this plan is firmly rooted in a commitment to achieve tangible results today that are highly accretive to our performance, while at the same time, strategically positioning Ardmore for the future. In the following slides, we'll highlight some powerful examples.

Speaker 1

Moving to Slide 31. We take our drydockings to the next level. Of $25,000,000 including an elective $14,000,000 spent on scrubber installations and other energy efficiency technologies. For 2025, we forecast CapEx of approximately $30,000,000 to $35,000,000 and again a combination of routine drydock maintenance as well as additional high returning performance upgrades. Also noteworthy, we had very strong on hire availability for the quarter at nearly 100% as a result of the continued close coordination of our teams at sea and onshore.

Speaker 1

Turning to Slide '32. We've fully embraced innovation and cast a wide net evaluating and testing potential projects. In fact, we've reviewed over 200 technologies, successfully implementing 20 initiatives, while achieving very strong returns, often in some cases in excess of 100%. So let's look at some specific examples. Turning now to Slide 33.

Speaker 1

We're upgrading our tank coatings on our chemical fleet to increase cargo versatility and further expand revenue opportunities. The chart on the left illustrates the growing list of cargos available to us. At the same time, reduced cleaning and turnaround time will increase our asset utilization by approximately 10%. This all aligns with Ardmore's trading strategy to continue to move deeper into the premium end of the cargo slate, boosting earnings accordingly. Moving to Slide 34.

Speaker 1

Strongly overlapping with our energy transition plan, we are leveraging a full and growing suite of AI and digitalization tools to enhance our commercial and operating performance. Let's take a further look on Slide 35. We were one of the first ship owners globally to deploy STARLINK across our entire fleet. This system has been a game changing connectivity tool. It has enabled our fleet and our shore staff to pilot and implement several new technologies, all driving fleet performance.

Speaker 1

And well beyond the performance gains, having STARLINK on board has supported morale amongst our seafarers. It is so powerful how our crew members can connect with their families virtually, every night. And from the office, we now officially host true all hands meetings with all of our vessels joining live. This just wasn't technically feasible in the past. We're just getting started realizing the benefits of this amazing connectivity.

Speaker 1

With that, I'm going to hand it back over to Gerna. He's going to discuss another exciting multiyear project that he actually drove with the team.

Speaker 2

Thank you, Bart. On to Slide 36. Here we discuss at a high level one of the many ways we maximize voyage performance. Our largest variable cost is fuel. Through extensive adoption of AI assisted optimization tools, most prominently Deepsea AI and Albus, we have substantially reduced this cost by optimizing speed, hull cleanings, weather routings, voyage execution and much more.

Speaker 2

Every voyage contains multiple decision points. Having access to real time data and then having the ability to execute on the spot ensures optimal performance. To provide a bit more context, every time you decide on a voyage speed, you essentially do one of two things. Either you go faster and capture a stronger market or you go slower and thereby save fuel. You make a microeconomic output decision at any point of the voyage.

Speaker 2

And only with the help of AI can you then ensure that marginal revenue and marginal cost are perfectly balanced at all times. Thereby, profit is maximized. The results are speaking for themselves with annual savings well in excess of $5,000,000 and returns well north of 100%, all fully scalable for us. Now that we've finished looking under the hood and before I open the floor to questions, let us summarize key points. We continue to see strength in the market and track positive fundamentals.

Speaker 2

The world around us is changing. And in such a fast changing environment, our strong financial position as well as our nimble organizational mindset set us up for continued success. Finally, our commitment and focus continue to be our core governance principles in order to build long term shareholder value. Thank you for your attention, and we hereby welcome your questions.

Speaker 3

All right. So thanks, everybody. We are going to open up Q and A now. I appreciate those on the webcast who have sent in questions. Please continue to do so.

Speaker 3

I'll be your sort of avatar in the room here. So let's go ahead and open up. So can we start with Omar here? Please. Thank you.

Speaker 3

All right. Thanks, Garnet and Bart for the presentation. You guys have obviously stepped into senior roles here just as the world began to shift quite differently. So a lot of things you guys, I'm sure, are discussing and thinking about. Just thinking about the I want to think the first thing you mentioned, Garnaut, and just sort of the way this market has evolved, you mentioned that it kind of we've seen it the rates kind of shifted downwards in the fourth quarter.

Speaker 3

Still a very strong result, right, in the 20s. But But just in general, you mentioned that things have picked up and there's been a lot more trading activity, there's volume. And just is there a trigger that has caused that? Or is this more a return to normal and it was really the fourth quarter that was quiet? Any sense you can give us in terms of like a trigger that caused things to improve?

Speaker 1

Yes. I think the

Speaker 2

point we were trying to Can you hear me? Okay. Yes, I think the point we were trying to make was that in a way we went beyond tanker freight and even beyond oil products and the commodities that we carry, where certainly the fourth quarter, there was this overarching theme of what does this all mean. I mean the world was changing. In a way it's always changing, but I think there were just a lot of open ended questions around what does this mean.

Speaker 2

And I think it was hard for market participants that drive demand to really lean in and take positions. And that has shifted. As I said, people are willing to commit to time charters. We see now that we're shifting from this uncertainty to, okay, here's what some of these sanctions could mean to cargo flows. Here's what tariffs could mean to cargo flows.

Speaker 2

And traders, oil traders who of course drive an important portion of demand are really arbitraging those trade flows. So in a way I would look at it indeed as a normalization where taking a step back we have strong oil demand growth forecast. We have this interesting emerging new pattern of cargos that are coming into the mix that we can arbitrage and some seasonal factors that are falling away. We have seen upward volatility already in the quarter. And that's at a time when US Gulf refiners actually right now are running at a very low level.

Speaker 2

We had the cold snap in Houston and of course just seasonal maintenance where our refineries are at the moment running at 80%, where normally they'd be running at 94%, ninety five %. So a lot of those factors should be normalizing and you can't overlook those key long term demand drivers before you even get to the fact that fleet is just so exceptionally old. So the industry.

Speaker 3

All right. Thank you. Are there any specific effects from specific tariffs, whether it is a product or a country? How do you see that shaping up?

Speaker 2

Yes, great question. And it's almost that as long as things are shifting, our vessels are, of course, floating, so they can very quickly adjust to those arbitrage flows. So if you were to see product imports from, let's say, China to diminish very quickly, you see other refiners in the area, Middle East, Korean refiners stepping in. And whenever you see a shift in trade patterns, that creates this upward volatility in rates, in particular asset classes that provide that optionality. Of course, in a time of uncertainty or volatility, your value of option of having option goes up and in a way by taking a product tanker, you have that option value.

Speaker 3

For those on the webcast, just a reminder, ardmoreigbir.com. We've got another couple in the room and then I'm going to speak for the webcast folks. If you could, for the benefit of the people on the webcast. The Red Sea has been very helpful, particularly on the chemical tanker side. Do you have any views as to how that's playing out?

Speaker 2

When we talk about the Red Sea, for us, the utmost priority will always be the safety of our seafarers. So that being the overarching objective, we are in contact with security advisors, with multiple industry associations and directly with other industry peers. And look, not to try and unpack the situation in The Middle East, we believe that it's still infinitely complex. And as I think we can already see, these things don't tend to always move in a straight line. So for us to consider resuming transit, which we're not, we would really have to look at a sustained and visible and credible normalization of trade flows.

Speaker 2

And again looking at other owners very much taking a similar stance.

Speaker 4

You mentioned volatility. There is a lot of volatility regarding tariffs, the products that you're carrying as well. And I'm just thinking that the end game for the tariffs is to come up with a solution and renegotiation. And it seems like Trump is not that keen on having that many sanctions with certain countries. So I'm wondering if supply comes on when these sanctions start coming off maybe a year or two down the road because volatility is beneficial to you.

Speaker 4

And once that supply starts coming in and things normalizing, our operating environment normalizing, do you have plans for that projections for overcapacity or supply and redirection?

Speaker 2

Yes, great point. For us, we believe the shift of tonnage into gray fleets, shadow fleets, sanctioned trades is very much a one way ticket no matter what happens with regard to sanctions. Very often these ships are maintained to a very poor standard. Very often they're owned by entities that are very much in the fringes of what any of our customers would find acceptable, and they're very old. So you could argue maybe the economics of being in these sanctions, conflicted trades, actually, what keeping those ships alive, you take that away, they don't really have that much to stand on anymore.

Speaker 2

And we've had recent examples of how some of those shadow fleets tonnage can really create a real peril to human and environmental disaster. And for these ships to just swing back into competitive mainstream trades, we believe is an illusion.

Speaker 3

Ben, over there and then I'll

Speaker 2

Thanks.

Speaker 5

Ben Nolan from Stifel. I wanted to maybe put two sort of strategic questions together, if I could. The first is, you talked about putting Marine Line on the six chemical tankers. Or how do you envision the company developing over time? What is the identity?

Speaker 5

And then maybe along those lines, I mean, as Omar mentioned, you guys have been in the seat for nine months or so, I think, something like that. Looking back, is there anything that you would have done differently? Are there opportunities to buy or sell things that you didn't and that you kind of wish you did or charter? Or what's the learning process been I suppose thus

Speaker 2

far? Maybe I'll hand it over to Bart in a second to explain sort of the border scope around the capital allocation decisions we're making here. But I think strategically very important for us, we almost look at those trade

Speaker 1

and

Speaker 2

to

Speaker 1

We saw that value in the share, we actually leaned in and we bought

Speaker 2

to

Speaker 1

through challenging conditions. But when there's complexities and there's challenges, that's when you can actually have the incremental earnings and produce strong results. And so I think we've been excited about that. They energize us and I think more exciting times for us to come.

Speaker 2

And to answer your question or maybe a review of the year that's behind us, we were active, of course, on the forefront of capital allocation options where we did an interesting swap deal on a ship, sold our oldest that was approaching for a third special survey, that 15 year old mark, bought a very new ship at a really strong relative price spread, a ship that's also more fuel efficient, higher performing, more versatile. And then at the same time, we found a number of these incredible upgrade opportunities that give you a guaranteed return no matter what happens in the market. And that's not to say that we'll further stay absent from S and P markets, but again, comparing where we see most value for the capital that we deploy, the decision has been fairly straightforward. And we continue to, in a very dynamic, flexible way and engaging with our board, continue to evaluate all options of capital allocation in the future.

Speaker 5

I think it was really notable and encouraging that you bought back stock in the fourth quarter, something that's been missing in the Ardmore story forever, I think. But are you willing to it's very accretive

Speaker 3

when

Speaker 5

you trade below book value, below most estimates and net asset value when you buy back stock. And your leverage is quite low. Are you willing to lean into it to the extent that you might buy back in a period if the shares are attractive more than your earnings and let the leverage ratio increase a bit just because it is such a powerful way to create shareholder value?

Speaker 2

It's a great question. And I think it comes back to this fairly dynamic way to look at all those angles because everything is constantly in motion. I mean, when you look at those four big dimensions of capital allocation, there's lots of subsets to them as well. When you look at reinvesting in the business, when you look at what types of debt and also when you look at returning shareholder value. And of course, markets move, investment opportunities move, technology moves and share price moves as well.

Speaker 2

So as that plays out, it's very much a live discussion rather than kind of like let's make a big statement today. We're committed to the policy philosophically and fundamentally, but the components, of course, are quite variable and we continue to again engage with the board on what is the best way forward here.

Speaker 3

I'll take a couple from the webcast here. Could you talk a bit about challenges of cannibalization from crude tankers in the product space, perhaps potential swing tonnage opportunities in the chemical space?

Speaker 2

Great question. I mean, I think just to highlight a slide we showed earlier, it's really moving the other way right now where the most prominent and most immediate way to swing between clean and crude trades are LR2s. The order book is pretty much all LR2s, no Aframaxes. And you can see that these swing ships that are actively moving between markets are actually going in the other direction, are going dirty. As far as some of those cannibalization trades, as it was referred to, are concerned, we see the occasional clean cargo getting lifted on a new building, but we haven't seen since the last fall and summer ships deliberately cleaning up from a dirty history as in crew tankers cleaning up from a dirty history towards clean.

Speaker 2

The shift is going the other way right now. And of course, that creates that doesn't create, it amplifies tightness in the product space where you have already a supply demand gap and all the points that are made about sanctions and just the aging of the fleet. There's a lot of short term amplification of the broader supply tightening.

Speaker 3

AI is a big buzzword. What does that actually do in shipping?

Speaker 2

Well, look, yes, maybe it is a buzzword to some. But for us, it's a way to improve performance. There is myriads of ways that you can apply it and drive real hard financial results. And we've given you a look under the hood how we can do that today and the space is evolving quickly. And as an organization, we're excited by it because it means we can find very, very sensible and easy ways to continue building on that performance.

Speaker 2

And that's when we talk about lowering your fuel cost, tracking cargo flows, supporting navigation, this should all be baseline type of stuff. Every company should be doing that today. And there's a lot more beyond that that we're exploring in a very kind of interesting way throughout the organization to make sure we continue to inject those opportunities as we look forward to driving performance. So if you want to call it a buzzword, that's fine. For us, it's real dollars in our pocket.

Speaker 1

And maybe I'll just add, it wasn't all that long ago that really the vessels out at sea were more islands of data and information and you'd get a daily update in terms of fuel and conditions on board. And so to have that connectivity in that larger data set, bringing it shore side, analyzing it, running it through your systems, and it really is about the team and the technology and finding that right fit together and then being able to communicate back to the vessel. I mean, it's just much greater precision. You're building a culture at sea and at shore that really is focused on efficiency and every ton of fuel saved drops directly to the bottom line.

Speaker 3

A couple more here. Yes, go, Omar. Thanks. Just a follow-up and more market related again, just on the sanctions. I think, Bart, you had talked about the in January, the 150 tankers that were sanctioned.

Speaker 3

Just from your perspective, what inning are we in, in terms of the impact of that having on the market?

Speaker 1

Yes. I mean, I guess, it depends because we kind of think this is probably a trend that likely potentially continues to expand. But there's the that absolute impact when you have sanctions where you're really taken out of the market, much more so than when dark fleet, gray fleet and you're still operating, you're economically incentivized to trade outside of the main global trades, it feels relatively early. I mean, when you have this step up, takes a couple of months, I would say, for voyages to get fixed and to see how different trading patterns may emerge. And then also what is the mindset then of those isolated vessels in terms of scrap value today versus really high OpEx and really high CapEx to keep them in operation and now all of a sudden they're choked off from that other alternative trade.

Speaker 1

So, yes, I'd say probably early innings, but we're watching closely.

Speaker 3

And then just on that, I mean, I guess it's because we haven't seen a rate spike, right, to give people conviction that the sanctions are going to bite. But not to put words in your mouth, but just simply looking at the numbers and I think in your slides, the sheer percentages of vessels that have now effectively removed from active trading or at least in the compliant fleet. Is that more significant than the impact of Red Sea rerouting or impact of Russia Ukraine trade dynamics shifting vessel patterns or the Panama Canal when that was closed for a period? Isn't this substantially more significant than anything we've seen the past three years? I

Speaker 1

mean, all a lot of dynamic marketplace activity going on. I'm smiling because you're seated with Howley, our Head of Global Chartering. So you guys may have had discussion over lunch. But I think that for us it comes back to you have all these different shocks that come into the marketplace, having the team trading globally, staying nimble and trying to actually take advantage of that at the margin. That's the $11,500 a day breakeven, a real range of potential earnings levels that we can capture with that low breakeven, Gurnard.

Speaker 2

And to your point, looking back at past examples when sanctions have been implemented, of course, there's always a market today, but it takes some time for that to reverberate as voyages are completed and find themselves just back again in a market with 20% of supply removed, that is quite impactful. And so yes, I believe there is a lot of it's a real wildcard, but in a positive sense.

Speaker 4

Thank you. Yes, you just brushed on the AI story and I mean that's what people are looking at for the future is how to make yourself more productive by leveraging technology. How big is your technology team and do you plan to invest in that? Now that you're working with STARLINK, it does seem that the company has a treasure trove of information. Are you considering monetizing some your information, your data into an AI product for another vertical?

Speaker 4

And I'm just thinking out loud here.

Speaker 2

Great questions. And I think that kind of leads you back to some very fundamental questions you have to ask yourself as a company strategically and at the board level around what is your AI strategy? Do you want to be a developer of AI solutions? Do you want to be an investor in AI solutions? Or do you want to be really good at adopting whatever is the latest development on that forefront?

Speaker 2

And we made a choice for us that it's the former. That's the first two options don't necessarily conform with our core strategy or our strength. But I could probably talk about this for an hour because I'm quite passionate about the topic because it has become so real, whereby even processes that have always been part of what we do and how we do things. Fifteen years ago, we were some of the first to roll out onboard telemetry on our ships to collect all this data. How do our ships behave in different sea states, different currents, different RPMs depending on how much you drive with your engine.

Speaker 2

So we actually have the benefit of sitting on a vast field of data where a lot of other companies are just beginning their journey now. I would argue we're probably fifteen years ahead of that. And anybody who understands AI knows how important actually the data aspect is collecting that data to begin with. But now we're using new tools to actually help us process this data on a real time basis, so we can make faster, better, more accurate decisions with that data. And happy to talk about this offline, but it applies to so many different parts of the business.

Speaker 2

Organizationally, we have a real commitment to that where we actually have a small but very impactful innovation team, two people, one person coming from a technical background, actually a seafaring background, the other person coming from a data background having worked for one of the blue chip technology firms. And between those, there's a lot of strength. But you cannot put this into a department. You cannot put innovation into a corner in a company. You have to bring this right into the center at every level.

Speaker 2

You need to have people think about what am I doing today? How could I do this better? And if something stands in my way, can we not leverage some of those new technologies to overcome this, make it personal, make it fun and be very open to experimentation. And I think that's how you bring to

Speaker 5

Supposed to a few years ago, there was E1 Marine and really more structural big shifts like what kind of fuel is my engine going to use. Is that indicative of sort of where you're at the moment? We're not really thinking as much about we're going to be using methanol or ammonium?

Speaker 1

To

Speaker 2

to Okay.

Speaker 1

That you can put on board your existing fleet and you're building that knowledge base for when the right time comes, what does that vessel of the future look like and you have this institutional knowledge that's much greater.

Speaker 2

And then and can I just add to this? I mean, this is where it really comes back to performance and progress where they need to enable each other and no initiative towards a future fuel can exist in isolation. It needs to tie right back to performance. And in terms of the discovery process where we talk to all sorts of new technologies and track different prices and caloric values for different fuel types, that's all on the way. We want to be very much patched into what's going on.

Speaker 2

Of course, when it comes to deploying capital, this has to be done with the rigor and the discipline, how we would look at buying a new ship or doing anything else. Is is this truly accretive to performance? And what are the risk factors here? And I think that's ultimately where we see with the upgrades that we've done, no brainer guaranteed returns, and we've worked in that direction.

Speaker 5

And then lastly for me. So given all of the unknowns, unknowable really things that are in the market, do you have a view or any conviction around asset prices? Do you feel like that there's substantial risk or opportunity at current levels?

Speaker 2

There's probably always both a risk and opportunity. Probably they somehow belong together as well. We do see definitely some movement in S and P markets. There's some a lot of things actually that emerge around resales, around options that are looking to be converted. And we're engaging with all sources of deal flow to make sure that just like our technology, we know exactly what's out there, how it's priced and what angles we can take.

Speaker 2

And then we run it through a process, is this worth it, is it worth it today or under what circumstances. So I think compared to maybe last year in the summer, there definitely seems to be a lot more movement. And of course, it is a fragmented market where there's a lot of different participants with different views on near term needs and motivations. And we're standing by to explore those.

Speaker 3

I'll get one from the webcast and then we'll come to you just after. So I'm going to try to summarize this. So you've put money into the existing fleet improvements, into the technologies you talked about AI. How much more of that is there to do? And why isn't it a given why isn't everybody doing it if it's so great?

Speaker 2

I mean, the latter point of your question, I can't really speak to that, how other companies conduct their business. For us, that frontier is constantly moving because the technology is not standing still. As long as the technology develops, whether it's on AI or onboard technology, there's always going to be opportunity for us to develop and we have an organization that always wants to shift that boundary backwards. So unless anybody believes that technologically, we have now as humankind eclipsed and this is how far we've come, I think there's going to be infinite opportunities for us to continue optimizing and developing performance gains.

Speaker 1

I think just think about it, a ship is really a floating city, has every system that a city would have and then it's in motion on the ocean point A to B. And so much has been done in other industries where we're just chipping away at that in the shipping industry. So very long runway.

Speaker 3

Thank you. I have a two parter.

Operator

So the first, I was wondering what is the TC spread between your worst performing ship in your fleet and your best performing ship? And the second question is, what kind of considerations go into decision to add a ship

Speaker 3

to the fleet? Like how do you

Operator

think about the economies of scale of the business as well as the marginal contribution or constraints that you

Speaker 1

have in adding a ship?

Speaker 2

Great question. I mean, the spread between sort of best and best performing ships, of course, that moves, they're sort of you can normalize that for just general characteristics of the ships. But over the course of a quarter or a year, of course, it depends on timing positions and various other things. It could be very close. It could be several thousand dollars a day.

Speaker 2

We feel like we've built a really good company. We have a really good performance record, and we've demonstrated that time and time again. We feel like we're delivering that performance given the current scale we have today and we're very proud of that. Would we like to use that great platform and the great performance track record and multiply that over wider asset base and theory, of course, and then it comes right back to timing and conditions and what vessels are we looking at. And the thresholds, of course, are always that we want to continue to use our capital in smart ways that they are truly accretive, but also we have built a really strong high quality fleet and not every ship is the same and it needs to vet our high technical and operational standards and ideally make us more versatile than less versatile.

Speaker 2

Thank you.

Speaker 1

Okay. Last call in the room.

Speaker 3

All right. I think we are are done for the day. Thanks, everybody, for joining us. We're going to be around for a bit longer here if anybody has questions. As mentioned at the top, there are others from the Ardmore team in the crowd amongst you.

Speaker 3

Feel free to pester them. That's why they're here for your benefit. So yes, thanks very much.

Speaker 2

Thank you, Brian, and thank you once again, everybody.

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Earnings Conference Call
Ardmore Shipping Q4 2024 and Investor Day 2025
00:00 / 00:00