ARDMORE SHIPPING CORPORATION Second Quarter 2019 Earnings - - PowerPoint PPT Presentation

ARDMORE SHIPPING CORPORATION

Second Quarter 2019 Earnings Presentation

Disclaimer

This presentation contains certain statements that may be deemed to be “forward-looking statements” within the meaning of applicable U.S. federal securities laws. All statements, other than statements of historical facts, that address activities, events or developments that Ardmore Shipping Corporation (“Ardmore” or the “Company”) expects, projects, believes or anticipates will, or may occur in the future, are among these forward-looking statements including, without limitation, statements about: future operating or financial results; global and regional economic conditions and trends; the Company’s business strategy and expected operating expenses and

• perating leverage, including expected increases in EPS for given tanker rate increases; competition in the tanker

industry; shipping market trends and market fundamentals, including expected tanker demand and scrapping levels; changes in governmental rules and regulations or actions taken by regulatory authorities; the effect on tanker demand of the IMO 2020 regulations, and the timing of such effect; future tanker rates; the Company’s financial condition, liquidity and debt amortization; drydocking and expected capital expenditure including ballast water management systems; instances of offhire and expected 2019 revenue days. Although the Company believes that its expectations stated in this presentation are based on reasonable assumptions, actual results may differ materially from those projected in the forward-looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to, the risk factors described in the Company's filings with the Securities and Exchange Commission (the "SEC"), including the Company’s Annual Report on Form 20-F for the year ended December 31, 2018. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with respect thereto or any change in events, conditions or circumstances on which any statement is based.

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Earnings Release: Second Quarter 2019

▪ Highlights ▪ Key Market Developments ▪ Quarterly Performance ▪ Tanker Market Activity and Fundamentals ▪ Financial Review ▪ Summary

Agenda

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Highlights

▪ Reporting net loss from continuing operations of $3.4 million, or $0.10 per share for 2Q19, compared to net loss of $2.6 million, or $0.08 per share for 1Q19 ▪ MR charter market in line with expectations in 2Q19; our MR product tankers earned $14,892 / day in the second quarter, compared to $15,856 / day in 1Q19 and $11,510 / day in 2Q18 ▪ MR voyages for 3Q19 to-date are $14,000 / day (40% of revenue days) reflecting the final phase of first-half refinery turnaround; expect activity to ramp up over the next month with freight rates following in September ▪ Completed six of seven 2019 drydockings; fleet well positioned to take maximum advantage of the anticipated IMO 2020 rates strengthening ▪ Maintaining strong liquidity position and balance sheet; cash of $55 million at quarter-end and corporate leverage (net debt basis) of 52% ▪ Completed the sale of the Ardmore Seafarer (2004-built) for $9.1 million, thus completing older ship phase-out and improving fleet average age to 5.9 years ▪ Maintaining dividend policy paying out 60% of earnings from continuing

• perations. Consistent with policy, the Company is declaring no dividend for

2Q19 ▪ Ardmore well positioned to benefit from the anticipated charter market upturn with 25 modern, fuel-efficient ships 100% employed in the spot market; each $1,000 / day increase in rates translating into $0.27 in EPS

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Key Market Developments

▪ MR rates subsided in 2Q19 as a consequence of seasonally lower demand and heightened global refinery maintenance ahead of IMO 2020 fuel switch ▪ IMO 2020 preparations unfolding as expected:

• Refinery upgrades and preparations should be nearing completion
• Marine fuel providers commencing clean-up of logistics infrastructure and

preparing to stockpile compliant fuels in large quantities ahead of switchover

• Pricing of HSFO(1) has risen in some regions and availability constrained as a

consequence of reduced storage and barging capacity, as some is already being taken out of service for VLSFO(1)

• Industry participants stockpiling low sulfur blending components, albeit in

relatively small quantities thus far

• Refinery throughput should be set to increase over next few months with

meaningful compliant fuel stockpiling in advance of switchover

• We expect product tanker freight rates to benefit beginning in September

▪ Geopolitical events in the Middle East Gulf resulting in some disruption of tanker activity but no noticeable impact on rates ▪ Product tanker supply-demand fundamentals are strong, which should support a sustained upturn:

• Oil consumption growth still relatively strong at 1.2 mbd for 2019(2); refinery

capacity growth continuing in export-oriented locations

• Product tanker supply growth (MR / LR1 / LR2) remains very modest; net fleet

growth averaging around 2.2% for the foreseeable future(3) 5

1. HSFO = High Sulfur Fuel Oil; VLSFO = Very Low Sulfur Fuel Oil 2. IEA, Oil Market Report, July 2019 3. Clarksons Shipping Intelligence Network and Management’s estimates

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Performance and Tanker Market

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▪ Reported adjusted EBITDA of $12.3 million for the second quarter ▪ Loss from continuing operations of $3.4 million, or $0.10 per share for the second quarter ▪ GAAP net loss for the quarter of $9.9 million or $0.30 EPS:

• GAAP includes $6.6 million related to loss on sale of the Ardmore Seafarer

▪ Earnings impacted by reduced revenue days as a result of scheduled drydockings

• Six of seven 2019 drydockings completed as of July 31, 2019

▪ Ardmore fleet TCE averaged $14,375 / day in 2Q19 and $14,663 / day in 1H19

• MR spot rates averaged $14,892 / day ($15,856 / day in 1Q19)
• Chemical tankers averaged $12,830 / day ($12,142 / day in 1Q19)

▪ Fleet continues to perform very well operationally ▪ Drydockings coming in below budget for the year

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Quarterly Performance

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▪ Recent market activity:

• Reduced cargo volumes; global refining throughput in 2Q19 dropped 0.7

mbd y-o-y, the largest annual decline in 10 years(1)

• Markets East of Suez were firm; steady volumes of distillates from Middle

East and Asia to Europe

• Charter rates in the Atlantic basin were more subdued due to lower cargo

volumes resulting from refinery maintenance and lower trading activity

• Strong underlying consumption demand leading to continued decline in

OECD refined product inventories(2)

▪ Market outlook and trends:

• Global refinery throughput set to increase by 4.2 mbd from May to August;

expect record throughput of 84.6 mbd in August resulting in increased volumes of refined products(2)

• Overall low refined product inventories and regional imbalances will

support trading activity

• Geopolitical events in the Middle East Gulf resulting in some disruption of

tanker activity and an uptick in oil price volatility(3)

• IMO 2020 expected to drive increased trading activity; transformation of

global bunker supply chains to intensify over coming months 8

Recent Tanker Market Activity and Outlook

81.6 83.3 82.4 81.8 80.9 84.0 83.5

75.0 76.0 77.0 78.0 79.0 80.0 81.0 82.0 83.0 84.0 85.0 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19E 4Q19E Refinery Throughput (mbd) 950 1,000 1,050 1,100 1,150 1,200 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18 Nov-18 Feb-19 May-19 Million Barrels

Global Refinery Throughput(1) OECD Refined Product Inventories(2)

1. IEA, Oil Market Report, July 2019 2. IEA, Oil Market Report, July 2019; OECD Refined Product Inventories totalled over Gasoline, Middle Distillate and Residual Fuel Oil inventories 3. Bloomberg, as at July 25, 2019

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Product Tanker Fundamentals

• 10%

20% 30% 40% 50% 60% 70%

• 20

40 60 80 100 120 140 160 180 Orderbook as % Fleet Fleet (Million Dwt) Fleet Orderbook (%)

▪ Product tanker demand fundamentals remain positive:

• Ongoing strong oil consumption growth; 1.2 mbd for 2019 and 1.4 mbd for

2020(1)

• Refinery capacity growth continuing in export-oriented locations; averaging

1.6 mbd per year for the next eight years(2)

▪ IMO 2020 expected to result in additional layer of product tanker demand which will gradually increase over the next few months ▪ Product tanker (MR / LR1 / LR2) net fleet growth remains exceptionally low(3)(4):

• Total orderbook stands at 172 product tankers (44 LRs and 128 MRs) or

5.9% of fleet delivering from 3Q19 to 1Q23

• Forecasting 108 product tankers (34 LRs and 74 MRs) to deliver for full

year 2019 (80 year-to-date) while scrapping run rate is approx. 35-40 ships per year (61 scrapped in 2018)

• Total product tanker fleet growth, net of scrapping, expected to be approx.

2.5% in 2019 and 1.9% in 2020 (MR net fleet growth approx. 2.1% in 2019)

▪ Chemical tanker fundamentals are positive:

• Seaborne trade in commodity chemicals to increase by 6.0% p.a. to 2023

as chemical tanker fleet growth continues to decline(5); net fleet growth expected to be 1.8% for 2019(3)(4)

▪ Overall, we believe the strong fundamentals will provide a solid foundation for a sustained upturn in product and chemical tanker rates

1. IEA Oil Market Report, July 2019 2. Maritime Strategies International, July 2019 3. Clarksons Shipping Intelligence Network and Management’s estimates. Note these numbers include slippage. Management’s estimates based on 12.5% of full year scheduled deliveries slipping into 2020. 4. Clarksons Shipping Intelligence Network and Management’s estimates for MR, LR1 and LR2 fleet. 5. Richardson Lawrie, Chemical Carrier World, #46, June 2019

9 Refinery Expansion Projects by Region (2019 - 2027)(2)

5.9%

Product Tanker Orderbook and Fleet Development(3)(4)

0.6 0.4 0.0 0.4 1.0 3.4 1.6 2.0 3.6 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 NA LATAM EU FSU Africa ME Other Asia

• S. Asia China

Million Barrels / Day 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E

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Financial Review

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Fleet Update

Revenue Days Profile(1)

▪ Revenue days estimated to be 9,108 for full year 2019 ▪ Drydocking and Ballast Water Treatment System (“BWTS”) installation:

• 2Q19: Completed two drydockings and BWTS installations
• 3Q19: 15 drydocking days; Ardmore Seamariner completed in

July, 2019

▪ Six of seven 2019 drydockings completed to date

• Ardmore fleet well positioned to benefit from increased IMO 2020

related trading volumes expected in 2H19 11

2,260 2,285 2,280 2,283 9,108

• 1,000

2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 1Q19 ACT 2Q19 ACT 3Q19 EST 4Q19 EST 2019 EST

Revenue Days

1. Revenue days based on Management’s estimates

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Financial Performance

INCOME STATEMENT DATA Three Months Three Months US$ millions, unless otherwise stated Jun 30, 2019 Jun 30, 2018 Results EBITDA(1) $5.7 $7.6 Adjusted net (loss) / income(2) ($3.4) ($8.2) Adjusted net (loss) / income per share ($/share)(2) ($0.10) ($0.25) General and Administrative expenses Corporate ($3.9) ($3.7) Commercial and Chartering ($0.6) ($0.8) Depreciation & Amortization ($9.1) ($9.6) Interest and DFF Amortization ($6.5) ($6.5) Loss on Sale of Vessel ($6.6)

• OTHER OPERATING DATA

Average Number of Vessels 25.6 28.0 Fleet time charter equivalent per day ($/day)(3) $14,375 $11,503 Vessel operating expenses (US$ millions) $14.9 $16.1 Fleet operating cost per day ($/day)(4) $6,393 $6,328 Eco-Design MR ($/day)(4) $6,306 $6,360 Eco-Mod MR ($/day)(4) $6,872 $6,615 Eco-Design Chemical ($/day)(4) $6,143 $5,923

Income Statement: Presentation Change

▪ US GAAP allows companies the option to report a subtotal for Income from Operations ▪ Where included, gains or losses on the sale of vessels should be included in Income from Operations ▪ Ardmore considers gains and losses from vessel sales to be fundamentally different in nature from income derived from the chartering and operation of vessels ▪ Accordingly, commencing with the second quarter, Ardmore is removing the subtotal for Income from Operations, and will restate prior periods as well(5) ▪ We believe this is a better representation of the financial performance of the Company, as

• pposed to including gains and losses in

Income from Operations

Financial Performance Data

1. EBITDA is a non-GAAP measure. A definition of this measure and a reconciliation of this measure to its nearest GAAP comparable measure are included within Ardmore’s earnings release for June 30, 2019 2. Adjusted net loss is a non-GAAP measure. A definition of this measure and a reconciliation of this measure to its nearest GAAP comparable measure are included within Ardmore’s earnings release for June 30, 2019 3. Time Charter Equivalent (“TCE”) daily rate, represents net revenues divided by revenue days. Revenue days are the total number of calendar days the vessels are in our possession less off-hire days generally associated with drydocking or repairs. For vessels employed on voyage charters, TCE is the net rate after deducting voyage expenses incurred, divided by revenue days, including among other expenses, all commissions and pool administration fees. TCE is reported on a discharge to discharge basis. Fleet TCE excludes one-off costs related to the transfer of vessels to Ardmore MR Pool 4. Fleet operating costs per day are routine operating expenses and comprise crewing, repairs and maintenance, insurance, stores, lube oils, communication costs and technical management fees paid to third-party managers 5. In the past we have voluntarily included in our Consolidated Statements of Operations a subtotal for Income from Operations and had reflected gains and losses on vessel dispositions below the Income from Operations subtotal, which was technically not the proper order of presentation in accordance with GAAP

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For every $1,000 / day increase in rates, EPS expected to increase by approximately $0.27 cents(2) Time Charter Equivalent ($ / day)(1)

• AVG. FLEET

MR ECO-DES MR ECO-MOD

• CHEM. TANKERS

13 MR RATES BY QUARTER

Product and Chemical Tanker Charter Rates

11,510 10,314 12,475 15,856 14,892 2Q18 3Q18 4Q18 1Q19 2Q19 14,785 15,098 14,318 15,395 12,709 12,902 12,975 11,949 11,529 11,406 11,916 11,406 14,663 15,418 14,916 12,529 FY16 FY17 FY18 1H19

1. Time Charter Equivalent (“TCE”) daily rate, represents net revenues divided by revenue days. Revenue days are the total number of calendar days the vessels are in our possession less off-hire days generally associated with drydocking or repairs. For vessels employed on voyage charters, TCE is the net rate after deducting voyage expenses incurred, divided by revenue days, including among other expenses, all commissions and pool administration fees. TCE is reported on a discharge to discharge basis. Fleet TCE excludes one-off costs related to the transfer of vessels to Ardmore MR Pool 2. Calculations based on existing cost structure and assume (a) fleet of 25 vessels, (b) utilization of 99.3%, (c) 33.1mln shares as at June 30, 2019. Assumes no change in tax rate, cost of debt or share count

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▪ Maintaining a conservative capital structure and strong liquidity position BALANCE SHEET DATA As at US$ millions, unless otherwise stated June, 2019 December, 2018 Cash 54.8 56.9 Receivables, Inventories and Other Current Assets 38.3 44.5 Vessels held for sale 8.1 Vessels, Drydocking & Other Non-Current Assets(1) 685.5 730.4 Total Assets 778.7 839.9 Payables and Accruals 20.5 26.4 Debt & Capital Lease Obligations(2) 429.7 467.0 Equity 328.5 346.6 Total Liabilities and Equity 778.7 839.9 Leverage (Net Debt) 51.8% 52.4%

Strong Balance Sheet

1. Excludes amount receivable in respect of capital leases of $2.9mln seller’s credit under the sale and leaseback financings of the Ardmore Sealeader and Ardmore Sealifter in 2Q17 2. Debt balance includes impact of netting of deferred finance fees of $6.8mln in 2Q19 ($8.0mln in 4Q18) and netting of $2.9mln receivable in respect of capital leases in both 2Q19 and 4Q18

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$436.5 $426.6 $416.8 $416.8 $685.5 $54.8 $9.8 $9.8

$17.8

Vessel Assets, Cash & Net Working Capital Gross Debt @ 2Q19 3Q19E 4Q19E Gross Debt @ 4Q19E Gross Debt Vessel Assets Cash Debt Repayments Working Capital 15

1. Gross debt is net of sellers’ credit of $2.9mln, excludes netting of deferred finance fees of $6.8mln

▪ Completed sale of one vessel in the second quarter; Ardmore Seafarer delivered on May 24, 2019 ▪ Strong liquidity position at quarter end with cash of $54.8 million with additional $17.8 million in net working capital ▪ Total debt and leases of $436.5 million at June 30, 2019; all debt and capital leases are amortizing at approximately $40 million per year ▪ Over 90% of total debt and leases is LIBOR-based; every 25bps reduction in interest rates equates to $1 million additional earnings or $0.03 in EPS annually

Strong Liquidity Position and Continuing to De-Lever

Debt Repayment Profile ($mln)

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Summary

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Summary

▪ MR charter rates subsided in the second quarter with seasonal decline in activity along with heightened global refinery maintenance in anticipation of IMO 2020 ▪ Product tanker supply-demand fundamentals continue to be very compelling, with tonne-mile demand growth anticipated to meaningfully outpace product tanker supply growth for the foreseeable future under current conditions ▪ IMO 2020 is unfolding as expected, most notably:

• Refinery upgrades and preparations should be nearing completion
• Marine fuel providers commencing clean-up of their logistics infrastructure
• Pricing of HSFO has risen and availability is becoming constrained as a result of reduced storage and barging capacity
• Industry participants are beginning to stockpile low sulfur blending components and compliant fuels

▪ We expect to see these preparations expand significantly in scope as we approach the switchover phase and to see a meaningful impact on product tanker demand commencing in September ▪ With our modern, fuel-efficient fleet, cost-effective structure, and spot trading strategy, we believe Ardmore is well positioned to take advantage of the anticipated market recovery and generate strong returns for our shareholders, with every $1,000 / day increase in charter rates translating into $0.27 in EPS ▪ With this quarterly earnings release we are commencing reporting our CO2 emissions. Beyond owning and operating a modern “eco” fleet, we have maintained a strict focus on fuel efficiency and environmental best practices throughout the Company’s

• history. We believe that a commitment to increased transparency by companies such as Ardmore will play an important role in

encouraging positive change toward reducing greenhouse gas (“GHG”) emissions from the shipping industry

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Appendix

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✓ Modern, highly fuel-efficient fleet of MRs ✓ Average age of 5.9 years(1) ✓ Built at high-quality yards in Korea and Japan ✓ Quality fleet = lower operating cost, higher utilization and maximum value appreciation ✓ Complementary fleet ✓ Increased scale improves commercial flexibility High Quality Vessels

Vessel Name Type Dwt Tonnes IMO Built Country Flag Specification Ardmore Seavaliant Product/Chemical 49,998 2/3 Feb-13 Korea MI Eco-design Ardmore Seaventure Product/Chemical 49,998 2/3 Jun-13 Korea MI Eco-design Ardmore Seavantage Product/Chemical 49,997 2/3 Jan-14 Korea MI Eco-design Ardmore Seavanguard Product/Chemical 49,998 2/3 Feb-14 Korea MI Eco-design Ardmore Sealion Product/Chemical 49,999 2/3 May-15 Korea MI Eco-design Ardmore Seafox Product/Chemical 49,999 2/3 Jun-15 Korea MI Eco-design Ardmore Seawolf Product/Chemical 49,999 2/3 Aug-15 Korea MI Eco-design Ardmore Seahawk Product/Chemical 49,999 2/3 Nov-15 Korea MI Eco-design Ardmore Endeavour Product/Chemical 49,997 2/3 Jul-13 Korea MI Eco-design Ardmore Enterprise Product/Chemical 49,453 2/3 Sep-13 Korea MI Eco-design Ardmore Endurance Product/Chemical 49,466 2/3 Dec-13 Korea MI Eco-design Ardmore Explorer Product/Chemical 49,494 2/3 Jan-14 Korea MI Eco-design Ardmore Encounter Product/Chemical 49,478 2/3 Jan-14 Korea MI Eco-design Ardmore Exporter Product/Chemical 49,466 2/3 Feb-14 Korea MI Eco-design Ardmore Engineer Product/Chemical 49,420 2/3 Mar-14 Korea MI Eco-design Ardmore Seamariner Product/Chemical 45,726 3 Oct-06 Japan MI Eco-mod Ardmore Sealancer Product 47,451 — Jun-08 Japan MI Eco-mod Ardmore Sealeader Product 47,463 — Aug-08 Japan MI Eco-mod Ardmore Sealifter Product 47,472 — Jul-08 Japan MI Eco-mod Ardmore Dauntless Product/Chemical 37,764 2 Feb-15 Korea MI Eco-design Ardmore Defender Product/Chemical 37,791 2 Feb-15 Korea MI Eco-design Ardmore Cherokee Product/Chemical 25,215 2 Jan-15 Japan MI Eco-design Ardmore Cheyenne Product/Chemical 25,217 2 Mar-15 Japan MI Eco-design Ardmore Chinook Product/Chemical 25,217 2 Jul-15 Japan MI Eco-design Ardmore Chippewa Product/Chemical 25,217 2 Nov-15 Japan MI Eco-design Total 25 1,111,294 5.9

Fleet Profile

1. Average age as at June 30, 2019