ARDMORE SHIPPING CORPORATION Q2 2026 Earnings Call

Good morning, ladies and gentlemen, and welcome to Ardmore Shipping's second quarter 2026 earnings conference call. Today's call is being recorded and an audio webcast and presentation are available in the investor relations section of the company's website, www.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 any time during the next week by dialing 1-888-660-6345 or 1-646-517-4150 and entering passcode 94353. At this time, I will turn the call over to Gernot Ruppelt, Chief Executive Officer of Ardmore Shipping.

Good morning, welcome to Ardmore Shipping's second quarter 2026 earnings call. First, let me ask our President, Bart Kelleher, to discuss forward-looking statements.

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. Additional information concerning factors that could cause the actual results to differ materially from those in the forward-looking statements is contained in the second quarter 2026 earnings release, which is available on our website. Now I will turn the call back to Gernot.

Thank you, Bart. Let me outline the format of today's call, which you can see here on slide three. First, I'll give you a brief overview of our second quarter highlights and how we are executing on our capital allocation policy. I will then hand over to Bart, who will cover the market outlook and update you on our financial and operating performance. Thereafter, I will conclude the presentation before opening up the call for questions. Now, turning to slide four, covering our earnings highlights. We are pleased to report another strong quarter for Ardmore. Adjusted earnings were $48.3 million, or $1.18 per share. Market conditions remained positive throughout the second quarter and into the third. In addition to long-term sectoral trends, the continued disruption in the Middle East is driving higher refining margins and long-haul volumes, boosting product tanker TCE rates.

We are declaring a dividend of $0.79 per share, in line with our policy of paying out two-thirds of adjusted earnings. As announced during the quarter, we exercised options on two additional Handysize tanker new buildings at the same terms as agreed at the start of the year, taking our total order to four vessels, with deliveries beginning in late 2028. Turning to slide five, where we highlight our TCE performance. Our second quarter TCE reflects favorable market conditions and rates in the third quarter remain well above seasonal levels. Our MR tankers earned $51,900 per day for the second quarter. So far in the third quarter, with 45% booked, MRs earned $29,600 per day, which represents a year-over-year uplift of 20%. Our chemical tankers earned $26,900 per day for the second quarter.

So far in the third quarter, with 50% booked, chemical tankers earned $25,000 per day, which represents a year-over-year increase of 10%. To put things in perspective, current MR rates are therefore at levels nearly three times our operating cash breakeven of $10,800 per day. Moving to slide six, where we highlight our capital allocation activity. We continue to return capital to shareholders while investing in the business. As mentioned, we contracted two additional Handysize product and chemical tanker new buildings, bringing our total order to four vessels, with options for an additional two. These highly flexible assets are capable of carrying the full range of mainstream oil and refined products, as well as the majority of advanced chemical cargoes, edible oils, and other liquids, all fully consistent with our long-term commercial strategy and organizational capability.

We are declaring our 15th consecutive quarterly dividend, representing a yield of approximately 20%, reflecting the doubling of our payout level as introduced earlier this year. Our operating cash breakeven remains at a low $10,800 per day, providing us with considerable financial flexibility across all market conditions. With that, I would like to hand over to Bart to cover the market outlook.

Thanks, Gernot. Turning first to the market, starting with slide eight. Product tanker markets were exceptionally strong throughout the second quarter and have remained very firm into the third, with positive underlying fundamentals amplified by the continued disruption in the Middle East. Refining margins remain elevated and benchmark crack spreads reached nearly $70 per barrel, the highest level on record. As a result, Atlantic refinery utilization is running at multi-year highs. Correspondingly, U.S. Gulf clean product exports are at historical highs, as shown in the chart on the upper right, with cargoes continuing to travel much longer distances. The map in the bottom right demonstrates how replacement cargoes now need to be sourced over longer haul routes. In addition, the Panama Canal Authority is closely monitoring water levels. Further cuts to canal throughput could provide an additional tailwind for ton-mile demand. Moving to Slide nine. Refined product inventories have declined by nearly 100 million barrels since March.

Looking ahead, this creates a need for a meaningful restocking cycle, adding an additional layer of demand on top of actual consumption. Higher oil volumes are anticipated to boost refinery throughput and support an extended period of elevated trading activity as inventories are replenished. The IEA projects significant expansion of oil supply in 2027 as non-OPEC production continues to grow. Energy security remains a key priority, with inventories likely to get replenished to an even higher level. This would support sustained firm demand for product tankers well beyond the current disruption. Moving to Slide 10 and the impact of the Russian diesel export ban. As a result of domestic refinery outages and growing fuel shortages, earlier this month, Russia imposed a full ban on diesel exports.

Russian clean product exports continue to decline accordingly, as shown in the bottom left chart. Displaced buyers are sourcing replacement cargoes from elsewhere, boosting demand for the compliant fleet in an already tight market. For example, Brazilian importers are replacing Russian supply, reducing reliance on sanctioned vessels and benefiting the mainstream fleet. Turning to Slide 11 and long-term demand fundamentals. As we've emphasized, energy security remains a growing priority for governments worldwide. Diversification of import sources and the securing of seaborne supply chains are reinforcing long-term demand for product tankers. The structural shifts in refining capacity continue in parallel. Expansion is concentrated in Asia and the Middle East, while closures persist in Europe and the U.S. This ongoing dislocation between refining hubs and major points of consumption continues to drive ton-mile demand. The energy transition is proceeding at a slower pace than previously anticipated.

The IEA now forecasts oil demand growth through 2050. These structural dynamics underpin a constructive long-term outlook in addition to the supportive near-term dynamics we discussed. Moving to Slide 12 for the supply picture. As we have pointed out in the past, the MR fleet is the oldest it has been in decades. As the chart on the left illustrates, the average age of the fleet is nearly 14 years old, the highest this century, while the MR order book represents just 16% of the existing fleet. If we examine the Handysize order book, it stands at just 6% with an even higher average fleet age of 18 years. Moving to the chart on the right, within the next five years, half of all MRs will be over 20 years old and approaching the scrapping window.

This is more than three times the size of the current order book, the dynamics in the Handy market are even more favorable. As a reminder, even if older vessels are not immediately scrapped in a strong market, their utilization levels decline materially as they age past 20 years. With that, I'd like to shift to our financial and operating performance. Turning to Slide 14, where we highlight our continued focus on financial strength. Ardmore's balance sheet remains robust. Effective leverage is a modest 24% inclusive of our forward new building CapEx. Our low operating cash break-even of $10,800 per day or $11,700 per day, including pro rata dry dock CapEx, gives us significant financial flexibility. We have nearly $300 million of undrawn revolving debt capacity, providing ample coverage for our new building commitments with access to a wide range of additional financing options as well.

As always, Ardmore remains focused on optimizing TCE performance, closely managing costs, and maintaining a strong balance sheet. Turning to Slide 15 for financial highlights. For the second quarter, we're reporting EBITDAR of $61.1 million, and as mentioned earlier, earnings per share of $1.18. We continue to frame EBITDAR as an important comparable valuation metric against our IFRS reporting peers. A full reconciliation is provided in the appendix alongside our third-quarter guidance figures. Importantly, our strong operating leverage positions Ardmore to capture market volatility. Every $10,000 per day increase in TCE rates translates to nearly $2 per share in additional annual earnings. Moving to Slide 16 for operational highlights. As a reminder, we have no planned dry dockings this year and limited activity through 2027. Existing fleet CapEx for the balance of 2026 is estimated at only $3 million.

On the innovation front, we're harnessing AI and digitalization across our fleet, now including real-time propulsion automation. With that, I'm happy to hand the call back to Gernot and look forward to answering any questions at the end.

Thank you, Bart. Wrapping up then with Slide 18. Ardmore is performing extremely well. We are capturing TCE rates at multiples of our cash breakeven. The market backdrop remains highly supportive as we discussed, driven by long-term fundamentals as well as more immediate market forces. We continue to take a disciplined and deliberate approach to capital allocation, distributing two-thirds of earnings while executing on targeted and measured growth. Our decisions are and will be guided by our long-term strategy, strong corporate governance, and our commitment to create value across market cycles. With that, we now welcome your questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the 1 on your touch-tone phone. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the 2. If you are using a speakerphone, please lift the handset before pressing any keys. First question comes from Omar Nokta with Jefferies LLC. Please go ahead. Thank you.

Hi, Gernot and Bart. Thank you for the update. Just a couple of questions from my end, and maybe just first on the handy options. You have the 4 new buildings now on order after exercising those 2 options. Gearing at the company overall remains, I'd say, quite low and you're back to being in net cash territory. As you look forward, it seems that just the way this market's coming in, as you just said at the end of your comments there, Gernot, that you're bringing in revenues at multiple of your breakeven. It looks like you're going to continue to be in this net cash territory, or at least you're on pace for that. How do you think about fleet expansion from here? You have those 2 options again on the handys. What's the thought on exercising those?

Is there a time in when those have to be exercised? Just in general, how are you thinking about further expansion?

Good morning, Omar. Great question. Thank you. Definitely, we do like these ships that we've ordered. We like the design. We also see value in the prices we agreed. Of course, we do like the optionality also that they provide. Options are options, so we'll continue to assess, of course, the economic rationale. They're declarable later this summer. Why do we like them? Well, the fundamental backdrop, we believe, is quite positive and how these assets in particular fit into this. If you think about what we discussed here, we're tracking long-term oil demand growth. Investment in fossil energy has been consistently on the rise since that dip we saw during COVID. It looks that we also have the oil supply to really match it.

Adding to that is this theme around energy security, which creates a whole different set of needs, which is benefiting really the whole energy oil supply chain and tankers included. It's, of course, not just about fossil when you think about energy security, because all of a sudden, diversification of your energy sources becomes very much part of that theme of supply chain resilience, which I think is top of the agenda for enterprise and state actors alike. These particular assets really provide us maximum optionality, not just in their near-term trading performance because they are so versatile and can optimize TCE performance, but they really give you a wide range of strategic direction, whether it's mainstream refined oil products, whether it's crude oil and dirty products. Certainly, a wide range of chemical products, edible oils, and other really interesting liquids as well.

There's liquid markets for all of these. In itself, the Handy market, of course, is also quite liquid. It's a good size. There's a high degree of overlap with what we're doing on the MRs as well, so our broader trading footprint and our commercial strategy. That's the strategic rationale, that's the fundamental and market outlook rationale. When it comes to capital allocation, very neatly fits into how we continue to balance, of course, a continued rationale to reinvest in the business, continue to embrace opportunities for selective and well-measured growth. At the same time, returning capital to shareholders and maintaining responsible debt levels. That, of course, is something we continue to look on a dynamic basis as well. Last year, at around this time, we saw a lot of value in secondhand values that had dropped significantly, acted on those very decisively.

Those would have appreciated by 30%-35% in value since and are happily trading in our fleet. At the same time, we saw now at the start of the year, really an opportune time to invest on a more forward-looking basis in the start of this set of, at the moment, four new buildings with options that are options that we'll continue to assess as we move along.

Okay. Good. Thanks, Gernot, for that detail. Maybe just one another question, then I'll pass it back. It's a bit more on the market, and you mentioned in your answer just now a bit of sort of the diversification that we're seeing in sources of oil. How are you kind of seeing things develop here? Obviously, it's been a very volatile year. Hormuz closed, it reopened, now it's back to closed potentially. Now you have the Red Sea as a potential risk for transit, which had already been there, but Maybe a bit more heightened now. Have you seen any sort of immediate response in the product market as to the latest developments there on the geopolitical front? Also, how do you think about where MR rates can be as we move forward here over the next few months?

I believe you're touching on a great point here, where markets continue to be very much in motion and probably more than we can really verbalize in a presentation like this. The status quo is there is no status quo, and even the events of the last 24 hours and last few days and weeks, of course, always trigger reactions in the underlying commodity pricing for oil and, of course, the underlying oil products as well. With that, relative price point creates regional arbitrage, creates arbitrage within the system as well, and we certainly have seen freight react as well. An important point to make is that I think there is a lot going on beyond the Middle East as well. Of course, there are the long-term fundamentals that we discussed here, not just on the demand side, but also on the supply side.

U.S. Gulf refineries cranking out product at record levels, refining margins really high. At the same time, a thing we touched on briefly is the situation with the Panama Canal. I believe it is somewhat overlooked, whereby we've already had some initial signals from the Panama Canal Authority that they might actually interrupt some of the transits. That hasn't happened yet. Just speaking with a market participant on this recently, if we continue to see really low rainfalls here from August through October, if there's going to be a super El Niño, some of this will really only play out on a forward basis, where if you're entering the traditional dry season in January with already low water levels, this is really only going to kick in in Q2 2027.

I believe there's really a multitude of factors that really can continue to drive volatility and freight to really a wide range of outcomes.

Yeah. No, certainly a lot of moving parts. Great. Well, thank you, Bernhard. I'll pass it back. Thanks, Omar.

Thank you. Ladies and gentlemen, as a reminder, if you have any questions, please press star one now. We have no further questions. This does conclude your conference call for today.