Ardmore Shipping Corporation (NYSE:ASC) Q4 2023 Earnings Call Transcript

Ardmore Shipping Corporation (NYSE:ASC) Q4 2023 Earnings Call Transcript February 15, 2023

Bryan Degnan: Good morning, everyone. Welcome to Ardmore Shipping’s 2023 Investor Day, during which we will also be covering the Company’s results for the Fourth Quarter and Full-Year 2022. I’m Bryan Degnan with the IGB Group. Just a few administrative points before we get underway today. The event is being recorded and broadly distributed via live webcast, which, along with today’s slide is accessible at www.ardmoreshipping.com. An audio replay of the event will be available on the website from later today. The standard earnings press release was issued pre-market this morning and is also available on the website. So later in the event, following prepared remarks, there will be a Q&A session, at which point, we will take questions from the people with us in the room today.

For those joining remotely, please feel free to submit any questions that you might have at any time to ardmore@ig, G as in girl, B as in boy, ir.com, so ardmore@igbir.com. Throughout the event and for the benefit of those joining remotely, we would ask that all speakers and questioners utilize the provided microphones. Slide 3 for the disclaimer here. 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 fourth quarter and full-year 2022 earnings release.

Now moving to Slide 4, I would just like to briefly introduce you to the members of the Ardmore’s leadership team, and we have the pleasure of hearing from today. We have with us Curtis McWilliams, Ardmore’s Chairman; Anthony Gurnee, Founder and Chief Executive Officer; Bart Kelleher, Chief Financial Officer; and Gernot Ruppelt, Chief Commercial Officer. And with that, I would ask Curtis McWilliams, Ardmore’s Chairman, to come up for some brief opening remarks.

Curtis McWilliams: I promise they’ll be brief. On behalf of the Board of Ardmore Shipping, I’d like to welcome you to this our Annual Investor Day presentation. Now it’s been 10 years since Ardmore became a publicly listed company on the New York Exchange. Over this time, Ardmore has always been committed to the highest standards of both governance and transparency. Today’s presentation is just one element of this commitment, and I hope you will find it both interesting and informative. As you saw in our earnings release this morning, as Chair, I’m enormously pleased with our 2022 performance, not only our strong earnings performance, but as well our continued commitment to our capital allocation policy, resulting in a very, very strong balance sheet, and our reintroduction of our dividend as we return capital to our shareholders.

As you’ll hear from the team today, we continue to believe that the prospects for our sector and more especially for Ardmore, remain very bright as 2023 unfolds. In closing, I want to thank you, our shareholders, for your continued support of our company. Our focus as a Board is to ensure that Ardmore remains solely focused on the creation of sustainable long-term value for its shareholders. I truly hope that we will continue to earn your trust as a steward of your investment. And with that, I’m happy to turn over the presentation to Tony Gurnee, our CEO.

Anthony Gurnee: That was really good. I think we can just stop right there. Thanks, Curtis, and welcome, everyone. First, I’d like to outline the format of today’s call. So Bart and I are going to start off by presenting the results for the fourth quarter and full-year. We’re then going to pivot to the Investor Day part of the presentation. I’ll begin with an overview of Ardmore strategy, and then Gernot will give his high insights on the commercial side of the business before going into some details on the market outlook. And then we’ll conclude the presentation and open up the call for questions from the floor as well as remotely. And again, for remote questions, please send them to ardmore@igbir.com. Turning to Slide 6. So for highlights.

We are pleased to report our most profitable year thus far with adjusted earnings of $144 million, or $3.74 a share. Fourth quarter performance continues to reflect the strength in the product and chemical tanker markets, with adjusted earnings of $54 million or $1.30 per share, equating to an annualized book return on equity of 46%. We highlighted in the chart on the upper right of this slide, our full-year results were driven by a strong second half, which is needed into the first quarter. On a TCE basis, our MRs earned $43,175 per day for the fourth quarter. And so far, we are running at $39,500 for the first quarter of 2023 with 55% booked. Chemical tankers on a capital-adjusted basis earned $33,000 a day for the fourth quarter and are running just slightly lower at $31,300 for the first quarter with 70% booked.

These rates emphasize the ongoing robustness of the market. And in fact, if the first quarter to-date were to continue for the full-year, although they are a little bit off the highs of last year, the resulting earnings would be about $4.60 a share. As a result of the strong performance and consistent with the capital allocation policy, we are pleased to declare a quarterly cash dividend of $0.45 a share, representing one-third of adjusted earnings. Further benefit of this performance, Ardmore continues to delever and strengthen its balance sheet, resulting in lower breakeven rates, higher quality earnings and much greater substance behind our net asset value. Overall, we feel that between our operating performance and the solid financial profile, Ardmore is exceptionally well positioned to continue benefiting from this market.

One final important note on this slide, especially for those that are not fully familiar with our industry, is the operating leverage we have to charter rates were every $10,000 a day increase in rates results in an incremental $2.40 in earnings per share. So turning to Slide 7. The market outlook remains very compelling, benefiting in particular from the current oil market volatility, which, of course, has a lot to do with the Russia-Ukraine conflict. In fact, the conflict continues to drive a further pronounced and likely to be persistent, reordering of global refined product trade, resulting in increased ton-mile demand and supporting very high rates. Our first quarter to-date performance was marginally off the peak of last year, due in part to the impact of extreme weather and early refinery maintenance in the U.S. Gulf.

Photo by Ian Taylor on Unsplash

We believe this is now behind us with the Atlantic Basin recovering rapidly to the levels of East of Suez over the past week. So arguably, the market is back to around $40,000 to $50,000 a day on a global basis. We are also seeing China reopening and set to strengthen global economic activity and thus adding a further layer of product tanker demand, for example, for jet fuel. Meanwhile, chemical tanker demand is also forecast to expand in 2023 supported by global growth. Added to all these near-term factors are the robust underlying supply-demand fundamentals, which Gernot will discuss in more detail later on. So turning to Slide 8. We will speak more about capital allocation later, but I wanted to highlight the dividend for the fourth quarter at $0.45 a share.

The calculation is shown on the table to the right side of the slide, I’m equating to a current yield of 11%. The dividend will be paid on March 15 to all shareholders of record as of February 28. With that, I’d like to hand the call over to Bart.

Bart Kelleher: Thank you. Moving to Slide 9. So Ardmore continues to build upon its financial strength. Net leverage at the end of December stood at 25%, which is down from 55% at the start of last year. We have a very strong liquidity position with $50 million of cash on hand and $170 million of undrawn revolving facilities at year-end. As Tony mentioned earlier, we’ve reduced our cash breakeven to approximately $14,500 per day, driven by our reduced debt levels as well as our access to revolving facilities. As always, Ardmore remains focused on optimizing performance as we benefit from the positive market volatility in these elevated markets. We are also closely managing costs in this continued inflationary environment. Slide 10, for financial highlights.

As noted, we are very pleased with our performance and we report record full-year results of $3.74 per share. We are corresponding reporting strong EBITDAR for the quarter and the year and we continue to frame EBITDAR as an important comparable valuation metric against our IFRS reporting peers. So please note that there is a full reconciliation of this presented in the appendix on Slide 45. Although our very favorable floating-to-fixed interest rate swaps will roll off this summer, we are in a position to mitigate the impact of the higher interest rates due to the significantly lower debt levels. And please also note Slide 49 in the appendix has our Q1 guidance numbers as well. Moving to Slide 11. continue to reinvest in the fleet to optimize performance.

This year, we will have eights scheduled drydockings. And by the way, this reduces to four next year. In tandem with these drydockings, we are installing second-generation scrubber technology on an initial six of our vessels with the installations occurring within the time constraints of the normal drydocking. These modular units are fitted with the latest technology, which filters, neutralizes and reduces water discharge and also has carbon-capture capabilities. As you can see highlighted in yellow on the picture, it looks like a great 20-foot container standing on end and attached to the back of the vessel stack, and by design, it’s relatively quick and easy to install. Based on current bunker spreads, this project has an IRR of approximately 60%.

Also noteworthy, we had on-hire availability of almost 100% for the fourth quarter from the continued close coordination of our team at sea and onshore. Moving to Slide 12. Here, we are highlighting our significant operating leverage. For every $10,000 a day increase in charter rates, as depicted on the left, our earnings per share would increase by approximately $2.40 per share on an annual basis. And shown on the right, even without vessel value increases and based on accrued cash generation, our net asset value would increase by approximately $1.60 per share annually post dividend. So on the right chart, you can see the current $35,000 per day run rate, NAV would increase by approximately $3.42 this year. And to conclude my remarks, I’d like to emphasize and put the current charter levels into further perspective.

So based on our Q1 charter levels of approximately €“ run rate thus far approximately $35,000 per day, we generate free cash flow of approximately $200 million per year, or approximately 30% of our current market cap of $680 million. This is why we are really excited about the outlook and find our position in compelling. With that, I am happy to hand it back over to Tony and look forward to answering any questions at the end.

Anthony Gurnee: So that concludes the earnings portion of the presentation, and we will now move on to a more in-depth view of the company and the markets we operate in. I have just got five slides to cover here, and then I’ll hand it over to Gernot. So turning next to Slide 14. So first, when it comes to strategy, we have been very consistent over the years with a focus on product and chemical tankers, and the overlap of the trades the ships operate in, along with a gradual increase in scale and organizational capability and a mix of patients and quick action with regard to major transactions. But our strategy has evolved with changing markets, above all, with the energy transition which we’ll speak about later. At the moment, we feel that we have a very good fleet.

You might even say a Goldilocks fleet, large enough to give us the scale needed to operate globally, modern enough and fuel efficient, yet relatively low cost and thus supporting excellent returns on capital and flexible enough to allow us to be nimble and targeted in how we operate. So turning to Slide 15. You might be surprised to hear a tanker company talk about philosophy, but all good businesses have one, and ours can be summed up as combining performance and progress. But we are very happy with our absolute performance. What we focus on is our performance relative to our peer group across key metrics, and what we think is possible on cost control and cost reduction. The whole organization is focused on this, which is evident in the returns that we’ve generated, and you could even say that this is our alpha.

But in fact, a very important driver of performance is our focus on progress, which has resulted in a very diverse and capable team allows us to connect effectively with our sea fares and motivates our energy transition team to continue finding opportunities and overall give us meaning to what we do. So turning now to Slide 16. So when I think about how the company has evolved over the past 13 years, there are clear phases, some where we got a lot done. Others were from the outside, we were just treading water and coping with weak markets. But in fact, we were working hard to develop our capabilities internally. Our financial capacity and preserving and even building earnings upside. I think we’ve arrived at a point where all this effort is now really coming through, and it feels as if we’re just getting started as a company.

So turning to Slide 17. This slide discusses how we balance the energy transition with what you could call energy reality. The push for decarbonization and addressing anticipated regulation on the one hand, while on the other hand, the ongoing need for fossil fuels, along with the ships needed to provide the transport. We speak a lot and often enough about our energy transition plan in detail, so we won’t do that here, but happy to do that in Q&A. Above all, we see the energy transition as an opportunity to drive performance and if you’ll allow us to be a modest to be one of the companies that leads the way, shares knowledge and sets the example as to what’s possible. Main effort so far has been investing in incremental fuel efficiency projects.

Our most recent such as shown here, variable speed drives, with an estimated IRR of 88%. Recently tallied up what we’ve done in this area, and so far, we’ve initiated 12 projects, nine of which have been very successful with an average IRR of about 60% and that’s not including the e1 Marine JV, which is a longer-term project, not generating immediate cash flow for Ardmore, but nevertheless, could be very accretive to value in the longer-term. Same time, we still carry mostly clean petroleum products, 70% to 75% by volume. Over time, we will migrate more towards non-CPP cargoes, which will be largely driven by demand growth and acquisition opportunities that arise for assets, but that’s where we see the long-term growth in the business. So this final slide is on capital allocation, which plays a very important role for us.

And if we had to distill it down to one phrase, it’s what anchors are ambitioned to reality. Our priorities are shown here, and they too have been consistent. The difference now is that given our financial strength, we can now pursue it them simultaneously if we choose. The point is that this is a highly cyclical business where financial strength can pay off hugely if it permits well-timed investment in growth, but we also must balance reinvestment in growth with returning capital to shareholders over time. Okay. So I’m going to hand over the presentation now to Gernot, and he is going to take us through how he runs the commercial business as well as his views on the market outlook. Gernot?

See also 12 Countries that Make the Best Whiskey and 12 Countries that Produce the Most Cars.

Q&A Session

Gernot Ruppelt: Thank you, Tony, and good afternoon, everyone. It always feels very special for me to be standing here in New York and present to you. I left New York about 10 years ago exactly, of course, for good reason to join Tony on his mission to build a really great tanker company, but it always feels great to be back. And so also from a €“ thank you for coming and joining us today. Key messages are really shown here on Slide 20. No matter where we are in the cycle, we will always face volatility in our markets. Everything we do as a team and the way our platform has been set up, acknowledges this volatility. feature in our business, and it’s an opportunity. We embrace this opportunity and we thrive in it. TCE optimization.

We live and breathe it no matter what the market has to offer, how can we do better? The answer is multifaceted, of course. It’s in how we trade our ships, how we explore new markets. The answer is in how we operate our voyages. But also importantly, it’s about how we build organizational capabilities, how we learn and evolve as a team, we see improvement as a continuous process, but how we retain knowledge and consistently apply it. Then initiatives that improved TCE performance can compound over time. Good for immediate financial results and also from a competitive standpoint, it gets harder to replicate. Much of what we do then is rooted in our culture, which we built and refined from day one to think and to act as one, we extremely deliberate what we do at all times and how we look at every decision as an opportunity for relative trade.

Slide 21. Here, you have an overview of our commercial universe, or at least a selection of it and how we are set up within it. You will see here many recognizable names, blue-chip companies, major refineries and commodity traders. And this slide may seem a bit obvious, boring really because you will have seen similar slides from most of the other tanker companies. But an important point to make here is that we transact with an increasing amount of customers with a non-petroleum focus. Now engagement with them goes well beyond the day-to-day. You have to forgive me for not being more specific here. It could be agricultural companies, chemicals, or companies that increasingly focus on trading of non-petroleum commodities, bio feedstocks or companies to engage in biofuel blending.

You can actually see that the conversation in the market is shifting quite a bit. Ultimately, this slide is about creating lots of trading options for Ardmore across the globe, and importantly, also across different cargo segments. Slide 22 is really important for us. This is about the team that we feel quite blessed to have at Ardmore. The culture that we built, which is really at the heart of everything. When you compare us with the average tanker company, we have an unusually diverse team, diverse along almost every dimension and at every level. Different cultural backgrounds, gender, but also different professional backgrounds, all is strictly merit-based. This diversity enables us to have better access to our regional markets, and to make better trading decisions, better access, more options, better decisions, it’s good business really.

As much as possible, we give our staff a chance to step up and take more responsibility through internal rotations, internal progression and career development. We are also constantly trialing new data and technology solutions. Focus is on bottom-line impact, making sure that our commercial team have the best decision-making tools at hand at all times. It is not about buzz. Therefore, we are quite selective in terms of what technology we are eventually onboarding. Slide 23. Summarizing key pillars of our commercial strategy, and I could speak for an hour now to unpack all this. Some of it will have to remain a bit of a black box because it is commercially sensitive, but to highlight a few. Voyage combinations, finding creative and more profitable voyage combinations is key within petroleum markets and beyond.

It is about creating access to the right trading options and it is also about having the organization capability to execute them, especially when we trade in the overlap between petroleum products and chemical cargoes. Voyage execution. How well integrated are we across the whole chain that makes up one voyage? There are myriads of factors affecting voyage performance. For us, it’s a bit like in Formula 1, where every lap is analyzed and every voyage is debriefed extensively. Perfect lap, perfect pit-stop, it’s what makes the perfect race and the perfect season. Just like in Formula 1, we do our own lap analysis too after every voyage, no matter how close we get to the perfect voyage, we always look for ways to do it better, then having a constant life feedback loop across our teams.

Commercial philosophy, I touched on briefly. It is about being nimble and embracing the volatility in all markets, but at the same time being very methodical, very diligent, targeting exactly the right voyage at the right time. Trading book here on the right, we will provide an example on the next slide of how we use time charter in and time charter out to dynamically manage our exposure throughout the cycle and options. How can we increase options for Ardmore? And by that, I don’t just mean voyage options. New markets is a new, dedicated and focused function within the company. Freight derivatives supplement our ability to increase or decrease our exposure. So Slide 24 makes the point I just mentioned. Allow me to explain what we are looking at here.

The green line is the spot market. The bars in blue are the number of ships we had on time chartered out. The bars in gray are the number of ships we have time chartered in. As you can see here, looking at the green line, markets were low in 2021. The work was still affected by restricted mobility due to the COVID pandemic. Then markets started to recover last winter and continue to accelerate as of last spring. 2021, when markets were weak, as you can see here, bars in blue, we had a very meaningful amount of TC cover. Starting last winter, we started to take redelivery of those ships, and we put them back in the spot market. At the same time, we extended and expanded our time charter-in position, so we increased our market exposure. Our average TCN rate at the moment is just above $13,000 a day, and we calculated that over a two-year period, TC versus spot created about $30 million in value.

Now, of course, we did not predict the Russian invasion of Ukraine. But as the world was recovering from the pandemic and the global need for mobility was on the upswing, we felt there was more upside to the market, and certainly more than what the going time charter rates were pricing in at that time, set us to pivot from a more defensive position to more market exposure. We will now look at some spot voyages in a bit more detail to give you a better sense of how our business works and how we trade our ships. I will show you three case studies starting with Slide 25. Before we look at this slide, remember the base case for a tanker. Base case is every late leg, there is a ballast leg, meaning a ship loads a cargo at the refinery, travels across the ocean to the consumer, then unloads our cargo or as we say, discharges for cargo.

Then she travels empty to the next refinery to load her next cargo. For instance, a ship brings gasoline from the Netherlands across the Atlantic to New York. And she either goes back empty to Europe or empty down to Houston. That’s okay, and we do those voyages too. But to outperform the market, you have to look beyond the base case. So case study number one shows some very long-haul global trades combined. In red, ballast legs or empty voyages. In green are the latent voyages, or you could say, paying voyages. In this case, the vessel is coming from Asia, and a very long haul voyage to Africa. Instead of going empty to your next typical load area, all the way up north to Europe. He only has a short ballast and she picks up an export cargo from West Africa, straight down to Argentina.

From there, she could ballast to the U.S. Gulf or to Europe, but in our case here, she has no ballast at all. A matter of fact, she immediately picks up an export cargo from Argentina back to the east. These voyages combined yielded a 30% premium to average market rates over nearly two quarters. So if your base case is for every laden leg, there’s a ballast leg. Here you can see that for nine laden days, there was only one ballast day. Let me also state that it is not unique to Ardmore to look for ways to combine voyages more creatively. Some of our competitors do as well. But we have worked hard on this, and we believe it shines too in our results. Slide 26 shows the next case study. Also here for every ballast day, there are nine laden days.

In this case, we are looking at a combination of the whole range of successive cargo categories, all products, edible oils and chemical cargoes. Over nearly two quarters, these voyages produced a 45% premium to the market. These great crossover trades can be quite complex. We need the broader organization capability to do these voyages well and profitably, including ship-to-shore. It took us many years bringing this expertise and do forgive me for not going into a whole lot more detail here. But going back to how I described our commercial strategy at the start and back to generating trading options, you can see why this is so important that enables us to combine the right voyages, to not only think about the next voyage, but to already sketch out next follow-on voyages and the rationale behind combining them.

The next case study and last case study, I called the Whole Hog. Short-haul, long-haul, backhauls, regional, interregional, different cargo grades, this ship really has seen it all. Over nearly three quarters, these combinations yielded a 20% premium to the market. This is about combining voyages creatively, but it is also about just timing the market. talked about volatility at the start, and our market consists of many mini cycles. Like the macro cycle, which plays out over years, these mini cycles can play out over a number of weeks, days and sometimes even hours. Again, back to how I described our commercial strategy at the start, it is about being very targeted depending on where we are in those mini cycles. Of course, we cannot accomplish these results on every voyage, but enough for it to make a difference.

I also want to avoid sending the wrong message here. Ballast reduction is not an objective in itself. The real objective is TCE optimization. There are times when reducing ballast goes hand-in-hand with achieving the optimal TCE. But there are also times where we might forego certain cargoes and accept about is to take advantage of a hot market, especially during times of extreme arbitrage in commodity markets as we have been experiencing. This can create more inefficiency in the market, which we can benefit from. But key message just to repeat, our game is not about ballast reduction as such, it is about maximizing TCE. We don’t have to go hand in hand. This concludes my tool of our commercial platform. I will now provide a brief market outlook, but I promise there will be a few more maps.

Post topical, of course, the EU embargo on Russia. Slide 30. This is a really important slide here. We are using data from commodity platform Vortexa here. On the left, crude exports from Russia. On the right, diesel exports from Russia. You can see on the left that even before the EU crude embargo came into effect, self sanctioning had already started. EU and G7 countries started to decrease their oil purchases from Russia, well ahead of time, the blue bars. The diesel on the right-hand side, this is not the case. As a matter of fact, there was a buying spree leading right up to the winter. So the diesel story is actually yet to play out. It is an evolving situation and the EU ban just came into effect last week. Therefore, there is little hard data as such.

But of course, there is the immediate reality of how clean freight markets have reacted, and there is plenty of anecdotal evidence as of last week as well. Really important to note in this context is that Russia essentially only has two buyers for their crude oil, China and India. Now this does not make for a great bargaining position. But diesel, there are more countries to accept and within those countries, there are also more receivers. So lots more buyers for Russian diesel than for Russia’s crude oil. Russia, it is a lot more attractive instead of exporting crude oil to put their crude through refinery first and then export it as diesel and step. We don’t run crude tankers here at Ardmore, and I don’t want to comment too much on the crude market.

But the point here is that the diesel story is quite differentiated and still to play out. It is not a single event. It’s a structural fundamental shift of refined product supply chains globally. Another important insight from the oil analyst from Vortexa is that it’s very easy to have television right now and to only focus on diesel. Of course, refiners are doing the utmost to optimize their product slate for diesel production. But this comes at the expense of gasoline and naphtha production. This could create price pressure for gasoline and naphtha. This will kick over the next long-haul arbitrage with the obvious positive impact on tanker demand. Road traffic is globally on the rise still as is aviation demand. The world cannot live on diesel alone, something we pay close attention to.

Slide 31. I have promised you more maps. These are not specific embargo voyages now, but I believe this map as well in visualizing very simply the ton-mile impact related to the EU cargo. The red arrows show two trade lanes, basically how Russian oil products used to get shipped to the European market. Baltic to Northern Europe on top, and below, Black Sea to the Mediterranean Sea. Of any voyages that MR tankers would ever engage in these are among the shortest by far. Contrast, if diesel gets shipped to Europe from the U.S., the green arrows towards the left here, we are looking at voyages 4 times as long, at least 5 times as long from the Middle East, 10 times as long from the Far East. I said earlier, this is an evolving situation, and we are in the first week since the ban came into effect.

But many traders booking ships loading in Houston nowadays ask for discharge options in Poland. That is new. It really confirms the point that slide is trying to make, which is from short runs in Northern Europe to quadruple the voyage length from Houston to Eastern Europe. Ton-mile impact overall is estimated at between 7% to 8%. So where is all the Russian diesel going now? Slide 32. The expectation is that it will move fairly long haul that we will see a fair bit of flow into South America and long-haul voyages replacing short-haul voyages. We’re already seeing today Russian Baltic cargoes moved to North Africa and West Africa, also long haul, prone for voyage delays. These deals are generally done under the radar by the so-called shadow fleet, but we are keeping a close eye on this activity.

Most importantly, remember, this is cheap diesel. And voyage distance is almost irrelevant in the face of price arbitrage. Oil analysts have been predicting that even markets East of Suez will be absorbing Russian diesel. India, the Middle East and Asia might all be importing diesel all the way from Russia, and as of this week, we are starting to see exactly this happening. We are seeing CPP cargoes from the Baltic getting booked for East of Suez discharge on both MRs and LRs. This can either be for consumption or Russian diesel will get blended with other products and then get re-exported. This is a remarkable two-way trade. Same cargo is shipped twice over really long distance, west to east and then back east to west. By the way, not by the same ships.

Allow me to clarify that Ardmore does not engage in Russian exports, but we are monitoring what the shadow fleet is doing. And the expectation is clearly that many of these vessels are €“ not all of them, will not be able to slot back into international mainstream trades afterwards. This would create further market inefficiencies and limited tonnage availability in the market even further. Turning to Page 33, the industry outlook. Much of this will be familiar to you and I also regret to inform you that we only have one map left in the slide deck. You’re a very kind audience. Thank you. This is also a very small map. Slide 34, a simple story, but very important. Net fee growth for product and chemical tankers is slowing substantially, even expected to turn negative in the foreseeable future, against an estimated 3.5% annual demand growth.

This is the widest supply and demand gap we have seen in a very long time. Slide 35. Talked a lot about ton-mile today, but sometimes it is useful to just look at tons as in consumption. This is a combination of data from the IEA, MSI and IMF, O&G. In brief, the pandemic is behind us, certainly from a point of our consumption anyway. We are exceeding pre-pandemic consumption levels and consumption continues to still accelerate. Once again, it is worth looking at what has been happening with global road fuel demand and aviation demand just this past week. Slide 36. This is it, final map of the day. I will spend very little timing because you will have heard us talk about this all before. But the key messages really remain fundamental demand drivers, consumption, refinery dislocation, China emerging from COVID, embargo on Russian oil products.

This results in an estimated ton-mile increase of 10% year-on-year for product tankers and 8% for chemical tankers. Slide 37. Let’s take a closer look at supply, and it is worth lingering here for just a moment before I conclude my slides. When you look at the order book for product tankers on the left, you really have to travel quite far back in time to get to a point when the order book was anywhere near this low because you have to zoom out all the way to the year 2000. I personally dislike the term generation opportunity because it is so overused, but it is really hard to argue with these numbers. But equally important is the chart on the right, the green dotted box here. 40% of the fleet will be older than 20 years in five years’ time.

That is really old for our sector. It is getting older, there’s very little ordering and this has been a long time in the making. Slide 38 makes an important point on where environmental regulation comes in, in this context. These older ships we just looked at are less fuel-efficient. That means higher carbon footprint. Older ships will become more expensive to operate and to own. At the same time, anyone who wants to order a ship today must realize that the useful life of the asset will take them straight to 2050. By 2050, the industry aspires to have reduced carbon intensity by 70%. There is a lot of meaningful discussion in the industry about future propulsion technology, but a winner has yet to emerge. This creates a mountain of uncertainty for anyone ordering ships today.

So environmental regulation, this incentivizes the operation of older ships. But environmental regulation also disincentivizes the ordering of new tonnage. So flipping back to Slide 37 then, supply-side gap is already significant. Environmental regulation will only increase this gap. This completes my section for today. Of course, I’m happy to answer questions later. Thank you so much for your attention.

Anthony Gurnee: Right. So just we’ll go ahead and just sum everything up now. So regarding the markets. In summary, the second half of 2022, market strength is continuing into the first quarter. Near-term outlook is very strong given the reordering of global product tanker trades and the medium-term outlook is positive as well for both products and chemicals based on the strong supply-demand fundamentals. Starting the company, we are reporting record earnings. We are performing very well and, in fact, thriving in these volatile markets, cash breakeven and substantially strengthened our balance sheet, which enhances the quality of our earnings, the quality of the dividend and the substance behind the NAV calculation for Ardmore.

And this has enabled us to now pursue all of our capital allocation priorities simultaneously . We are balancing the energy transition with energy reality above all prioritizing carbon reduction projects, which yield very high current returns and improve our operating performance today. And as a final, but I think really perhaps the most important point, we feel that we could be in for a really good multi-year run in our markets and that Ardmore will continue to excel in these conditions. So just before pivoting to Q&A, I want to thank Curtis for coming up to join us today, also to Bart and Gernot, along with Mark and his team, for their leadership in achieving our results. And John and Allan, Brian and Elliott for the great work in putting this whole thing together and organizing the event.

We will now open up the call for questions.

Q – Unidentified Analyst: Congratulations, first of all. Obviously, earning extraordinary returns now will continue as long as it continues. But we’re entering a new era, obviously, hopefully, for the industry, for the company. Can you just comment on where you expect the long-term ROE kind of to settle out? I know there are ups and downs in vagaries. But kind of where it’s been in the last decade and where you think it will be in the future decade once we’re done with the abnormal period in the war?

Anthony Gurnee: When anybody says, here’s to the beginning of new era, you want to run for the access. I don’t know if it’s a new era. It’s a continuum. Look, we’re in an extraordinary phase. I think it’s interesting to think back to the very early 2000s and what kind of kicked off that strong run through the abnormalities. It was actually a couple of oil spill from single-haul tankers. That then led to the growth in China, kind of all unrelated events. But call it Murphy’s law or whatever you want to call it, these things tend to build. And so that’s why we do think that €“ we don’t think it’s just fundamentals alone or Ukraine conflict alone, but probably a sequence of things that are going to continue to drive the market.

Ultimately, this is a highly efficient competitive global industry. I think we’re doing a marvelous job providing the global economy with efficient transport. Occasionally, we make a lot of money. I do think that we’re going to be going through a phase of probably very substantial fleet turnover and replacement into new technologies. Personally, I think it’s going to take longer than anyone expects. If you think about what happened with single-haul tankers, it took 20 years, right? When you build a ship, it’s a 25-year asset. And I don’t think the IMO or anyone else is going to do anything that’s going to create an economic crisis out of curtailing shipping supply.

Unidentified Analyst: Follow-up.

Anthony Gurnee: Yes.

Unidentified Analyst: What is the day rate that is required to get a 10% or 15% rate of return on a new ship?

Anthony Gurnee: Well, kind of a normalized newbuilding price, my guess would be maybe $17,000, $18,000 a day. That was a bit of a ramble, apologies, but it was a good question.

Unidentified Analyst: but not an industry expert by a very long way, but can you give us a sense of two things? One, hopefully, the easy question. These assets will all have market prices. What’s the market value of your assets today versus the share price? Second question is really unfair. Let’s just say the Ukraine invasion hadn’t happened and all the repercussions that you’ve seen and €“ really appreciate you articulating here. How much has that helped you? And if that €“ if there was €“ if it hadn’t happened, would you think you would have been today?

Anthony Gurnee: So the first question, we don’t typically talk a lot about the asset values because that’s what research analysts do. But we do think today, our net asset value is still €“ I would say, way ahead, but kind of meaningfully ahead of the stock price keeps going up, and it’s not going up right now because of asset values, but because of accrued earnings, holding building of equity in the companies. It’s probably around $700 million, $720 million. It just feels like the stock price has been chasing NAV all the way up right now. So the other question is where would we be without Ukraine war, I think we’d all be a lot happier. And €“ because it does €“ in spite of the fact that it’s had a positive impact on our business, it does really trouble us.

Gernot pointed out that at the beginning of last year, we were pivoting anyway to spot because we felt it was going to be a good year. And we thought by that, we thought maybe high teens. I think we would have been in the high teens today without the Ukraine war, which is still quite good.

Unidentified Analyst: You throw a few multi parts there. You just mentioned you pivoted the spot. But MR is typically in a market where you have long-term contracts, is it bit of customer behavior, they’re looking at the same data you’re looking at? Are we going to see the emergence of an attractive five-year kind of contract market in MRs, and how would you approach that? And then totally different question. I couldn’t help but notice on your sensitivity page started out with $35,000 and went up from there. Is there something we should be reading into that? Because normally, you would have put a few years ago, $35,000 around other side of half of the page.

Anthony Gurnee: Yes. Okay. So in terms of €“ I think I’d like to ask Gernot to comment a bit more about the market structure, but I would just make the observation that forward rates in our business are not so much a predictor. I guess where people think it’s going. It’s very often a degree, it’s a measure of risk aversion, a little bit like interest rates. But I’ll hand it over to Gernot. In terms of the sensitivity, look, the fact is that we fix ships at $125,000 a day a few months back, okay? So, when you go from fixing a few ships at $125,000 a day to all your ships at that level, not very much, okay? And that’s how inelastic this business is. So that’s why we wanted to show that. Gernot, do you want to comment on?

Gernot Ruppelt: Yes. The longer you go out in terms of duration, liquidity really becomes quite thin for time charter contracts. It is discounted quite heavily. But more importantly, you really have to start to wonder about kind of quality of counterparties as well. So obviously, looking at that as a bit of an insurance, many ways for people to try to lease out of contracts, and this has been done before, and these are not financial contracts. These are physical contracts, where it could be physical situations beyond any owners’ control that give the charter abilities to repeat those certain fixed pay contracts. That’s just as a general comment, right now, most liquidity is around six months to 12-month periods. I think I just asked my notes back €“ it’s mostly on six to 12-month period, and then you really have to look at what is the position of the ship, what’s the relative strength, the spot market.

How does the paper market look compared to it? So the answer is there’s very little liquidity and the liquidity that is there is usually quite unattractive. Sometimes simply from a point of view of pricing or counterparty. Maybe, one point I wanted to add on the question of where did the demand come from last year. And of course, Russia, Ukraine really was captivating the headlines. And of course, it also drove a lot of psychology in terms of that angst around where do we get our product supplies from and what does this really all mean. If you go back and dissect the ton-mile data for last year, you will see that there was a lot of things happening in the market that had really nothing to do with Russia, Ukraine. There was a lot of ton-mile demand coming from South America.

Refining system is still fairly inefficient there, a lot of economies reemerging from COVID and requiring a lot of mobility, industrial demand from South Africa. But just to make the point again, also new streams of demand €“ ton-mile demand coming into play around non-petroleum-based commodities used for biofuel or biofuel blending. I think an example that is probably now attracting a bit more visibility in the market is used cooking oil. Really think of it as used cooking oil that gets shipped in more lots from Asia to Northern European refineries to produce and blend biofuel with. So there’s a lot of interesting stuff that’s happening that goes beyond just Russia, Ukraine, even though, of course, that did have an impact. But I feel like it’s easy to overlook those and I wanted to briefly highlight those elements.

Unidentified Analyst: Just to actually briefly follow-up on that. If €“ looking at the other side of that, if the conflict ended tomorrow, how does that change your medium-term outlook or short to medium-term outlook? Did it €“ does the conflict essentially tighten the market faster than it would have naturally? You still have the supply/demand imbalance going forward even?

Gernot Ruppelt: Yes. I think, certainly, it has done something has created a lot of extra volatility and that’s helped shift the momentum increasingly in the owner’s favor. But even if you look at trade patterns today, there’s a lot of demand in places that really have nothing to do with what goes on in Europe. But I think it’s also important to point out that even if they were to end tomorrow, I think these changes in supply routes are probably here to stay. And I would be very surprised if politically or for all the other reasons, Northern Europe would shift back quickly towards using Russian diesel or Russian crude oil. And equally, once some of these street lanes get established also they kind of stick. So as some of these people in Middle Eastern and Asian countries are used to actually importing Russian diesel, the distance really is negligent. It’s about the price incentive, pretty strong.

Unidentified Analyst: Thank you. I wanted to dig into the energy transition investments you guys have been making. You mentioned in the slides, cover investments, the 60% IRR. Can you sort of talk about what has changed relative to when IMO 2020 was implemented, like why now? Why are you investing in scrubbers now? And then kind of second part of that is you mentioned 12 ETP investments. Any degrees of success? But are those sort of all the low-hanging fruit outside of full fuel, O&G, methanol, et cetera, ammonia, sort of do you believe that the low-hanging fruit has been picked on?

Anthony Gurnee: I’ll start and then Yes. So maybe I’ll kind of go backwards. I think what we found is that evaluated probably, we’re not doing wind assist. We’re not doing lubrication, these kind of things. So what’s fun and exciting is that these are relatively bite-sized investments that have a cumulatively meaningful impact on fuel consumption, goes up in our TCE. And the €“ when we calculate the IRRs and paybacks, they’re pretty amazing. We’ve got a really good team that looks at this kind of team, but our head of innovation is really good. And it’s surprising how many new things €“ so there are other things that we’ve done that a year ago, we that they were going to pop up. So I think that will continue. Not forever, but for the time being, we’re very optimistic when it comes to that.

Gernot Ruppelt: And certainly, as the industry studies, what is the ship of the future, the fuel, the distribution, the service, the vessels. The emerging technology that’s coming up, but then to your existing base. So I think it goes back to Tony’s comments of having this Goldilocks fleet, where the fleet is not too old, not too young, but actually can benefit from these small incremental CapEx projects and the system that we have at Ardmore where the innovation team can bring it up. We have a pretty brief discussion after the rigorous analysis, pilot test it. And if it works, you roll it out to the fleet in due course. If it doesn’t, you move on to the other projects. And I think it is dual fuel, we focused a lot on different hardware, but there’s also the software component of as well, which continues.

I think there’s been a lot of hype in some of the side of it, but hardware, software, and it is the rapid ability to deploy it in the routine drydocking where vessels are underway and imports. So I think you’ll see part of that from us for sure.

Unidentified Analyst: And then a second one, if I could. So you had mentioned part of the strategic pillars, well-timed accretive growth. I just wanted to ask about growth, I guess, medium-term, longer-term. I guess first, is there any interest in doing any new builds at this time? I guess the first question is, do you envision seeing growing the fleet outside of time charter ins in the near future, medium-term? And I think the second part of that, I guess, is that, are new builds any interest to you? Or is it purely secondhand vessels, I guess, where does the preference lie?

Anthony Gurnee: Yes. I think when you look at the Ardmore fleet compared to others, it’s perhaps a little bit on the small side. But we have grown a lot in 13 years and we intend to continue doing that, but we want to do it in a smart way. So what does that mean? We’re continually looking at opportunities. It could be secondhand. I think new buildings €“ I think once we get a bit more clarity or can better figure out what to build and are convinced that they are going to be good investments for the long-term as a possibility. There are kind of modern secondhand ships out there that are possible. But I think this is not a very homogenous market. So it’s very global and there are pockets of kind of opportunity. So we’ll continue to look for things that on a relative basis are sufficiently attractive to make sense on and tend to buy well.

So we bought six ships, okay, admittedly a while back, but when they were two years old at an average price of $28.5 million MRs and that price has been flagship we bought was about two years ago, and that ship has doubled in value. But I think we’re pretty good buyers. And in the moment, people always question us, but this seems to work out pretty well.

Unidentified Analyst: Probably a question for Gernot. But on the shadow tanker market, can you quantify that? I mean, how big is it relative to the overall fleet? Is it lower end, 30 or , that’s kind of interesting as well from a €“ high curtailment. So just a little more detail on that would be great.

Gernot Ruppelt: Yes, I think that’s a great question because, unfortunately, it’s not like the ships fly a flag that says shadow fleet. You have to use sort of various data points to extrapolate, which ships are likely to end up in the so-called shadow fleet. It’s a bit too early to tell. Of course, now we can see certain ships trade into those Russian export cargoes and it will become more apparent. I’ve heard a lot of different estimates, and I almost don’t want to transfer myself, but I think it’s, I think, 100 to 120 ships, could easily be €“ they’re dedicated to those trades. And the way you extrapolate is usually age. So these are older ships. That’s sophisticated. And then you can look at certain demographics within the distribution of ship owners, owners that would typically be a bit more prone and risk taking to what’s potential sanctions violations and just exploring trades that we would not get anywhere near to.

I think €“ yes, I think the €“ as an example, just today on a ship with one of our competitors that got into a fair bit of trouble due to trading history, and we also know that fairly high-profile customers, of course, are quite concerned about their reputation and to ask a lot of questions during their KYC process, not just about the owner, the counterparty, but also about individual ships and their trading history, just being scrutinized even more. So I think it is a fairly safe assumption to say that these ships will be not in a perfect growth from that owner’s perspective, you would take a Russian cargo to the Middle East and then load another clean product cargoing take it right back to Europe. That is unlikely to play out. This is just going to be shifted ballast-back essentially back to Russia.

And certainly, the way it’s trading is still making sense for them. But I think for the wider market, the important message is really that these ships will be dedicated to those shadow trades and a de facto removed from the markets that we would find ourselves in. So it is actually still important from a ton-mile perspective, and it’s probably even more so important considering that it’s very inefficient in terms of how you can actually really shift those cargoes a lot of empty legs for the ships to get back to with the Baltic states.

Unidentified Analyst: Starting Slide 38. The International Maritime Organization is talking about 20%, 30% or 40% reduction in carbon intensity. My question is, is this considered to be a significant reduction as it is now or will be since nobody has really agreed to all of this and would this type of reduction met through staggered transition dates going forward?

Anthony Gurnee: Fantastic question and clear. And this is the frustrated part for us, and I think a lot of companies is if we just knew what the rules were, we could plan accordingly, and this is also what’s holding back ordering activity. So the IMO has basically come up with short-term measures, which EEXI, CII, et cetera. They’re now working on medium-term measures, which are more market-based to try to level the playing field of renewable fuels with fossil fuels, and that will then hopefully incentivize owners to build ships that burn renewable-type fuels, whether it’s ammonia, methanol, biodiesel, et cetera. So the timing and the nature of that legislation is to be the deciding part. And that’s why we’re focusing on what we can do in the near-term to just reduce carbon emissions because.

Sean Morgan: Hey. Thanks, Tony. Sean Morgan from Evercore. I just wanted to get an update on the e1 Marine JV and just trying to understand better how long it’s going to take for commercialization of that kind of new nascent business? And like what are the €“ I guess, what are the gatekeeping factors for getting that up and running? And then also, once you kind of have the technology ready, are you seeing any green shoots of a distribution network of hydrogen and ports starting to develop? And if so, where are you seeing that distribution network start to pop up?

Gernot Ruppelt: Sure. So let’s comment on Element 1 and then Tony, maybe on the marine side. I think as we think about Element 1, certainly, it’s an earlier-stage company, but the benefit that it actually already is €“ has revenue today is cash flow positive. And really for them, it’s the evolution of expanding their licensing model on a global basis and across industry verticals and regionally, and then at the same time, engaging with the large global industrial players that could actually service as a distribution and global partner for them. I think they have the interesting model, where the most critical piece of their equipment is this metal filter that actually produces this ultrapure hydrogen to like the 99.99% level that can be used in fuel cells.

And so for them to control that core bit of the technology, but then leverage other organizations in terms of distribution, this is a big year for that to continue to play out, and then I’d say maybe on the marine side.

Anthony Gurnee: Yes. So I think €“ and I think the demand will come when the regulations are set. The advantage of the system is that it takes methanol and water, methanol molecule and water, there’s a lot of hydrogen there, right? So it takes a mix of roughly 50-50 and reforms it into high-purity hydrogen stream, so that you don’t have to store hydrogen. And we think the best applications are going to be generated replacements on chips or shore power facilities on docks and maybe propulsion for river in Coastal craft. The partnership with e1 Marine is three-way between Element 1 Ardmore and Maritime Partners and Maritime Partners has announced that they’re financing and building the first-ever hydrogen power tug and the hydrogen is going to be produced by the Element 1.

Sean Morgan: Another big-picture industry question. As you point out, the industry does a great job of efficiently moving these products around the world and they’re products that economies absolutely need or they’ll grind to a halt without them. Yet at the same time, you have the governments trying to outlaw full in products, the EUs outlying gasoline-powered cars by 2035. So if I’m in your seat at a Board meeting talking about capital investment on a long-lived asset for what we call it, 25 years, just for rounding purposes, how do you make that decision in the near -term? And I would guess, as we get closer to that date, no matter how bizarre you think it is what the government is trying to do, doesn’t that just mean there’s going to be less supply because more people won’t take the risk of spending that kind of capital on an asset that might not be worth very much in a decade, and how do you think about that?

Anthony Gurnee: So one thing that I think is worth reflecting on is that the global economy, if it just continues to grow at like 3.5%, doubles every 20 years. Now in 2050, the global economy is going to be 3 or 4 times the size it is today. China, India, Africa, Latin America, et cetera, they’re way behind Europe and the U.S. William, so I think in the context of all that global growth, most of which is going to be happening in Asia. We think there’s going to be a market for petroleum transport. In time, we think the real growth is going to come from non-CPP, which is kind of chemicals, biofuels, vegetable oils, and that kind of stuff. So that’s where we’re heading strategically when the opportunities arise €“ in a manner, which we think is going to holding and improving our performance.

When I started in this business, products represented about 10% of the world tanker fleet. It’s close to 40%. I think €“ and versus crude. So I think you’re going to see the same kind of migration, not kind of type two cargoes that over time, we’re going to become a bigger slice of the pie, and that’s where we’re going to be.

Christopher Robertson: Hi, Chris Robertson with Deutsche Bank. So one of the downside risks here is just the general recession risk. So can you guys talk about demand elasticity for petroleum products during a regular kind of general recession versus the COVID-driven recession?

Anthony Gurnee: I went over to Bart.

Bart Kelleher: I mean I think for us, from the macro perspective, we fully acknowledge that there’s potential pressure there. It does feel like it’s more of a first half relative to second half potential reacceleration and more different geography-based. It feels like we’ve already, even from Gernot comments, starting to see increased flows related to China already. But I would say in this market environment and we looked at the supply-demand spreads and absent the February 5, Ukraine potential impact and reordering of the trades, you’re still at a 3% to 4% demand growth relative to near-zero fleet growth, and there’s going to be volatility there. So as we think about it, even if that were to compress them, for example, in €˜23, that €“ that’s not really the driver of the market. And as you’re reordering on the ton-mile story, it’s really the story Gernot shared.

Gernot Ruppelt: Maybe just to add a small nuance there, less macro, but for tankers in particular, of course, our demand is ton-mile demand and also ship availability. So even when you might be facing economic headwinds that could suggest that, for instance, the structure of the oil and product prices goes into a steep contango. So all of a sudden, there’s potential for more long-haul demand and also more storage demand as we have seen, which could actually bode quite well for tankers. So sometimes what that actually means in terms of tanker demand at least for a period of time, can be quite counter-intuitive and .

Unidentified Analyst: right here. We look at the crossover trades, and the maps right there, we’re looking at a balance and laden ratio of about 9:1. Is there a floor ceiling that you guys could put on that, especially looking at the vectors over time, environmental regulation, cyclicality, the aging fleets is there a floor ceiling on that number? Does it change? How do you assess that? And how do you guys act in the moment when you see that? Is there a lot of variability in that?

Bart Kelleher: There is and it’s actually a decision, so we’re not looking to say, okay, we are striving to have a ballast-laden ratio of X across the fleet. As a matter of fact, it’s very much a trading decision that is made almost voyage-by-voyage.

Unidentified Analyst: So what is the highest voyage you’re seeing on some of that? Because right now, in the examples you gave, they’re both 9:1, do you see that go up, down, pretty heavily by?

Bart Kelleher: Those are probably some of the more €“ those are examples on the high end, but it’s kind of €“ it’s obviously visualizing when these things stack up really well. I’d say if your base case is a laden leg for ballast leg for a crude tanker, let’s say, it’s 50-50, I think the average laden balance ratio for product tankers is roughly 60%. And I think over the last year, we’ll probably be in the 75% range there. But it really depends on kind of what profitability dictates. There might well be cases where taking a longer ballast into account just makes more commercial sense and then we do that. But I’d say, to answer your question, I would like to think that as we stress further towards nonpetroleum-based cargoes, they can move quite different from your standard petroleum-based trades, which usually starts with a big refining hub, Northern Europe, U.S. Gulf, Middle East, maybe China, maybe Singapore, you will find, I think, ways to quite naturally cut those ballast legs.

Again, just because it makes commercial sense rather than kind of us looking to kind of move that KPI up or something similar.

Unidentified Analyst: That makes commercial sense, I mean, it’s obviously not black or white here. But as environmental regulation comes in, it’s hard to tell it’s going to happen with that ratio to go either way.

Bart Kelleher: That’s correct. And I think if you were to know €“ really dig into the mechanics of the CII rating, which is in place of this year, some of it can be quite counter-intuitive where not necessarily the €“ yes, the trade that the most carbon efficient could actually still end up getting penalized. So you’re right. I mean there is a lot of complexity, especially once you factor in that as of next year, of course, Europe has the shipping or highly likely to be including Europe in the carbon trading scheme. But very likely, a lot of the other jurisdictions are just waiting to see how this plays out in Europe, and we think there’s going to be a lot of regional jurisdictions with similar carbon taxes in North America and other parts of the world as well. So you have a real crazy mosaic of different carbon-related taxes as well, which is going to skew that picture of ballast, laden in the long-term. That’s vision of an answer. A lot of

Unidentified Analyst: I’m taking out of this. I mean, it’s how do you systematically create system where you’re okay through all this crazy mosaic.

Bart Kelleher: And I think that’s part of the reason why a lot of what we do in terms of setting up our organizational focus is to really €“ so we don’t lose sight of this because a lot of this we need to catch on the forefront and it needs to be kind of come part of sort of our muscle memory in terms of how we trade our ships, operate them. And just even what we discuss on a daily and weekly basis, this has to be a part of it. Thank you.

Unidentified Company Representative: I think earnouts being modest. I mean, that uncertainty on the regulatory side, in other words, it adds volatility and the team is set up to trade in that volatility.

Unidentified Analyst: Obviously, we’re €“ in the financial markets generally, there’s a premium being paid for dividends. It seems they continue. You mentioned the payout ratio, but you’re in a hugely cyclical business. So what has to happen for that dividend to be vulnerable? And then secondly, what’s your view on growing the dividend over time? And obviously, that’s a longer period of question.

Gernot Ruppelt: Sure. I think as we reinstituted the dividend after a considerable period of time, we’ve thought about determine one-third level being something that you look to have sustainable through the cycle. And it allows us to build strength at this point in the up cycle, but also address the other pillars of our capital allocation policy. And so with €“ accretive growth opportunities don’t emerge, and we continue to be disciplined and patient there for the long-term. We can always review an additional return on capital above the stated dividend policy and our Board is supportive of that as well.

Unidentified Analyst: Are there any €“ if you’re right on this supply/demand in the market is as tight as you think, are there any relief valves, whether it’s steaming speeds after coming back from the dirty side, ships trading older than they are typically allowed to help create some relief or there’s really no kind of improvement to the laden, ballast ratio across the industry? I’m just trying to think of what could be wrong.

Anthony Gurnee: Yes. So part and then maybe Gernot Ruppelt can pitch in. Despite of the very high rates, ships are up, but not as much as you would able. No, that’s possibly just because of the high fuel price as well. I think if you had a very low fuel price, all the demand you might see more speed. We haven’t seen a lot of congestion is a little bit, but that was the whole container ship story. That’s not part of the tanker story now. And it’s really not even a lot to do with volumes at the moment. It’s the distance. So you can €“ obviously, LR2s can clean up from dirty trade and go into clean. You can even have crude tankers on initial voyages that do multiple voyages and be clean. Not too many of resets do that on a sustained basis, but they’re there to do that.

And I think that if the freight rates are high enough, then the market kind of sorts itself out in terms of the trades or the oil trades that are possible. So obviously, I think a lot of what happened is disruption in which once it kind of settles into more stable trading patterns, again, obviously is a lot more efficient.

Unidentified Company Representative: I was just thinking, I mean, oil trades obviously do have that greater sophistication in the just relation and safety concerns. So I mean when you think about dry bulk vessels, we’re able to put stack containers on deck and that substitutability. You don’t have that in general in the industry.

Unidentified Analyst: Just touching back on capital allocation for a second. You showed you’re down 25% debt to cap. With this extra cash you’ll have, I mean, do you want to pay that down to zero? I mean at what level €“ it sounds like you’re not going to buy a whole lot of ships right now. So when would that maybe extra dividends and what have you done for us lately beyond the formula come into play?

Anthony Gurnee: I can assure you, it’s something we discuss at every board meeting rigorous. And so, look, we’re trying to find the right balance. And we’re very, very happy to pay special dividends if we feel that there’s no better use of cash.

Unidentified Analyst: Is there a low you want the debt-to-cap going below, which it’s not an efficient capital structure?

Anthony Gurnee: Not really. But I think our delevering is going to slow down from here because we’re paying a dividend. Two-third, one-third of that cash and the market is not quite where it was. We had some other specific factors in 2022. So I think the delevering will happen slower even if we do not . I also think that there’s real benefit in that low leverage in terms of just the quality of the cash flow and earnings.

Bryan Degnan: Few from the webcast here. Most of them have been already €“ actually, a handful of them by Greg. So I guess maybe reading my email, I’m not sure. But in any case, do MRs are outperforming? Is that something you would expect to be the case? Or is that something related to February 5?

Anthony Gurnee: Yes. MRs and LRs are correlated. So in a way, everything that’s good for product tankers is good for kind of all vessel classes. What I think it’s worth highlighting that in an environment of extreme volatility as we have experienced and an environment of extreme uncertainty as we have also experienced that our customers, oil traders and refiners really like that flexibility, ability to continue selling their cargoes as the ship is already underway and the ship that offers the most trading flexibility and the most traded stem sizes are the MRs. For us, of course, also we can access nonpetroleum trade more easily with MRs, it’s not really possible with LRs. So for us, it also creates more flexibility in how we trade ships and how we combine cargoes and how we combine voyages.

So in a way, the MRs, I think inherently offer more flexibility to both our customers and us, which is why I believe that MR should continue to do quite well. Looking at some of the maps we started in terms of shifts in trade flows from short haul within Europe to long haul, that’s, of course, structurally the bullish MRs bearish handies, these are traditional handy trades. I think on the LRs, it’s important to point out that LR2s are already trading as clean as they usually do. There’s always a slice of the market that just stays in dirty trades. So I think overall, mainly due to its kind of structural layout, MRs provide a lot of flexibility for both us and the customers and I think should continue to do well.

Unidentified Analyst: Given where rates are and also where asset prices are, would you expect to capturing this you look at potentially crystallizing the value in the assets by doing some sales of older vessels? Or would you €“ for a vessel that you would otherwise look at selling now look to hold on to that vessel? How do you think about €“ does that change at all your normal process for sort of the aging-out process?

Anthony Gurnee: Typically, keep ships until they turn around 15 years of age. We sold three last year that were old age, and we sold them on a sale-leaseback basis and we took it back at $13,000 a day years. So that actually carries even . So our next older ship now is 2010, so it’s 13. It’s still a very efficient ship. We like the way it’s operating. So I guess the question is, would we sell anything now opportunistically? And the answer is yes, maybe, but you have to factor in the cash flow that’s quite visible near-term. And when you get to the other side of that, very visible and reasonably confident kind of basis and even look at one of your TC rates and freight future, et cetera, you get to a point where if you sold the ship at an impressive price today, back end of all that cash flow, it’s actually a pretty low price, .

And then the final thing I’ll say is that we don’t have the luxury that everybody in the audience has here to just sell the shares, right? So I mean we’re €“ anytime you want to sell the ships, just sell the shares. Yes, so

Bryan Degnan: And then last one from the webcast, you’ll answer this, but I’m going to ask it because they’ll let me hear it if I don’t. Given what you’re generating right now, given some of the slides that you had in the deck, how much dry powder could you accrue over the course of the year?

Anthony Gurnee: Dry powder, how do we accrue?

Bryan Degnan: Could you accrue over the course of the year? What does it look like a few quarters from now?

Anthony Gurnee: Well, I mean it could be another $150 million looking at these current levels.

Unidentified Analyst: Hey, just a quick one for me.

Anthony Gurnee: Yes.

Unidentified Analyst: We’re expecting to see quite a few bits of refinery runs over the course of first half of 2023 to the tune of roughly 3 million barrels per day in the Middle East and West Africa. Would you mind just sharing your view on how this reads through to ton-mile demand?

Gernot Ruppelt: Actually, a lot of the seasonal turnaround, particularly in the U.S. Gulf, we’re kind of past the peak here already. We’ve seen, of course, unusually strong winter weather, as I’m sure everybody in this audience can remember and it did knock out a fair bit of €“ have three U.S. Gulf refining capacity. So those would typically happen a bit later, but a lot of them actually went straight into an early turnaround. So from what we are tracking, we should kind of actually start to move out of it. West Africa, in terms of turnaround, is for us good news because that means it’s already an import market, and that just means more of an import draw. And the Middle East is a particularly interesting market because a lot of the product deficit in Europe comes from the Middle East markets, and we have seen the Middle East actually firm quite substantially.

I was just talking to somebody this week and particularly in that market, and they said it’s strong, but it’s actually still €“ even at these levels is giant. So I guess we’ll see. But the refining turnaround that we typically see in the spring, a lot of it is actually basically in the , particularly due to the heavy weather we’ve seen here in the U.S.

Unidentified Analyst: Just a quick update on the three Vanguard. It’s almost €“ it’s been a year now since it’s hit or birth in Argentina.

Anthony Gurnee: You’re referring to the illusion incident, which is fully covered by insurance on the ship?

Unidentified Analyst: But is she still anchor the

Anthony Gurnee: No, no, it’s trading ever since. We €“ the P&I cut posted a indemnity or something.

Anthony Gurnee: I don’t have any closing remarks, but thank you for coming.