All of a sudden, there was a higher demand for marine diesel fuels, low sulfur fuels. So there was actually a lot of interesting things happening in the winter of 2019 to 2020 that we’re just starting to emerge. And then coming out of COVID, before the Russian invasion of Ukraine, the market was actually really already on an upswing, which is what we were able to kind of anticipate and predict. We didn’t see that we didn’t see the outbreak of war coming when we opened our time charter portfolio. We saw the world normalizing in terms of its mobility needs. And I think that is already a fairly healthy and substantial baseline. And returning back to that, I think, would not be a terrible thing. At the same time, how quickly would that happen, considering the stickiness of new trades, new trading relationships, new trade patterns and the relatively cheap cost of freight still and the overall profit margin on what it takes to move a product from A to B, I think we’ll stay in this elevated environment for a good while.
Unidentified Analyst: When it comes to your dividend, the dividend yield right now a little bit high. How are you going to sustain your dividends in the future as well as by new fleet – modernity fleet in the future.
Bart Kelleher: I think come back to our capital allocation policy. And the great thing about Ardmore that has been in place for a number of years and before the current market increase. And if we think back, the policy has always been one where in the past, it is to maintain the fleet to have modest leverage, always be looking for potential accretive growth and then have the ability to return capital to shareholders. And then in this upturn, we have the ability to actually do that simultaneously. So that was a key part of reinstituting the dividend and paying one-third of adjusted earnings, starting with Q4 2022. I think when we think about capital allocation broadly, we still have runway to further invest in the current fleet and make that more efficient.
We have further runway to reduce leverage. And then always very prudent about the current market conditions, the need of the underlying business and also in the fleet’s longevity, all while balancing the important aspect of returning capital to shareholders. But I think we view that we have a guidepost, but we take a dynamic approach based on the conditions at the time.
Unidentified Analyst: Thank you. And my final question is about interest rates. The company came around when interest rates were near zero. Now we’re having higher for longer normalized interest rates. Can you talk about your debt and how you’re going to again, sustain a dividend invest and operate in a higher cost of capital environment? Thank you.
Bart Kelleher: Sure. And that’s one where the company really took a very deliberate approach a year and a half ago and we shifted and got revolving bank capacity from the traditional European lenders as we bought back and exercise purchase options on the leased vessels. So that actually was one where coming into a stronger market and knowing that we could actually manage the debt levels within the quarters to keep it lower as the interest rates were increasing. And then we’ve been very deliberate as we’ve had this increase in earnings, that a key part of that has been to delever. So we’re now at breakeven of $13,900 per day. If we hadn’t delevered and in these rising interest rates environments, we would be north of $17,000 per day.
And now I think we have that luxury position with the much lower debt level that we can be confronted with a range of different higher for longer scenarios. But it doesn’t impact our ability to actually execute our capital allocation policy in all four parameters.
Bryan Degnan: Great. So we’re going to go to Chris next. I would ask again, though, if everyone could please make a point at front table as well, to speak directly into the microphones. They’re having some difficulty on the webcast. If we could raise the volume on the mics at all guys. See what you can do, but.
Unidentified Analyst: Yes. Thanks, guys. Let me just follow-up on that question with regards to the debt levels and leverage, assuming the market continues to remain strong for the next coming years, are you happy with the current leverage ratio? How low could that go? And what’s the ultimate bottoming, let’s say, of the cash breakeven level in your minds that you could get to?
Bart Kelleher: Sure. Thanks, Chris. I think, I mean, dynamic situation. I think the way that we think about it is we’re looking at the market today. There’s the full range of scenarios of how it could evolve and develop. But again, it comes back to having the capital allocation policy in that guidepost. We like the current leverage levels. It really has increased the quality of earnings, lowered the break even. I think we still have some runway on the break even. I mean, certainly we’ve tackled the interest expense side of it very, very tight when it comes to cost management internally on both the OpEx front and G&A front. And I think we just – we have to remind ourselves that we were very early managing the balance sheet and getting the – arranging the revolving credit facilities.
I think we have actually some further ability to work with our banks to get even more revolving facilities opposed to term. So that’s something that we’re working on as well. And look, I mean, we take a longer-term approach through the cycle. So you don’t know exactly how it may play out, but it’s important to delever and have your dry powder available should a cycle play out or interesting opportunities emerge. And we think that we can then plant the flag for future forward value. But I think it’s just very much a conversation that the team has on a daily basis.
Bryan Degnan: Actually, just in the intro I am going to – I mean, feel free. But I’m going to have a couple of these from the webcast, so please do keep sending those in ardmore@igbir.com. I’ll try not to take yours, Omar, but just on scrubbers. How are you thinking about that? Why does it make sense now? It didn’t make sense then, broadly scrubbers. Apologies, Omar, that was yours.
Anthony Gurnee: Let me start with that. Yes, so we’ve now begun to install scrubbers on our ships. These scrubbers are lower cost, better technology, they’re modular, and the installation time is a fraction of the traditional scrubber installation. So we’re very pleased with those investments. In particular, they can be upgraded to carbon capture. So it fits really well into our business model. Why didn’t we do scrubbers three, four years ago? We were in a very financially strained situation at the time, everybody was. And the cost of the capital needed to do those installations would have been very high. We – in fact, instead of doing scrubbers, we bought a ship at a really good price. And I did calculate what the scrubber spread would had to have been to equal the returns we got on the ship that we just sold, and at $6,000 a day.
So that – so – but every company has their own specific set of conditions and decision points, and we’re comfortable with the decision we made back then, and we’re really happy with what we’re doing now.
Bryan Degnan: Thank you. Just wanted to, Tony, follow-up on, I think, Ben’s line of questioning early on in the Q&A about strategy, and he was asking you about how you thought of things today versus a year ago. Wanted to ask, given, Gernot, you went through the different choke points that we’ve been seeing, and a lot of the disruption, the Black Sea, the Baltic, Panama Canal, Red Sea recently, given what’s been going on geopolitically recently, has that at all changed how you are thinking about strategy? Has it caused you to pivot or think about capital allocation differently or just strategy differently, given what’s going on right now in the Red Sea?
Anthony Gurnee: Good question. Hard to answer. So I don’t think it’s really affecting our strategic thinking. Our thinking there has been mostly operational and safety related. So it was very clear when the shooting, one of our ships was attacked, and we were very lucky in getting away without being hit. Others haven’t been so lucky. So it was an easy decision to avoid the Red Sea. Let’s see what, how things unfold and how that solves itself, how long that takes and how long it takes for ships to return to that route. Just generally, I think geopolitically it just, these events, as long as you’re kind of smart and safety conscious in the way you operate, they just add to aggregate ton-mile demand and they just boost the market. And then it’s just a matter of very tactically, which is kind of what Gernot and his team do, looking to basically maximize returns in that highly volatile market.
Gernot Ruppelt: Yes, maybe just the only point I can add is that you asked about strategy. I’m not sure if being agile really qualifies a strategy. It probably doesn’t, but I think it’s just part of more of who we are, part of our DNA. And if you then just consider that there will always be these kind of events, high impact events that you have to adjust to very quickly, I think that is just a testament that as an organization in terms of our balance sheet and in terms of our capabilities financially, but also just in terms of how we approach things strategically at every level of the company, just to preserve that culture. If somebody had told me a year ago that we’re going to be going around the cape [ph] by the end of last year, I probably would have caught that person crazy.
Yet here we are, right. And I think, who’s to say that we won’t see something completely different in a year from now? So again, not really strategy, but I think agility will continue to play a really big role in terms of how Ardmore approaches things.
Bryan Degnan: Thank you.
Unidentified Analyst: Yes, thank you for your time today. You were very explicit in sharing your mindset and how you view the market. Can you give us a little bit your insight about how your customers view this market? And if there is any discrepancy in how ship owners forecast the next few years versus charters, where your discussions about long-term charters stand? Have you seen any more appetite, increased appetite for charterers to take longer positions than what we have seen so far?
Gernot Ruppelt: Yes. Ford [ph] is a great, great point and I might respond with a little anecdote. I was in Singapore during the last APEC conference, which I believe was around sometime in the fall, so we were in a strong market and freight was pretty high. And I sat in with a room, which was really more sort of the refining side of the business. I think I was one of the only shipowners that really came from the western side to attend and they took a survey in terms of what the room was considering. The biggest risk for them at the moment, and the top three on top of that was upside, volatility and freight. So I think from a customer standpoint, there’s still really strong concern that freight might move up further, given everything that’s what’s happening here.
And time charter markets have adjusted as a result of this. And I guess I am really surprised by how – positively surprised by how there is a much more latter way of approaching some of these security situations around the Red Sea, where we have been able to really negotiate fairly amicably all these cape routing options at no detrimental commercial impact and I think that’s a positive surprise. And I think probably also indicative of how strong demand, or how inelastic demand is at the moment. Again, Europe is structurally so short at the moment that these products just have to move. And even though you price an increase that essentially offsets 30%, 40%, up to 70% longer voyage distances that is not leading to a point where those cargo movements get choked off.
