Ardmore Shipping Corporation (ASC) Q1 2016 Earnings Report, Transcript and Summary

Good morning, and welcome to the Ardmore Shipping Q1 2016 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. I'd now like to turn the conference over to Anthony Gurnee, CEO. Please go ahead, sir.

Thank you, and good morning, and welcome everyone to Ardmore's first quarter earnings call. First, let me ask Paul to describe the format for the call and discuss forward-looking statements.

Thanks, Tony and welcome, everyone. Before we begin our conference call, I would like to direct all participants to our Web site at ardmoreshipping.com, where you will find a link to this morning's first quarter 2016 earnings release and presentation. Tony and I will take about 15 minutes to go through the presentation and then open up the call to questions. Turning to Slide 2, please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from the results projected from those 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 first quarter 2016 earnings release, which is available on our Web site. And now, I would like to turn the call back over to Tony.

Thanks Paul. Turning to Slide 5, which is a summary of our earnings and recent activity. Well great to report EBITDA of 18.8 million and net income of 6.7 million or $0.26 per share for the first quarter of 2016. Resulting solid MR spot chartering performance and close to 19,000 a day and continued tight control of operating cost and overhead expense. We completed a debt refinancing in January which will have the effect of reducing our 2016 interest expense by 2.2 million, an improvement in surplus cash flow by 6.7 million. We also took advantage of the dislocation between Ardmore’s per share intrinsic value on the market price repurchasing 366,000 shares at a weighted average price of 8.20 per share for a total consideration of 3 million as we plus with 15.7 million remaining in our share repurchase plan which we will continue to use as opportunities arise. And today we are declaring a quarterly cash dividend of $0.16 per share which is up 33% from the prior quarter and up 60% from our old dividend policy. For those of you are not familiar with our new policy this is the third quarter in which we pay out a constant 60% ratio of our net income and continuing operations, giving investors a direct and immediate cash participation in our earnings. Turning to Slide 6, for a quick look at our fleet profile, the main points are stated here and the takeaway here is that this is a fully delivered fleet, consisting of high quality modern anchors, all built with excellent Korean and Japanese yards. We continue to emphasize operating efficiency and fuel economy as the way of meeting our customers need as well as maximizing earnings to Ardmore which fiscally it’s designed to do. Turning now to slide 8, the product tanker market, product tanker rates remained overall steady and actually up a bit to 19,000 a day in the first quarter, as compared to 18,500 in the prior quarter. The U.S. Gulf remains an important market for product tankers and in fact the U.S. Gulf refinery capacity is up year-on-year by about 4% supporting continued growth in product exports and also growth in MR tanker demand. Global refinery margins have recovered significantly from their lows in February, driven by strong end user demand for gasoline in the U.S., China and India, indicating a continued good ambition from our main customers and increased flows to shipment down product tankers. Performance and trading patterns are also continuing to drive product tanker’s unrivaled demand growth, for example a product called [indiscernible] which is used for gasoline blending, has been moving into China, mostly from Europe which is long haul and that, as well as Chinese exports of diesel, which reached 300,000 barrels a day in March, the highest level on record and four times the level at this time last year. All over demands say continued fundamental demand growth and largely driven not just by refinery expansion, but also by the scope and complexity of global product trade. Meanwhile the least the most important development in our business continues to evolve, the supply outlook for MRs, the order book is now down to just over 9% the lowest level in 15 years and we will set the trend lower as new volumes deliver, that will leave tonnages being ordered and scraping continues at an average annualized rate of we believe around 36 per annum. If this time continues, we may be at around 5%, order book by the end of the year, so as long as there are no more significant orders. And so if there is any one thing that we want to emphasize on this call is the largely over book strength coming out of supply and demand fundamentals, setting the stage of what we believe could development for a major upturn over the next two years. Coming to Slide 9, the chemical tanker market, we see positive signs in this market as well, which is important for Ardmore given our strategy of focusing on the commercial overlap between the two sectors. Chemical tanker charter rates have had a good start to the year, evidenced by ASC’s charter rate performance of 5% in the first quarter as compared to fourth quarter 2015, the improvement in rates was being driven partly by global economic growth but also a growth in long haul trade and increased exports out of the U.S. Golf, most notably methanol in all directions but particularly long haul to China. Our coded MR IMO 2 chemical tankers are continuing to benefit in the strong product tanker market, engaging in regional short haul CPP trade, where they are spending about half of their time. As the chemical tanker market strengthens, further we expect these ships will swing back, into even more comfortable chemical business. Chemical tanker fleet growth overall was relatively moderate, the order book is about 14% of the existing fleet and that’s the productive yield is anticipated to be around 6%. Overall it feels like the chemical sector is following the same trajectory as the Ardmore product tanker sector, but just lagging a bit. In particular we think our coated chemical tankers will fair very well in this evolving market, which is enjoying the fastest growth in the form of long haul transport of commodity chemicals and in fact those are the cargos that our ships were designed to carry in. Moving on to Slide 11 chartering profile, we are continuing to reposition our best sales between Time charter and spot depending on market conditions and outlook. For the second quarter we expect to have 75% of days in the spot market and the remainder on time charter, which we believe best positions Ardmore to benefit from a continued strong spot market as compared to available TC rates and in particular positioned best to take full advantage of the very positive medium term outlook. Turning to Slide 12 for an update on fleet activity, the Ardmore Seavaliant completed in intermediate certainly in the first quarter, with pretty more docking scheduled in the second quarter and will intern to schedule in the third quarter. Paul will discuss these in more detail later on. As mentioned in our last call, we sold our two 17,000 deadweight tonne chemical tankers, at a [indiscernible] price of 38.5 million, which should result in a modest net gain, coming to the second quarter. One ship delivered last week and the other is expected to deliver next week. And then final point, even though we have number of ships delivering, we’ll continue to benefit from growth in revenue base year-on-year with a 16% increase in 2016 as compared to 2015. And with that I’ll hand the call back to Paul to discuss our financial performance.

Thanks Tony. Starting with Slide 14, we are pleased to report a strong financial performance with a net profit of 6.7 million and $0.26 per share for the quarter. Our strong profit reflects strong chartering performance at 4% operational efficiency. The company reported EBITDA of $18.8 million, which represents an increase of $6.6 million from the first quarter of 2015. Revenue was at 43.5 million for the quarter. Our operating costs for the quarter are running at 6,194 per day across the fleet. OpEx for the Eco Design MRs were 5,854 per day, while Eco Design product chemical tankers came in at 6,236. Our Eco Mod vessels which are a little bit older came in at 6,572 per day. We expect total OpEx for the second quarter to come in at approximately 14.1 million. Depreciation and amortization for the first quarter was 7.6 million and we expect the second quarter to be approximately 7.8 million. Corporate overhead costs were 3.6 million in the first quarter, which includes some onetime cost related to refinancing of approximately 300,000. We expect our run rate on the corporate overhead to be approximately 3.3 million for the quarter for the remainder of 2016. Our overhead and commercial management cost, which in many situations with other companies is incorporated into net revenue this leaves our comparable overhead at 11 million for the full year, which will offset at approximately $1,250 per shipment per day. Our interest and finance cost were 4.4 for the quarter, and we expect interest and finance cost in the second quarter to be approximately 3.9 million, which is inclined to amortization of deferred financing of $700,000. Turning to Slide 17, we are again reporting strong charter rates for the quarter, which are in line with the first quarter of 2015. We had 13 MRs operating in the spot market for the quarter earning an average of 18,975 per day. To point out there is a slight difference between the actual spot TC and the attaching reported TC. This is due to the timing of voyage expenses which are under accounting rules both does incurred as a course of collateral over the course of voyage. Looking out for the various ship types across all driven and time charter [indiscernible], we have eight Eco Design MRs in operation, which earned in average of 18,038 per day for the quarter. Our six Eco Mod MRs earned 17,833 per day for the quarter. Our Eco Design product and chemical tankers earned an average of 17,367 per day in the first quarter, while Eco Mod's products and chemicals ships earned 12,500 per day. As of today our spot end margin is earning approximately 18,000 per day for voyage and deposits with approximately 40% of the days booked for the second quarter. We expect to have approximately 45 up days in the second quarter including repositioning days. We are pleased with our performance in the first quarter which was achieved in a steady charter market environment. Again, to point out, Ardmore have substantial upside potential and every $1,000 of increase in rates across the 22 ship fleets equates to $0.31 per share in EPS, which was our constant sales dividend policy equating to an extra $0.19 per share in the dividends. On Slide 16, we have a summary balance sheet, which shows at the end of March, our debt was $424 million which net of deferred finance fees was 212 million. With our total capital of 776 million our total coverage was 55%. Our cash on hand was 47 million, which leads our net debt of 377 million which equates to leverage of 49%. Turning to Slide 17, as you all know, we recently completed a refinancing of 384 million of existing debt achieving an improved margin and a smoother repayment profile. We have also obtained 45 million in committed funding for acquisitions along with inbuilt accordion features and for further expansion. As a result of the refinancing, our cash interest expense reduced by approximately $2.2 million in 2016 and surplus cash flow will increase by 6.7 million. We've also extended our debt maturities out to 2022. Importantly, all of our debt is amortizing with repayments of $38 million annually, so we will continue to delever and strengthen the balance sheet in the strong charter market. Finally the sale of Calypso and Capella which would be completed in the second quarter will result in a repayment on the capital leases of 26.7 million which will leave our short debt at approximately 388 million. And with that, I would like to turn the call back over to Tony.

Thanks Paul, so summary in then. We reported net income of 6.7 million according to the 26 for June 6 $0.03 per share for the quarter, largely a result of solid spot and MR performance and we take another step in the quarter to enhance shareholder value namely share repurchases and refinancing of our existing debt on favorable terms. We'd also like to reiterate our new dividend policy which has resulted in a payout for the first quarter of $0.16 up 33% in the prior quarter and up 60% from our old policy. Meanwhile the outlook for the MR sector is positive as we discussed we're anticipating a continued good charter market over the course of 2016 and beyond driven by strong fundamental demand growth as well as ongoing oil market volatility which shows no signs of ending any time soon. Adding to that the supply outlook is increasingly favorable which we believe will begin to have a significant impact starting later this year. And the reasons why these developments are being overlooked, the overall picture for shipping and offshore is quieter to say the least and this coupled with turbulent capital markets and financial distress in the main MR building up in Korea are keeping the lid on ordering activity and setting us up to not simply a good market but we think the major upturn sometime over the next two years. I'd like to finish up by taking stock of where we are today. With the support of our shareholders and hard work from the Ardmore team we've completed what we set out to do at the time of the IPO in 2013 and to build a company with a modern high quality fleet coupled with a strong balance sheet and highly efficient operation. Meanwhile the market has evolved more or less as we had expected and we think that we're well positioned to exploit the continued strong market as well as to take advantage of any accretive growth opportunities that may arise. In other words we've accomplished a lot with your support but we think the best is yet to come, and with that we're now pleased to open up the call for questions.

We will now begin the question-and-answer session, [Operator Instructions] And our first question comes from Mike Webber of Wells Fargo, please go ahead.

Hi good morning guys, how are you. Just a couple of high level questions here. I guess first Tony and just probably get some variation of this just a recorder but it's pretty pertinent. We've seen some pretty cheap deals on the crew side you could make the case some of them might be a bit muddier than the pricing would imply but it certainly seems like we're seeing greater degree of discounting in shipyards than we would have expected. And you guys are sitting on what I think is probably your largest cash balance since 2014 so I'm curious as to how -- just what the current growth dynamics look like for you guys and now you're taking a measured approach to dividend and to growing the fleet but you know quarter-over-quarter or year-over-year what's the scenario like for you guys right now and what are you guys focused on in terms of adding to the fleet.

It's always a good question to ask because that is one of our major activities and how we can build value for shareholders. Look I don't think we're in a position to tip our hand as to what we're thinking about doing. I will make the point that the yards that we would want to supply -- buy ships at term where they were built are mostly Korean, our Korean Japanese yards. We don't think the time is right necessarily to go out and order a lot of ships we don't think the capacity is there right now, there's a tremendous amount of turmoil with the, from inside yards in Korea rumors that some yards are actually just walking away from orders and returning deposits et cetera so there's a huge amount of turmoil there, so we think that the capacity for new ordering is going to very-very tight. You know we -- there are good ships out there that we could buy today, you know I think we don’t have unlimited resources you got to pick up our [indiscernible] and we also run a fairly involved operating business now so we're really focused at the moment on really improving and optimizing our operating performance but as we see opportunities and as we feel we have the capacity without you know over expending our balance sheet we'll definitely we'll take those opportunities as they come.

Got you, and to stick with the asset base for a second, and obviously on the water tonnage it seems to make more sense and I guess just thinking about your currency and I guess really the dynamics in terms of adding on the water tonnage now and potentially kind of a lot larger fleets on block they're either public or private do you think the mix right now just given the fact that we've gone you know almost a full year, or close to a full year now where we've been at or below NAV for most of the tanker space do you think there is more -- there is more of an appetite to try and get something done to try to drive some consolidation in the space are you still seeing the same kind of road blocks?

I don't think -- we're not the great big believers in consolidation, I think there has to be a reason for consolidation and that's like they're getting -- having a strong kind of balanced market position where you feel you can control the market to a degree and that's just not possible in the MR sector. And in terms of operating scale, we operate extremely efficiently with what some people would consider a fairly small fleet, so I think that we are interested in growing, because we think we can actually deepen our competitive packages through the growth but we don't think that -- we think we got to do that very carefully [indiscernible] and kind of in a measured way. So, the reality is there are about 2,000 ships in our sector, so it's a very-very big playing field and there's always something to buy.

Just shifting quickly I guess to this operations, I mean to say again the same kind of ideas just comping in kind of quarter-on-quarter, really just kind of heading into the summer relative to last year, seems it seems like I think there are 70, 80 more MRs anything like basing down their where they were this time last year, some refineries are down, I mean that [indiscernible] gasoline are, but I'm just curious how this summer comps do what we saw heading into last summer, and with rates stagnating a bit here does it seem like there is potential to see a bit of improvement relative to I guess on a year-on-year basis?

We actually watch the spot markets really carefully and our view right now is that you have been in a dip in the last few weeks, maybe a month or so, but in particular in the U.S. Gulf we think things are in fact turning around at the moment. There was a lot of build on the distillate stocks in the U.S. Gulf which are now moving, mostly going down to South America, that's taking shift off the tonnage list, and TC14 is actually moving up very quickly, the futures’ rate for TC14 for June would suggest a TC equivalent market in the low 20,000s per day, it could be Atlantic Basin. So, we think things are about to turn at the Atlantic Basin but we do understand they've been soft. And things are moving along in the kind of mid-teens at the moment, and we also see upside there, just like we had a different February we think we're in something like that right now, with each line it is slightly different reasons, but we think we’re isolating around a need of 18,000-19,000 a day which is great, I mean that's, we like it always to be higher but the fact is our net income breakeven is what 14,000 a day Paul?

Yes it is.

So, at that kind of level we're generating over 30 million a year in earnings.

Just one more and I'll turn it over, and then you mentioned just taking a pretty balanced approach I guess to the broader kind of chartering profile of the suite and then it looks so on a quarter-on-quarter basis, either and it is a bit more spot, and just curious as to whether that's again kind of gearing up seasonally or is it more of a just a little bit of a drift, because again you're talking about some chunky assets here, so how should we interpret that?

When we think of one year time charter, we really just, it's a value maximizing decision, do we feel that we can do better volume keeping our ship spot, or putting it on TC, and in some cases these are linked to larger relationship transactions, with oil traders, so, we most of our time charter activity right now is on the chemical side, where we feel that the TC rate versus the spot outlook is roughly a comparable whereas on the MR side we feel that spot outlook it is just much more favorable than the TC market would suggest.

And our next question comes from Amit Malhotra of Deutsche Bank. Please go ahead.

Just wanted to ask a question on the decision to buy back stock and it certainly makes sense, I know we talked about it last quarter in terms of the discount to NAVs from a financial standpoint, but you guys also are in sort of asset growth mode and you have growth ambitions and so I'm just trying to understand that the stock price has come up a little bit, still obviously at discount NAV but giving your outlook for late and the sort of fundamental background, you could sort of make the case that there is actually pretty significant equity value creation potential even if you do grow by issuing some of your currency below NAV. And so, I'm just trying to understand how you're thinking about that, how that's evolving, as the market is sort of stubbornly pricing everybody below NAV and whether given where you are in your growth cycle whether do you have an appetite for maybe using some of that currency even though it might be something to do from an M&A standpoint to actually grow the fleet given your outlook for the rates? Thanks.

I think our preference would always be to grow because again we think we can deepen our performance advantages through growth if it's done the right way, and a part of that of course is issuing in a manner which is accretive, that doesn't mean that every time the new developments, and we think a trade that is theoretically pretty we are going to jump on it, because there are organizational and kind of strategic considerations as well, but when it comes to stock repurchase I guess the best way to just kind of to explain it is that we would prefer to buy ships and grow, but if the stock gets cheap enough you just can't ignore it and that's why we have the share repurchase plan in place and in fact we bought shares back at a level that was really equivalent for something like 20% to 25% discount to current market values for vessels, so we just couldn’t tap that buy. At the same time it's not easy to buy a lot of stock with all the restrictions under the Safe Harbor rules so we bought what we could, but we also don’t plan to buy if it drops a penny below NAV I mean it is just we can see these big debts and we see a lot of volume at really attractive levels we have proven our willingness to step in and take advantage of that.

Okay. And are there just from the sale and purchase market are there assets that are sort of where we -- are there ready sellers out there and sort of the road block is maybe the financing of those assets or is this sort of still a relatively wide good aspect between sellers and buyers?

Mike, I think there are interesting acquisitions today but again as we sometimes like I say the thing we really want to grow is our EPS and NAV per share so not just the fleet so it's interesting, but we are observing things and will make the right decisions that when the time comes, it is hard for us dip our hand too much to what our products offer. I think if you look at our products’ behavior it's probably a pretty good indicator of the future which is their focus in the fairly long periods assuming we are doing nothing maybe sweep of the switch so where we are not and then we will have the clarity of activity so we’re not going to be constantly in the market buying.

Okay, that makes sense. Let me just ask you one more may be industry related question. If you can just Tony talk about how you think that the product tanker market can evolve and maybe in an environment of sort of moderating crew tankers market and there is a lot of speculation in crew tankers in terms of supply what type of buyback it has but really I am more talking about from a demand standpoint if you do get some sort of supply response and more equilibrium between supply and demand into the market and sort of later this year in 2017 is it possible for the product tanker market to completely bifurcate what's happening in the crude market or how those two markets typically go together?

Well when we talk to our colleagues in the crude oil business they seem pretty bullish but we do not decide, there are real breaks between crude oil and refined products so what are the overlap, so there is probably a little overlap in the MR space but LR2s are half of our crudes trading. It is easy to trade from LR2s to take advantage of the strengthening LR2s market it is very hard to go back and it is very expensive so it is a little bit like I believe these kind of fish traps where once you go through that you can't come back through it or it's very, very difficult and so I think those times would be to see a sustained strong LR2 market so we make that move over and we -- on top of that we think there is some approaching in competition between all our LR2 and MRs particularly you have it ready to go at times but it's not a very big overlap I mean those ships are just eventually completely different from MR’s. Please note that the trade down to Australia which when it was all crude oil going to Australia with all after markets so it clearly reverts down if you take LR2s but still something like 95% of our business and to Australia is on the MRs and we are hoping to reach around that but I think that's fairly instructive. When it comes to LR1s it's about a third we think trade vary as opposed to clean and there is perhaps more overlap there but again the whole point of an MR is that it's a standard chip size that can get into the maximum range of port to oil traders and so our understanding what we see is that if a cargo has a very, very sensitive looking destination it could possibly be increased in size and go on the LR1 but if there is any sense or the need for sailing down the water or distract options it then becomes on the MR. So we think that the ability of crude oil and LRs to kind of penetrate meaningfully down with the MR sector is fairly limited and I think that's been borne out historically and even today where you see MR rates are at or even slightly above LR1s. So we feel reasonably protected.

Yes. One last quick one for Paul you might have mentioned this I might have missed it but could you talk to us about or just disclose what the spot rates that have been achieved sort of quarter-to-date in 2Q?

I mentioned should we cross but we fixed about 40% of the days on the MR [indiscernible] for the second quarter and it's hovering around $18,000 a day so a pretty steady start to the second quarter so far.

And our next question comes from Jon Chappell of Evercore ISI. Please go ahead.

I just want to follow up on a couple of topics already addressed, so first of all when you think about total fire power you sold the two chemical tankers and that repeated that’s about 11 million that you have in your cash balance since you have published the 60. And then the extra credit facilities you just had to do refinancing 45 million of total growth capital. Do you think about potential growth capital now combined both debt and cash and I guess we will just call it equity even though we will just continue to see the capital markets are closed. Do you think about roughly $100 million worth or could that be levered even further?

We haven't really put a number on it. But I think -- I guess we feel that we are building cash now at some point where we may decide to step in and snap up a few ships, if we find the right ships at the right price at that time. But we also think it's a good time to be disciplined], opportunities will arise and we want to be in a position to take advantage of them. So, I wouldn’t -- I think we are fairly robust to leverage up from where we are today if I could bring our leverage in.

And Tony, you mentioned before about 2,000 ships in the core market, but how many of those are realistically target ships that you talk about the right ships at the right time? Obviously there is probably huge considerations the yards that they are built at, prior owners, I mean you are really talking about a small sample size gears of potential expansion fleet?

I would say there is probably theoretically 600, 700 that we would consider buying.

Okay.

We are talking about all those we recently delivered Eco Design’s in Korea, all the kind of eight years and newer MR export in Japan, maybe even some of the conventional ships built in Korea from [indiscernible]. It's a fairly big number.

And also during -- Paul from the IPO process all the way till today, you have been part of the story and kind of the flexibility of the fleet, especially as it can go to the chemical business and it is a pretty unique diverse fleet in that sense. Is that still a focus to flexibility of the chemical fleet or, does this recent sale of the last two ships and kind of a little bit more superior near term outlook for the MRs make you focused on the later size a little bit more?

I think -- we bought the Seavaliant five years ago, at the time we were thinking that maybe we would put more emphasis on that size and it never really worked out for us. And we bought the ships with a great price and they were really good ships and we sold them well, you weren’t happy with that but they were just operationally kind of underperforming. We really like the 25 and the 37 to be honest. We -- may be different things but they keep us in the chemical business and we think that the chemical sector outlook is very good. Has been said I think it's maybe little behind kind of the same goes with an earlier slightly earlier things than MR’s. But we think there is more of upside potential and it also keeps us in the game commercially and operationally to kind of play the overlap. And so we -- without going into too much detail, we have upgraded the MRs in different ways to expand our cargo range, and that’s paid off handsomely. So it is something that has added value but it's kind of a -- that is something that we don’t typically talk about too I believe broadly.

And then just one last one, the Atlantic basin it is all depressed especially the MR market it seems the TC2, TC14 and they are trying to avoid voyages for those routes, you did briefly touched on the east, but it seems like there could be some changing dynamics there especially as Chinese deep oil refineries kind of ramp up production and have a significant amount of access diesel, how you are going to see that developing over the next couple of years and what can that mean to the total MR and global trade?

Yes Jon I think everywhere we look, we see the trade evolving and becoming more complex and destined to expanding et cetera. So those couple of examples that I gave are typical of that but another one we picked up this morning was that an MR that has been going from China into the U.S. Gulf with all means gasoline, right. Now that might just be a one off it won’t happen again for a long time. But it is a -- this is a dramatically different picture than we saw 10 years ago, 20 years ago in this business and that is continuing to change. I think one thing that is an interesting consideration is that, if you look at fleet’s delivery schedule for MR’s it's really going to tail off dramatically throughout end of the year, it is probably going to be less than half of what it is today, in terms of deliveries per month. So what happens to access to brand new MRs to [indiscernible] right that market might get very strong. And what happens to rates in the Pacific basin that is, we have been saying having a steady flow new ships coming to the market and trying to find a way to fight their way to the west. Which is actually a scarcity of tonnage in a growing demand environment, so we think it is very encouraging.

And our next question comes from Ben Nolan of Stifel. Please go ahead.

So I had a few questions, and one maybe touching on Jon's -- one of his earlier questions about the chemical side and you got me thinking about it, Tony, about when you were talking about modifications to your MRs, one other thing that has at least sort of popped up on our radar is the increasing number of cargos with volume of U.S. methanol exports and obviously there are a fair number of methanol specific ships that are included into that MR pool, that really probably won't, shouldn't be ordinarily. Could you maybe just talk me through how you're thinking about how big of an impact that methanol trade will play with respect to sort of absorbing portions of the MR fleet and ultimately I mean is that something that you guys would consider or are currently doing?

No, it's a good question, methanol's a very specific cargo, it's not -- it's a actually it is a very aggressive cargo when it comes to coating so it needs to go out there on stainless steel or on specialized coatings like zinc or marine line or interline 1001, so a lot of the ships with those coatings trade in a lot of ranges not only chemicals. So as they get more and more devoted to carrying methanol that's kind of in aggregate tighten up or increased amount for commodity chemical tankers. Now the -- so the type of MR that we typically engage in that trade would be the type that have 22 tanks so that each tank individually is less than 3,000 cubic meters, that's a you know [indiscernible] type of MR. They're considerably more expensive than your standard MR so you won't see necessarily standard MRs engaging that business, but you will see ships that compete with the standard MRs in that business and more specifically you'll see chemical tankers that trade broadly in commodity chemicals engaging that business and creating more aggregate demand. So I think in reality the methanol development is really a factor for chemical tankers that are true line of crew chemical tankers and not so much for your standard kind of IMO 2-3 product tanker.

Okay, and is that something that you guys would consider doing or is that a bit too far-field from the -- where you're currently at?

Yes I think the 25 to the 37s that we have are in [indiscernible] ways where they are able to benefit either directly or indirectly from the strengthening methanol [indiscernible].

And then secondly again sort of on the market you had in your presentation it is something that I have written there as well that there has been 11 MRs that have been scrapped so far year-to-date, it seems like to me at least it seems like a relatively high number for a market that is not really that I mean it hasn’t been fantastic but it hasn’t been that bad either, do you chop that up to simply being a structural thing where those vessels are just not easy to trade anymore and, or is it kind of people making capital -- I am curious what your thinking is on why scrapping at least for me has been higher than I would have thought it would?

No it is a good one, one observation to make about the average age of those just scarped is 25 years so there are in spite of the [indiscernible] with the MR sector is trying to be modern fleet there are a lot of old ones as well and so if you look at that sort of that over aged fleet and think about it in kind of an orderly deletion you are talking probably about 25 year-to-year. Now last year we only had eight scrapped so our thinking is that in the year we have relatively re-charter rates we might have upwards of 46 scrapped if there is sort of -- and that these ships have been kind of held back for more recycle is something that they come up and buying out your scarp so and then a very strong that you might have like last year only scrapped so it is not always surprising to us that after a year where only eight were scrapped you have more being scrapped this year and so we think this year might end up being kind of 25 to 30.

All right, that is helpful and then lastly Paul you may have mentioned it but if you could again -- is there some sort of run rate that we should use for the G&A it was up a bit this quarter but I know as you had said that part of that was the function of the refinancings you know any target for quarterly G&A?

Well run rate G&A is about 3.2 million per quarter and that includes some tanker industry management cost which other companies have obviously they are product and their voyage expenses line so the run rate is 3.2 million per quarter roughly so yes we had everything else in TC or pool we are overhead with the 1.5 million less.

[Operator Instructions] Our next question comes from Noah Parquette of JPMorgan. Please go ahead.

Pretty much everything has been addressed I just wanted to ask you talked a lot about share repurchases and potentially growing that, you had sort of mentioned deleveraging assuming the other options aren’t attractive at the time as deleveraging and how we should think that is the excess cash or do you have debt that you can prepay and not loose capacity?

We could, if wanted to agree we got to pay off individual ships or, and kind of creating the ability to re-borrow effectively not late so we have kind of the ability to pay down debt. Does that answer your question?

And just going back to you were discussing China's diesel exports and how it's changing the trade a little bit and we saw earlier in the year I know it's a unique situation, that there are new build deals since you are taking diesel cargo from Asia to Europe, yes, I know that's only for new build ships but we have a lot of those coming up this year in the tanker market, do you see more of those types of trades or how do you think about in the next say year?

We think of it more as kind of one offs, they are it has been a number of years now the [indiscernible] has done the same kind of trade so, we can sit at the end that's great but I think it's similar to the -- all the talk that took place a little while ago about LR2s taking over the Australian trading products, and reality is that there are sort of like 45 MRs going in Australia every month and now there are two LR2s, so, it's not really having a big impact, now I wouldn't anticipate take that these maiden voyage deals are going to have any meaningful impact in our business.

And our next question comes from Fotis Giannakoulis of Morgan Stanley. Please go ahead.

Paul you mentioned about the improvement in the chemical tanker market and I wanted to ask you how do you interpret these, what were the drivers behind this improvement and actually how do you see this market developing versus the product on your market especially since we have a number of PDH plants they are coming online in the next couple of years? I'm talking about the PDH plants that are being built in the U.S.?

Demand growth for chemical tankers is much more closely tied to global GDP growth and that of course has been a disappointment continually for the last number of years, so that's one important factor, but nonetheless the where economy is always growing and so that's a short term incremental growth. But you have increased [indiscernible] out of both U.S. Gulf and out of the Arabian Gulf though they are long haul commodity chemical oriented trades which are basically favorable to the larger coated type ships, which is what we have so, we think that the commodity kind of a business -- the outlook is actually quite favorable and we think same field will do well and also, we think the coated ships are in a great position. So, as you have all these plants and export facilities that are being built on the back of cheap natural gas in North America. That's going to continue to ramp up effort and we for a while have been quoting really crazy numbers in terms of growth and things are beginning to happen now. And the things we have again the chemical trade is also a fairly complex on a global basis and we have a strengthening on one particular leg, it can have a really big impact on average GDP results and that is what we are seeing right now. So, it's nothing I wouldn't say it's really gone vertical yet, we're not there yet, but it's definitely we're seeing in the field like there's real momentum behind it.

And spending a little bit more time on the chemical tanker space, we all know that there a number of companies or private equity led companies that they have place in the past large new building orders, they seem many of them do have a difficulty in announcing some of these new buildings. Is this an area that you might be focusing on expanding, have you been approached by any of this outfits for a perpetual discussion that could lead to an expansion in the chemical tanker space?

We -- our strategy is very specifically focused on the overlap between products and capital, so, what we do is we focus on the more complicated end of the product space, when we think we can add value to get paid for it or engaging more complex trades and then on the simpler end with chemical business so we at this stage don't really have any additions to extend into the same field there is no -- that's really a different trade and that I think of the ship types we probably be talking about, so that they wouldn't really fit into our strategy.

One last question about the impact of the - you have seen over higher oil prices of the last month, you have in the product tanker market I was pleasantly surprised to hear that you have fixed so many days in the second quarter after very strong rates, while the clock [indiscernible] it was reporting a much lower numbers, what we attribute this discrepancy and how do you think that the higher oil price is impacting your trade and I'm talking in particular on the margins that we have seen weakening a little bit they are still profitable but weakening especially for the singular refineries in Europe and if this have any implications for the triangulation opportunities and the strength in rates?

Okay, so I think one point to make is that I think one of the difficulties in our business is that when you are kind of looking at things from a bit of a distance you look at the TC2 causing a triangulation and maybe TC214 in the far east. TC214 has been quite weak actually TC2 is fairly strong right now so TC14 has been as we mentioned however that doesn’t really give a sense of what's happening on other routes, for the example trades out of the Gulf down to South America, West Africa and in particular TC2 has been quite strong so a lot of gasoline moving from Europe to New York’s east coast. So I don’t know if that fully answers the question but I think in the tracking the business is a little more involved than those [indiscernible] core routes as they are too specific in terms of refineries they still seem to doing quite well refinery margins overall are up quite a bit and in particular there is a lot of gasoline being shipped out of Europe so that doesn’t seem to be having any kind of an impact.

And can you explain -- looking a year forward if refinery margins in for the single refineries weaken and particularly in Europe there is the story of a more volume moving from Middle East and Asia to Europe but on the other hand, we are going to have less volume going from Europe to the East cost of gasoline. How do this opposing dynamics impact the product tanker market than the rates?

I'm not aware of any sense of this could be slowed down and demand for gasoline on the east coast at anytime soon because of how cheap it is how cheap gasoline is and it's coming largely from Europe and they are benefiting from that, so I think longer term it's a more if the European refinery shut down I guess and there the demand is still there we that will be sourced from somewhere else I think that is why there is that cargo of gasoline moving in from china which is tremendous to our business because it's an incredibly long distance and it's going on in MR for a reason right which is that when they booked it they didn’t know where it was going and then they finally sold it into the U.S. Gulf so that kind of trading would be very, very positive. I think as we mentioned in the call it's a bit of a sweeper but have three U.S. Gulf refinery output is growing and the capacity there is growing okay it is a little -- it's not very rapid but that is a really important market for MRs and it's continuing to grow and one reason it's growing is because the capacity refining capacity is expanding but also there is a growing market into South America for the product and that's because of these, these economies are growing their consumptions are growing but their refinery bases are not growing and their import infrastructure is not being improved so more and more is being shipped down and it's taking longer to get it into supply chain there.

And our next question comes from Magnus Fyhr of Seaport Global. Please go ahead.

I just had a couple of questions left here. First we have talked a lot about the chemical market and I know with you selling two of your IMO 2 ships and you've taken delivery on six IMO 2 ships last year where do you see the best opportunity is because I mean it looks like a good avenue of growth going forward since it's lagging the MR market a bit do you see opportunities on the new build market or are there opportunities in that 25,000-37,000 deadweight trunk lies in the second hand market?

Well the Magnus the chemical market is completely different from the MR space and that the ability to buy high quality second hand chemical tankers is extremely limited and that's one of the reasons that we build the ships recognizing that and wanting to be in that space so our ability to go out and buy similar ships to what we have I mean frankly is not that easy and, but we think that's one of the reasons why the outlook is actually quite positive. So I think in terms of buying opportunistically ships in the water that's much more feasible in the MR space, but we actually our strategy will continue to place the dominant focus on MRs okay we may buy some chemical tankers if you along but the focus will be on growth in the MR sector and for reasons of the commercial strategy and operations as well as just sort of we think the best value is going to be now with people reading the outlook for the MR sector and chemicals I believe we made a fairly big bet on the chemical sector and we thinks it's going to pay off very nicely but, it's not as easily replicated or expanded.

You sold the two the Calypso and the Capella, how does that Centurion fit in the fleet I mean it is 10-11 years old I mean it's a 29,000 tonner, I mean how's that trade compared to the other two class that you have?

It's very similar conceptually to the 25s, it's a little bit bigger but it's not quite as capable. So the trade is roughly similar for that and easy chemicals and a lot of CPPs.

Okay I guess just one final question. The Sea Trader I guess I mean you have very new fleet, but the Sea Trader I guess is pushing up too I guess it is third special serve in next year. Any thoughts there, I mean with -- continued to trade that ship and how does to it trade as far as betting with your clients. Is that something you would trade till 20 years or if you can shed some light on that would be helpful?

Sure, well we absolutely love that ship. I mean it's just -- it is probably the biggest money maker for us, especially given its current market value. So that kind of beds the question, I mean we just buy a lot of, sell the newer ones and buy a lot of old ones. And the answer is, it's not so easy because, we bought that ship when it was I think seven years old and it took quite a while to get it up to our standard and to get it really running properly, so the ability to buy other people’s sort of 13, 14 year old ships, is in that kind of conditions is very limited. So we at this stage I think we are very happy to run that ship beyond 15 years, whether we run it for 20 or not I don’t know. But again that ship is earning a little bit much money as the brand new ones. And the market value is not where it should be but it's attractive at the moment. So it is built with great yards, and has an excellent running record so. We are happy with those few older ships we have. But we wouldn’t want to have a whole fleet of them.

Right, and what type of cost, I mean I know it is just one ship, and what type of cost to bring that through the third special survey I mean there is additional cost to get it through, I am just curious what you estimate that number to be?

It's hard to say, but I think it's a very much function of how much you have invested in the ship already. And if there are any steel issues, but my guess is that a special survey won't cost a lot more than second did, which might be kind of 1.2 million, 1.3 million.

And ladies and gentlemen this concludes our question-and-answer session. And the conference is now concluded. Thank you for attending today's presentation. You may disconnect.