UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) |
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For the fiscal year ended December 31, 2017
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| For the fiscal year endedDecember 31, 2021 |
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) |
For the transition period from to
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| For the transition period from to |
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☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) |
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| Date of event requiring this shell company report |
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| Commission file number: 001-36028 |
Date of event requiring this shell company report
Commission file number: 001-36028
ARDMORE SHIPPING CORPORATION
(Exact name of Registrant as specified in its charter)
Republic of the Marshall Islands
(Jurisdiction of incorporation or organization)
Belvedere Building, 69 Pitts Bay Road, Ground Floor, Pembroke, HM08, Bermuda
(Address of principal executive offices)
Mr. Anthony Gurnee
Belvedere Building, 69 Pitts Bay Road, Ground Floor, Pembroke, HM08, Bermuda
+ 1 441 292-9332
405-7800
info@ardmoreshipping.com
(Name, Telephone, E-mail and/or Facsimile, and address of Company Contact Person)
Securities registered or to be registered pursuant to section 12(b) of the Act.
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Title of each class | Ticker Symbol | Name of each exchange on which registered | ||
Common stock, par value $0.01 per share | | ASC | | New York Stock Exchange |
Securities registered or to be registered pursuant to section 12(g) of the Act.
NONE
(Title of class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
NONE
(Title of class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
As of December 31, 2017,2021, there were 32,139,95634,363,884 shares of common stock outstanding, par value $0.01 per share.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.YesoAct.
Yes ☐ Nox☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.Yeso1934.
Yes ☐ Nox☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yesxdays.
Yes ☒Noo☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yesx.
Yes ☒Noo☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer or an emerging growth company.filer. See the definitions of “large accelerated filer,”filer”, “accelerated filer,”filer”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer | Accelerated filer | Non-accelerated filer | Emerging Growth Company ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.x☐
† The term “new or revisedIndicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial accounting standard” refers to any update issuedreporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the Financial Accounting Standards Board toregistered public accounting firm that prepared or issued its Accounting Standards Codification after April 5, 2012.audit report. ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
☒ U.S. GAAP
☐ International Financial Reporting Standards as issued by the international Accounting Standards Board
☐ Other
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:o☐ Item 17o☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yeso.
Yes ☐Nox☒
TABLE OF CONTENTS
2 FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. We desire to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are including this cautionary statement in connection with such safe harbor legislation. This Annual Report and any other written or oral statements made by us or on our behalf may include forward-looking statements which reflect our current views and assumptions with respect to future events and financial performance and are subject to risks and uncertainties. Forward-looking statements include statements concerning plans, objectives, goals, expectations, projections, strategies, beliefs about future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts. In some cases, words such as “believe”, “anticipate”, “intends”, “estimate”, “forecast”, “project”, “plan”, “potential”, “will”, “may”, “should”, “expect” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements in this Annual Report include, among others, such matters
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Many of these statements are based on our assumptions about factors that are beyond our ability to control or predict and are subject to risks and uncertainties that are described more fully under the “Risk Factors” section of this Annual Report. Any of these factors or a combination of these factors could materially affect our business, results of operations and financial condition and the ultimate accuracy of the forward-looking statements. Factors that might cause future results to differ include, among others, the following:
You should not place undue reliance on forward-looking statements contained in this Annual Report, because they are statements about events that are not certain to occur as described or at all. All forward-looking statements in this Annual Report are qualified in their entirety by the cautionary statements contained in this Annual Report. These forward-looking statements are not guarantees of our future performance, and actual results and future developments may vary materially from those projected in the forward-looking statements. Except to the extent required by applicable law or regulation, we undertake no obligation to PART I Item 1. Identity of Directors, Senior Management and Advisors Not applicable. Item 2. Offer Statistics and Expected Timetable Not applicable. 4 Item 3. Key Information Unless the context otherwise requires, when used in this Annual Report, the terms “Ardmore”, “Ardmore Shipping”, the “Company”, “we”, “our”, and “us” refer to Ardmore Shipping Corporation and A. Selected Financial Data
Reserved.
B. Capitalization and Indebtedness Not applicable. C. Reasons for the Offer and Use of Proceeds Not applicable. D. Risk Factors Some of the risks summarized below and discussed in greater detail in the following 5 Risk Factor Summary
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7 RISKS RELATED TO OUR INDUSTRY The tanker industry is cyclical and volatile in terms of charter rates and profitability, which may affect our results of operations. The tanker industry is both cyclical and volatile in terms of charter rates and profitability. A prolonged downturn in the tanker industry could adversely affect our ability to Factors that influence demand for tanker capacity include:
Factors that influence the supply of tanker capacity include:
Historically, the tanker markets have been volatile as a result of a variety of conditions and factors that can affect the price, supply and demand for tanker capacity. Demand for transportation of oil products and chemicals over longer distances was significantly reduced during the last economic downturn. More recently, since 2015 Any decrease in spot charter rates in the future or As at We may employ in the spot charter market additional vessels that we may acquire in the future. 8 Although spot chartering is common in the tanker industry, the spot charter market may fluctuate significantly based upon tanker and oil product/chemical supply and demand, and there have been periods when spot rates have declined below the operating cost of vessels. The successful operation of our vessels in the competitive spot charter market, including within commercial pools, depends upon, among other things, spot-charter rates and minimizing, to the extent possible, time spent waiting for charters and time spent traveling unladen to pick up cargo. If spot charter rates decline, we may be unable to operate our vessels trading in the spot market profitably or meet our obligations, including payments on Our ability to The novel coronavirus (COVID-19) pandemic is dynamic. The continuation of the pandemic, and the emergence of other epidemic or pandemic crises has had and could continue to have, material adverse effects on our business, results of operations, or financial condition. The novel coronavirus pandemic is dynamic, including the developments of variants of the virus, and its ultimate scope, duration and effects are uncertain. The pandemic and any future epidemic or pandemic crises could result in direct and indirect adverse effects on the product and chemical tanker industry. Effects of the current pandemic include, or may include, among others:
Although disruption and effects from the novel coronavirus pandemic may be moderated by vaccines, given the dynamic nature of these circumstances, the duration of business disruption and the related financial impact on the product and chemical tanker industry and its participants cannot be reasonably estimated at this time. In addition, public health threats and other highly communicable disease outbreaks, such as the COVID-19 pandemic, could adversely affect the business, results of operations or financial condition of us or our customers, suppliers and other business partners. 9 Declines in oil prices may adversely affect our growth prospects and results of operations. Global crude oil prices
Volatility in the markets in which our vessels trade may result in
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| ● | identify suitable assets and/or businesses for acquisitions at attractive prices; |
| ● | identify suitable businesses for joint ventures; |
| ● | integrate any acquired assets or businesses successfully with our existing operations; |
| ● | hire, train and retain qualified personnel and crew to manage and operate our growing business and fleet; |
| ● | identify and successfully enter additional new markets; |
| ● | improve or expand our operating, financial and accounting systems and controls; and |
| ● | obtain required financing for our existing and new assets, businesses and operations. |
Our failure to effectively identify, purchase, develop and integrate any tankersassets or businesses could adversely affect our business, financial condition and results of operations. The number of employees that perform services for us and our current operating and financial systems and expertise may not be adequate as we implement our plan to expand the size of our fleet or enter new markets and we may not be able to effectively hire more employees, or adequately improve those systems.systems or develop that expertise. In addition, acquisitions may require additional equity issuances (which may dilute our shareholders' ownership interest in us) or the incurrence or assumption of additional debt (which may require additional amortization paymentsincrease our financial leverage and debt service costs or impose more restrictive covenants). If we are unable to successfully accommodate any growth, our business, results of operations and financial condition may be adversely affected.
Growing any business by acquisition presents numerous risks such as undisclosed liabilities and obligations, difficulty in obtaining additional qualified personnel and managing relationships with customers and suppliers and integrating newly acquired vesselsassets and operations into existing infrastructures. The expansion of our fleet and business may impose significant additional responsibilities on our management and staff, and the management and staff of our technical managers, and may necessitate that we, and they, increase the number of personnel to support such expansion. We may not be successful in executing our growth plans and we may incur significant expenses and losses in connection with such growth plans.
Delays in deliveries of vessels we may purchase or order, our decision to cancel an order for purchase of a vessel or our inability to otherwise complete the acquisitions of additional vessels for our fleet, could harm our results of operations.
Although we currently have no vessels on order, under construction or subject to purchase agreements, we expect to purchase and order additional vessels from time to time. The delivery of any such vessels could be delayed, not completed or cancelled, which would delay or eliminate our expected receipt of revenues from the employment of these vessels. The seller could fail to deliver these vessels to us as agreed, or we could cancel a purchase contract because the seller has not met its obligations. The delivery of any vessels we may propose to acquire could be delayed because of, among other things, hostilities or political disturbances, non-performance of the purchase agreement with respect to the vessels by the seller, our inability to obtain requisite permits, approvals or financings or damage to or destruction of vessels while being operated by the seller prior to the delivery date.
If the delivery of any vessel is materially delayed or cancelled, especially if we have committed the vessel to a charter under which we become responsible for substantial liquidated damages to the customer as a result of the delay or cancellation, our business, financial condition and results of operations could be adversely affected.
The delivery of vessels we may purchase or sell could be delayed because of, among other things, as applicable:
| ● | work stoppages or other labor disturbances or other events that disrupt the operations of the shipyard building the vessels; |
| ● | quality or other engineering problems; |
| ● | changes in governmental regulations or maritime self-regulatory organization standards; |
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| ● | lack of raw materials; |
| ● | bankruptcy or other financial crisis of the shipyard building the vessels; |
| ● | our inability to obtain requisite financing or make timely payments; |
| ● | a backlog of orders at the shipyard building the vessels; |
| ● | hostilities or political or economic disturbances in or affecting the countries where the vessels are being built, or the imposition of sanctions on such countries or applicable parties; |
| ● | weather interference or catastrophic event, such as a major earthquake or fire; |
| ● | our requests for changes to the original vessel specifications; |
| ● | shortages or delays in the receipt of necessary construction materials, such as steel; |
| ● | our inability to obtain requisite permits or approvals; or |
| ● | a dispute with the shipyard building the vessels. |
If we purchase and operate second-hand vessels, we will be exposed to increased operating costs that could adversely affect our earnings and, as our fleet ages, the risks associated with older vessels could adversely affect our ability to obtain profitable charters.
Our current business strategy includes additional growth through the acquisition of new and second-hand vessels. While we typically inspect second-hand vessels prior to purchase, this does not provide us with the same knowledge about their condition that we would have had if these vessels had been built for and operated exclusively by us. Generally, we do not receive the benefit of warranties from the builders of the second-hand vessels that we acquire. These factors could increase the ultimate cost of any second-hand vessel acquisitions by us.
In general, the costs to maintain a vessel in good operating condition increase with the age of the vessel. Older vessels are typically less fuel-efficient than more recently constructed vessels due to improvements in engine technology. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers.
Governmental regulations, safety or other equipment standards related to the age of vessels may require expenditures for alterations or the addition of new equipment, to our vessels and may restrict the type of activities in which the vessels may engage. As our vessels age, market conditions may not justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.
An increase in operating or voyage expenses would decrease our earnings and cash flows.
As at March 27, 2018, noneFebruary 15, 2022, two of our vessels were employed under fixed rate time charter agreements. However, in the future we may enter into fixed rate time charter agreements with respect to our vessels. For all vessels operating under time charters, the charterer is primarily responsible for voyage expenses and we are responsible for the vessel operating expenses. We may seek to employ vessels in the spot market following expiration of any such time charters. Under spot chartering arrangements, we will be responsible for all costcosts associated with operating the vessel, including operating expenses, voyage expenses, bunkers, port and canal costs.
Our vessel operating expenses, includewhich includes the costs of crew, provisions, deck and engine stores, insurance and maintenance, repairs and spares, and our voyage expenses, which include, among other things, the costs of bunkers port and canal costs, depend on a variety of factors, many of which are beyond our control.
control such as competition for crew and inflation. If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydocking repairs are unpredictable and can be substantial. Increases in any of these expenses would decrease earnings and cash flow.
We may be unsuccessful in competing in the highly competitive international tanker market, which would negatively affect our results of operations and financial condition and our ability to expand our business.
The operation of tanker vessels and transportation of petroleum and chemical products is extremely competitive, and our industry is capital intensive and highly fragmented. Competition arises primarily from other tanker owners, including major oil companies as well as independent tanker companies, some of which have substantially greater resources than we do. Competition for the transportation of oil products and chemicals can be intense and depends on price, location, size, age, condition and the acceptability of the tanker and its operators to the charterers. We may be unable to compete effectively with other tanker owners, including major oil companies and independent tanker companies.
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Our market share may decrease in the future. We may not be able to compete profitably asto the extent we seek to expand our business into new geographic regions or provide new services. New markets may require different skills, knowledge or strategies than those we use in our current markets, and the competitors in those new markets may have greater financial strength and capital resources than we do.
We derive a significant portion of our revenues from a limited number of customers, and the
The loss of any such customerskey customer could result in a significant loss of revenues and cash flow.
We have derived, and we may continue to derive, a significant portion of our revenues and cash flow from a limited number of customers. BP accounted for 10% or more of our consolidated revenue for the year ended December 31, 2021. Vitol Group accounted for 10% or more than 10% of our consolidated revenues from continuing operations during 2017; each of Vitol Group, Navig8 Group and Trafigurarevenue for the year ended December 31, 2020. No customer accounted for 10% or more than 10% of our consolidated revenues from continuing operations during 2016; and each of Vitol Group and Navig8 Group accountedrevenue for more than 10%, of our consolidated revenues from continuing operations during 2015.the year ended December 31, 2019. No other customer accounted for 10% or more of revenues from continuing operationsour consolidated revenue during any of these periods. The identity of customers which may account for 10% or more of revenues from continuing operationsrevenue may vary from time to time.
If we lose a key customer or if a customer exercises its right under some charters to terminate the charter, we may be unable to enter into an adequate replacement charter for the applicable vessel or vessels. The loss of any of our significant customers or a reduction in revenues from them could have a material adverse effect on our business, results of operations, cash flows and financial condition.
Our charterers
Charterers may terminate or default on their charters, which could adversely affect our business, results of operations and cash flow.
Our
Any charters may terminate earlier than their scheduled expirations. The terms of ourany existing or future charters may vary as to which events or occurrences will cause a charter to terminate or give the charterer the option to terminate the charter, but these generallymay include: a total or constructive loss of the relevant vessel; the governmental requisition for hire of the relevant vessel; the drydocking of the relevant vessel for a certain period of time; andor the failure of the relevant vessel to meet specified performance criteria. In addition, the ability of each of our charterers to perform its obligations under a charter will depend on a number of factors that are beyond our control. These factors may include general economic conditions, the condition of the tanker industry, the charter rates received for specific types of vessels and various operating expenses. The costs and delays associated with the default by a charterer under a charter of a vessel may be considerable and may adversely affect our business, results of operations, cash flows and financial condition and our available cash.
We
To the extent we may enter into time charters in the future for our vessels, we cannot predict whether ourany charterers will,may, upon the expiration of their charters, re-charter our vessels on favorable terms or at all. If our charterers are unable or decide not to re-charter our vessels, we may not be able to re-charter them on terms similar to our current charters or at all. In addition, the ability and willingness of each of our counterparties to perform its obligations under a time charter agreement with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the tanker shipping industry and the overall financial condition of the counterparties. Charterers are sensitive to the commodity markets and may be impacted by market forces
affecting commodities. In depressed market conditions, there have been reports of charterers renegotiating their charters or defaulting on their obligations under charters. Our customers may fail to pay charter hire or attempt to renegotiate charter rates. If a counterparty fails to honor its obligations under agreements with us, it may be difficult for us to secure substitute employment for such vessel, and any new charter arrangements we secure in the spot market or on time charters may be at lower rates. Any failure by our charterers to meet their obligations to us or any renegotiation of our charter agreements could have a material adverse effect on our business, financial condition and results of operations.
Our ability to obtain additional debt financing may be dependent on the performance of ourany then-existing charters and the creditworthiness of our charterers.
The actual or perceived credit quality of our charterers, and any defaults by them, may materially affect our ability to obtain the additional capital resources that we will require to purchase additional vessels or may significantly increase our costs of obtaining such capital. Our inability to obtain additional financing at all or at a higher than anticipated cost may materially affect our results of operations and our ability to implement our business strategy.
Servicing
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Our debt levels and lease obligations may limit our debt, including debt whichflexibility in obtaining additional financing and in pursuing other business opportunities.
As of December 31, 2021, we may incurhad $376.3 million in aggregate principal amount of outstanding indebtedness and finance lease obligations. In addition, in the future we may enter into new debt arrangements, issue debt securities or incur additional finance lease obligations or assume debt as part of acquisitions. Our level of debt and lease obligations could have important consequences to us, including the following:
| ● | our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms; |
| ● | we may need to use a substantial portion of our cash from operations to make principal and interest payments relating to our debt obligations, reducing the funds that would otherwise be available for operations and future business opportunities; |
| ● | we may be more vulnerable than our competitors with less debt to competitive pressures or a downturn in our business or the economy generally; and |
| ● | our flexibility in responding to changing business and economic conditions may be limited. |
Servicing our current or future indebtedness and lease obligations limits funds available for other purposes and if we cannot service our debt, we may lose our vessels.
Borrowing under our existing credit facilities requiresand obligations under our lease arrangements require us to dedicate a significant part of our cash flow from operations to paying principal and interest on our indebtedness under such facilities or obligations under our finance lease arrangements, and we intend to incur additional debt in the future. These payments limit funds available for working capital, capital expenditures and other purposes.
Amounts borrowed under our creditfinance facilities bear interest at variable rates. Currently, we do not have any hedge arrangements in place to reduce our exposure to interest rate variability on variable rate debt. Increases in prevailing rates could increase the amounts that we would have to pay to our lenders, even though the outstanding principal amount remains the same, and our net income and cash flows would decrease. We expectCurrently, we have hedge arrangements in place to reduce our earningsexposure to interest rate variability on variable rate debt and lease obligations.
Our ability to service our debt and lease obligations will depend upon, among other things, our financial and operating performance, which will be affected by prevailing economic and industry conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our results of operations and cash flowreserves are not sufficient to vary from year to year due to the cyclical nature of the tanker industry. If we do not generateservice our current or reserve enough cash flow from operations to satisfy our debtfuture indebtedness and lease obligations, we may havebe forced to:
| ● | seek to raise additional capital; |
| ● | seek to refinance or restructure our debt; |
| ● | sell tankers; |
| ● | reduce or delay our business activities, capital expenditures, investments or acquisitions; |
| ● | reduce any dividends; or |
| ● | seek bankruptcy protection. |
We may be unable to raise additional capital;
However,effect any of these alternatives,remedies, if necessary, on satisfactory terms, and these remedies may not be sufficient to allow us to meet our debt or lease obligations. If we are unable to meet our debt or lease obligations or if some other default occurs under our credit facilities theor lease arrangements, our lenders could elect to declare thatour debt, together with accrued interest and fees, to be immediately due and payable and proceed against the collateral vessels or other collateral securing that debt.debt or our lessors could terminate our rights under our finance leases.
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We are a holding company and depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations and to make dividend payments.
We are a holding company and our subsidiaries, which are all directly and indirectly wholly owned by us, conduct our operations and own all of our operating assets. As a result, our ability to satisfy our financial obligations and to pay dividends to our shareholders depends on the ability of our subsidiaries to generate profits available for distribution to us and, to the extent that they are unable to generate profits, we will be unable to pay our creditors or dividends to our shareholders.
Our ability to grow may be adversely affected by our dividend policy.
Under our dividend policy, we expect to distribute on a quarterly basis as dividends on our shares of common stock an amount equal to 60% of Earnings from Continuing Operations (which represents our earnings per share reported under U.S. GAAP as adjusted for unrealized and realized gains and losses and extraordinary items). Accordingly, our growth, if any, may not be as fast as businesses that do not distribute quarterly
dividends. To the extent we do not have sufficient cash reserves or are unable to obtain financing from external sources, our dividend policy may significantly impair our ability to meet our financial needs or to grow. Since the quarter ended June 30, 2016, we have not paid cash dividends on our shares of common stock due to losses from continuing operations.
Our credit facilities and lease arrangements contain restrictive covenants, thatwhich among other things, limit our business and financingthe amount of cash we may use for other corporate activities, which could negatively affect our growth and results of operations.
cause our financial performance to suffer.
Our credit facilities and capital leaseslease arrangements impose operating and financial restrictions on us. These restrictions may limit our ability, or the ability of our subsidiaries to:
| ● | make capital expenditures if we do not repay amounts drawn under our credit facilities or if there is another default under our credit facilities; |
| ● | incur additional indebtedness, including the issuance of guarantees; |
| ● | incur additional lease obligations; |
| ● | create liens on our assets; |
| ● | change the flag, class or management of our vessels or terminate or materially amend the management agreement relating to each vessel; |
| ● | sell our vessels; |
| ● | pay dividends or distributions; |
| ● | merge or consolidate with, or transfer all or substantially all our assets to, another person; or |
| ● | enter into a new line of business. |
Certain of our credit facilities and capital leaseslease obligations require us to maintain specified financial ratios and satisfy financial covenants. These financial ratios and covenants require us, among other things, to maintain minimum solvency, cash and cash equivalents, corporate net worth, working capital, loan-to-value and interest coverage levels and to avoid exceeding corporate leverage maximum.
As a result of these restrictions, we may need to seek consent from our lenders in order to engage in some corporate actions. Our lenders’ interests may be different from ours and we may not be able to obtain our lenders’ consent when needed. This may limit our ability to finance our future operations or capital requirements, make acquisitions or pursue business opportunities. Our ability to comply with covenants and restrictions contained in debt instruments and lease arrangements may be affected by events beyond our control, including prevailing economic, financial and industry conditions. If market or other economic conditions deteriorate, we may fail to comply with these covenants. If we breach any of the restrictions, covenants, ratios or tests in our financing agreements, our obligations may become immediately due and payable, we could be subject to increased rates or fees, and the lenders’ commitment under our credit facilities, if any, to make further loans may terminate. A default under financing agreements or lease arrangements could also result in foreclosure on any of our vessels and other assets securing related loans.loans or a loss of our rights as a lessee under our finance leases.
If interest rates increase, it
Interest rate increases will affect the interest rates under our credit facilities and finance lease facilities, which could affect our results of operations.
Amounts borrowed under our existing credit facilities bear interest at an annual variable rate ranging from 2.50%2.25% to 3.50% above LIBOR. Certain of our finance lease arrangements bear interest at an annual variable rate ranging from 3.00% to 4.50% above LIBOR. Interest rates have recently been at historic lows and any normalizationrelatively low levels but recently are increasing, with further increases expected. Any increase in interest rates would lead to an increase in LIBOR, which would affect the amount of interest payable on amounts that we borrow under our credit facilities and the amount of our obligations under certain of our finance leases, which in turn could have an adverse effect on our results of operations.
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We have hedged a portion of the interest rate risk of our variable debt and finance leasing obligations through interest rate swaps and these swaps expire in the second quarter of 2023. However, our financial condition could be materially adversely affected at any time that we have not entered into interest rate hedging arrangements to hedge our exposure to the interest rates applicable to our variable-rate debt facilities, financing leases and any other financing arrangements we may enter into in the future. We cannot provide assurances that any hedging activities that we enter into will fully mitigate our interest rate risk from variable-rate obligations.
There is uncertainty as to the continued use of LIBOR in the future, and the interest rates on our LIBOR-based obligations may increase in the future.
LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. As of December 31, 2021, LIBOR is no longer published on a representative basis, with the exception of the most commonly used tenors of U.S. dollar (USD) LIBOR which will no longer be published on a representative basis after June 30, 2023. Global regulators are working with the financial sector to transition away from the use of LIBOR and towards the adoption of alternative reference rates. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, has recommended replacing U.S. dollar LIBOR in certain financial contracts with a new index calculated by short-term repurchase agreements, backed by Treasury securities (“SOFR”). SOFR is observed and backward-looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members. Whether or not SOFR attains market acceptance as a LIBOR replacement tool remains in question. As such, the future of LIBOR at this time is uncertain.
When, or in advance of when, LIBOR ceases to exist, we may need to renegotiate any credit agreements or interest rate derivatives agreements extending beyond 2023 that utilize LIBOR as a factor in determining the interest rate or hedge rate, which could adversely impact our cost of debt.
The consequences of these developments cannot be entirely predicted but could include an increase in the cost of our variable rate indebtedness and obligations, which could adversely affect our results of operations and ability to service our applicable indebtedness and financial lease obligations. As of December 31, 2021, we had $298.0 million in aggregate principal amount of outstanding indebtedness and finance lease obligations with interest obligations based on LIBOR plus applicable margins.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. In addition, any testing we conduct in connection with Section 404 of the Sarbanes-Oxley Act of 2002, (the “Sarbanes-Oxley Act”), or any subsequent testing conducted by our
independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. InferiorIneffective internal controls could also cause investors to lose confidence in our reported financial information, limit our ability to access capital markets or require us to incur additional costs to improve our internal control and disclosure control systems and procedures, which could harm our business and have a negative effect on the trading price of our securities.
We are required to disclose changes made in our internal controls and procedures and our management is required to assess the effectiveness
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We are subject to certain risks with respect to our counterparties on contracts, and failure of such counterparties to meet their obligations could cause us to suffer losses or otherwise adversely affect our results of operation.operations.
We have entered into spot and time charter contracts, commercial pool agreements, ship management agreements, credit facilities and capitalfinance lease arrangements and other commercial arrangements. Such agreements and arrangements subject us to counterparty risks. The ability and willingness of each of our counterparties to perform its obligations under a contract with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the maritime and offshore industries, the overall financial condition of the counterparty, charter rates received for specific types of vessels, and various expenses. For example, the combination of a reduction of cash flow resulting from declines in world trade, a reduction in borrowing bases under reserve-based credit facilities and the lack of availability of debt or equity financing may result in a significant reduction in the ability of our charterers to make charter payments to us. In addition, in depressed market conditions, our charterers and customers may no longer need a vessel that is currently under charter or contract or may be able to obtain a comparable vessel at lower rates. As a result, charterers and customers may seek to renegotiate the terms of their existing charter agreements or avoid their obligations under those contracts. Should a counterparty fail to honor its obligations under agreements with us, we could sustain significant losses, which could have a material adverse effect on our business, financial condition and results of operation.operations.
Our business depends upon key members of our senior management team who may not necessarily continue to work for us.
Our future success depends to a significant extent upon certain members of our senior management team. Our management team includes members who have substantial experience in the product tanker and chemical shipping industries and have worked with us since inception. Our management team is crucial to the execution of our business strategies and to the growth and development of our business. If the individuals were no longer affiliated with us, we may be unable to recruit other employees with equivalent talent and experience, and our business and financial condition may suffer as a result.
Our insurance may not be adequate to cover our losses that may result from our operations due to the inherent risks of the tanker industry.
We carry insurance to protect us against most of the accident-related risks involved in the conduct of our business, including marine hull and machinery insurance, protection and indemnity insurance, which includes pollution risks, crew insurance and war risk insurance. However, we may not be adequately insured to cover losses from our operational risks, which could have a material adverse effect on us. Additionally, our insurers may refuse to pay particular claims and our insurance may be voidable by the insurers if we take, or fail to take, certain action, such as failing to maintain certification of our vessels with applicable maritime regulatory organizations. Any significant uninsured or under-insured loss or liability could have a material adverse effect on our business, results of operations and financial condition. In addition, we may not be able to obtain
adequate insurance coverage at reasonable rates in the future during adverse insurance market conditions. Changes in the insurance markets attributable to terrorist attacks may also make certain types of insurance more difficult for us to obtain due to increased premiums or reduced or restricted coverage for losses caused by terrorist acts generally.
Because we obtain some of our insurance through protection and indemnity associations, we may be required to make additional premium payments.
We receive insurance coverage for tort liability, including pollution-related liability, from protection and indemnity associations. We may be subject to increased premium payments, or calls, in amounts based on our claim records, the claim records of our managers, as well as the claim records of other members of the protection and indemnity associations. This year, the shipping industry is experiencing significant increases in premiums for coverage by protection and indemnity associations. In addition, our protection and indemnity associations may not have enough resources to cover claims made against them. Our payment of these calls could result in significant expense to us, which could have a material adverse effect on our business, results of operations and financial condition.
Exposure
Our investments in Element 1 Corp. and e1 Marine involve a high degree of risk, including potential loss of our investments.
As part of our Energy Transition Plan, in June 2021 we (a) purchased a 10% equity stake in private company Element 1 Corp., a developer of hydrogen generation systems used to currency exchange rate fluctuations couldpower fuel cells and (b) established a joint venture, e1 Marine LLC, with Element 1 Corp. and an affiliate of Maritime Partners LLC that seeks to deliver Element 1 Corp’s hydrogen delivery system to the marine sector. Element 1 Corp operates in a highly dynamic and competitive market, and there is no assurance that: it will be able to compete successfully; demand will grow for its technology, including for in the marine sector; or it will obtain adequate funding to expand its operations or business. These are among the factors that subject our investments of time and resources in Element 1 Corp and e1 Marine to risk and may result in fluctuationsa loss to us of such investments.
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LEGAL AND REGULATORY RISKS
We are subject to complex laws and regulations, including environmental laws and regulations, which can adversely affect our business, results of operations and financial condition.
Our operations are subject to numerous laws and regulations in the form of international conventions and treaties, national, state and local laws and national and international regulations in force in the jurisdictions in which our operating results.
Wevessels operate withinor are registered, which can significantly affect the international shipping market,ownership and operation of our vessels. Cost of compliance with such laws and regulations may be significant and, where applicable, may require installation of costly equipment or operational changes and may affect the resale value or useful lives of our vessels. Compliance with existing and future regulatory obligations may include costs relating to, among other things: air emissions including greenhouse gases; the management of ballast and bilge waters; maintenance and inspection; elimination of tin-based paint; development and implementation of emergency procedures, Eco-Mod upgrades of secondhand vessels and insurance coverage or other financial assurance of our ability to address pollution incidents. Environmental or other incidents may result in additional regulatory initiatives or statutes or changes to existing laws that may affect our operations or require us to incur additional expenses to comply with such regulatory initiatives, statutes or laws. These costs could have a material adverse effect on our business, results of operations and financial condition.
A failure to comply with applicable laws and regulations may, among other things, result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations. Environmental laws often impose strict, joint and several liability for remediation of spills and releases of oil and hazardous substances, which utilizescould subject us to liability without regard to whether we were negligent or at fault. Under the U.S. DollarOil Pollution Act of 1990, for example, owners, operators and bareboat charterers are jointly, severally and strictly liable for the discharge of oil in U.S. waters, including the 200-nautical mile exclusive economic zone around the United States. An oil spill could also result in significant liability, including fines, penalties, criminal liability, remediation costs and natural resource damages under international and U.S. federal, state and local laws, as its functional currency. As a consequence, the majoritywell as third-party damages, and could harm our reputation with current or potential charterers of our revenuestankers. We are required to satisfy insurance and the majorityfinancial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents. Although we have arranged insurance to cover certain environmental risks, there can be no assurance that such insurance will be sufficient to cover all such risks or that any claims will not have a material adverse effect on our business, results of our expenses are in U.S. Dollars.operations and financial condition.
However, we incur certain general and operating expenses, including vessel operating expenses and general and administrative expenses, in foreign currencies, the most significant of which are the Euro, Singapore Dollar, and British Pound Sterling. This partial mismatch in revenues and expenses could lead to fluctuations in net income due to changes in the value of the U.S. Dollar relative to other currencies.
Climate change and greenhouse gas restrictions may adversely affect our operating results.
A number of countries have adopted, or are considering the adoption of, regulatory frameworksAn increasing concern for, and focus on climate change, has promoted extensive existing and proposed international, national and local regulations intended to reduce greenhouse gas emissions due to the concern about climate change. These regulatory measures in various jurisdictions include the adoption of cap and trade regimes, carbon taxes, increased efficiency standards, and incentives or mandates for renewable energy. In November 2016, the Paris Agreement that deals with greenhouse gas emission reduction measures and targets to limit global temperature increases came into force.emissions. Compliance with changes in laws,such regulations and obligations relatingour efforts to climate change, including as a result of such international negotiations, could increase our costs related to operating and maintaining our vessels and require us to install new emission controls, acquire allowances or pay taxes related to ourparticipate in reducing greenhouse gas emissions or administerwill likely increase our compliance costs, require significant capital expenditures to reduce vessel emissions and manage a greenhouse gas emissions program. Revenue generationrequire changes to our business.
Our business includes transporting refined petroleum products. Regulatory changes and strategic growth opportunities may also be adversely affected.
The effects upongrowing public concern about the oil industry relating toenvironmental impact of climate change may lead to reduced demand for petroleum products and the resulting regulations may also include decliningdecreased demand for our services. We do not expect that demand for oil will lessen dramatically over the short-term, but in the long-term climate change may reduce the demand for oilservices, while increasing or increased regulation of greenhouse gases may createcreating greater incentives for use of alternative energy sources. We expect regulatory and consumer efforts aimed at combating climate change to intensify and accelerate. Although we do not expect demand for oil to decline dramatically over the short-term, in the long-term climate change likely will significantly affect demand for oil and for alternatives. Any long-termsuch change could adversely affect our ability to compete in a changing market and our business, financial condition and results of operations.
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Increasing scrutiny and changing expectations from investors, lenders and other market participants with respect to our Environmental, Social and Governance (“ESG”) policies may impose additional costs on us or expose us to additional risks.
Companies across all industries are facing increasing scrutiny relating to their ESG policies. Investor advocacy groups, certain institutional investors, investment funds, lenders and other market participants are increasingly focused on ESG practices and, in recent years, have placed increasing importance on the implications and social cost of their investments. The increased focus and activism related to ESG and similar matters may hinder access to capital, as investors and lenders may decide to reallocate capital or to not commit capital as a result of their assessment of a company’s ESG practices. Diminished access to capital could hinder our growth. Companies that do not adapt to or comply with investor, lender or other industry shareholder expectations and standards, which are evolving, or which are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, may suffer from reputational damage and their business, financial condition and share price may be adversely affected.
We may face increasing pressures from investors, lenders and other market participants, which are increasingly focused on climate change, to prioritize sustainable energy practices, reduce our carbon footprint and promote sustainability. As a result, we may be required to implement more stringent ESG procedures or standards so that our existing and future investors remain invested in us and make further investments in us, especially given our business of transporting refined petroleum products. In addition, it is likely we will incur additional costs and require additional resources to monitor, report and comply with wide-ranging ESG requirements. The occurrence of any of the foregoing could have a material adverse effect on the oil industry couldour business, financial condition and results of operations.
Regulations relating to ballast water discharge which came into effect during September 2019 may adversely affect our results of operation and financial condition.
The International Maritime Organization, the financialUnited Nations agency for maritime safety and operational aspectsthe prevention of pollution by vessels (the “IMO”) has imposed updated guidelines for ballast water management systems specifying the maximum amount of viable organisms allowed to be discharged from a vessel’s ballast water. Depending on the date of the International Oil Pollution Prevention renewal survey, existing vessels constructed before September 8, 2017 were required to comply with the updated D-2 standard on or after September 8, 2019. For most vessels, compliance with the D-2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. Ships constructed on or after September 8, 2017 are required to comply with the D-2 standards on or after September 8, 2017. All of our vessels currently comply with the updated guidelines of compliance. The cost of compliance with these regulations may be substantial and may adversely affect our results of operation and financial condition.
Furthermore, United States regulations are currently changing. Although the 2013 Vessel General Permit (“VGP”) program and U.S. National Invasive Species Act (“VIDA”) are currently in effect to regulate ballast discharge, exchange and installation, the Vessel Incidental Discharge Act, which was signed into law on December 4, 2018, requires that the U.S. Environmental Protection Agency develop national standards of performance for approximately 30 discharges, similar to those found in the VGP, within two years. On October 26, 2020, the EPA published a Notice of Proposed Rulemaking for Vessel Incidental Discharge National Standards of Performance under VIDA. Within two years after the EPA publishes its final Vessels Incidental Discharge National Standards of Performance, the U.S. Coast Guard must develop corresponding implementation, compliance and enforcement regulations regarding ballast water. The new regulations could require the installation of new equipment, which may cause us to incur substantial costs.
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If we fail to comply with international safety regulations, we may be subject to increased liability, which may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports.
The operation of our vessels is affected by the requirements set forth in the IMO’s International Management Code for the Safe Operation of Ships and Pollution Prevention (“ISM Code”). The ISM Code requires ship owners, ship managers and bareboat charterers to develop and maintain an extensive “Safety Management System” that includes the adoption of safety and environmental protection policies setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. If we fail to comply with the ISM Code or similar regulations, we may be subject to increased liability or our existing insurance coverage may be invalidated or decreased for our affected vessels. Such failure may also result in a denial of access to, or detention of our vessels in, certain ports. The United States Coast Guard and European Union authorities have indicated that vessels not in compliance with the ISM Code will be prohibited from trading in U.S. and EU ports, which could have an adverse effect on our business, results of operations and financial condition.
Our failure to comply with data privacy laws could damage our customer relationships and expose us to litigation risks and potential fines.
Data privacy is subject to frequently changing rules and regulations, which sometimes conflict among the various jurisdictions and countries in which we provide services and continue to develop in ways which we cannot predict with certainty atpredict. For example, the EU adopted the General Data Privacy Regulation (“GDPR”), a comprehensive legal framework to govern data collection, processing, use, transfer and sharing and related consumer privacy rights which took effect in May 2018 and the People’s Republic of China adopted the Personal Information Protection Law (“PIPL”), containing similar provisions, which took effect in November 2021. These laws include significant penalties for non-compliance. Our failure to adhere to or successfully implement processes in response to changing regulatory requirements in this time.area, insofar as they may apply to our business operations, could result in legal liability or impairment to our reputation in the marketplace, which could have a material adverse effect on our business, financial condition and results of operations.
RISKS RELATED TO AN INVESTMENT IN OUR SECURITIES
We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate case law or bankruptcy law and, as a result, shareholders may have fewer rights and protections under Marshall Islands law than under a typical jurisdiction in the United States.
Our corporate affairs are governed by our articles of incorporation and bylaws and by the Marshall Islands Business Corporations Act (the “BCA”). The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. However, there have been few judicial cases in the Republic of the Marshall Islands interpreting the BCA. The rights and fiduciary responsibilities of directors under the lawlaws of the Republic of the Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain U.S. jurisdictions. Shareholder rights may differ as well. While the BCA does specifically incorporate the non-statutory law, or judicial case law, of the State of Delaware and other states with substantially similar legislative provisions, our shareholders may have more
difficulty in protecting their interests in the face of actions by management, directors or controlling shareholders than would shareholders of a corporation incorporated in a U.S. jurisdiction. In addition, the Republic of the Marshall Islands does not have a well-developed body of bankruptcy law. As such, in the case of a bankruptcy involving us, there may be a delay of bankruptcy proceedings and the ability of securityholders and creditors to receive recovery after a bankruptcy proceeding, and any such recovery may be less predictable.
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It may be difficult to serve process on or enforce a U.S. judgment against us, our officers and our directors.
We are a Marshall Islands corporation and severalall of our executive offices are located outside of the United States. Most of our directors and officers reside outside the United States. In addition, a substantial portion of our assets and the assets of our directors, officers and experts are located outside of the United States. As a result, you may have difficulty serving legal process upon us or any of these persons within the United States. You may also have difficulty enforcing, both in and outside the United States, judgments you may obtain in U.S. courts against us or any of these persons in any action, including actions based upon the civil liability provisions of U.S. federal or state securities laws. In addition, there is substantial doubt that the courts of the Republic of the Marshall Islands or of non-U.S. jurisdictions in which our offices are located would enter judgments in original actions brought in those courts predicated on U.S. federal or state securities laws.
We changed our dividend policy as part of a new capital allocation policy. Our ability to pay any dividends in the future may be limited by the amount of cash we generate from operations following the payment of fees and expenses,priorities ascribed by the establishment of any reserves by our board of directors and by additional factors unrelated to our profitability.
Although we generally intend to pay regular quarterly dividends on our common shares, we have not paidfor allocation of capital. Any future dividends on our common stock since August 31, 2016, whenare also subject to restrictions relating to our shares of Series A 8.5% Cumulative Redeemable Perpetual Preferred Shares Stock (“Series A Preferred Stock”).
On March 9, 2020, we paidannounced a cash dividend of $0.11 per share fornew capital allocation policy which sets out our priorities among fleet maintenance, financial strength, accretive growth and, once the other priorities are achieved, returning capital to shareholders. Commencing with the quarter ended June 30, 2016, andMarch 31, 2020, we may not pay dividends intransitioned to the future. new policy.
The amount of any dividends we may pay in the future will depend in part upon the amount of cash we generate from our operations.operations and priorities for capital determined by the board of directors. We may not, however, have sufficient cash available each quarter to pay dividends, as a result of insufficient levels of profit, restrictions on the payment of dividends contained in our financing arrangements or under applicable law and the decisions of our management and directors.
The amount of cash we have available for dividends may fluctuatewill also depend upon, among other things:
| ● | the rates we obtain from our charters, as well as the rates obtained following expiration of our existing charters; |
| ● | the level of our operating costs; |
| ● | the number of unscheduled off-hire days and the timing of, and number of days required for, scheduled drydocking of our vessels; |
| ● | asset acquisitions and related financings, such as restrictions in our credit facilities, lease arrangements and in any future financing arrangements; |
| ● | prevailing global and regional economic and political conditions; |
| ● | the effect of governmental regulations and maritime self-regulatory organization standards, including with respect to environmental and safety matters, on the conduct of our business; |
| ● | changes in the bases of taxation of our activities in various jurisdictions; |
| ● | the actual amount of cash we will have available for dividends will also depend on many factors, including: changes in our operating cash flows, capital expenditure requirements, working capital requirements and other cash needs; |
| ● | our fleet expansion strategy and associated uses of our cash and our financing requirements; |
| ● | the amount of any cash reserves established by our board of directors; |
| ● | payments of dividends on our Series A Preferred Stock; and |
| ● | restrictions under our financing agreements and Marshall Islands law. |
In addition, so long as any share of our existing charters;
The actual amount ofSeries A Preferred Stock remains outstanding, no cash we will have available for dividends will also depend on many factors, including:
The amount of cash we generate from our operations may differ materially from our net income or loss for the period, which may be affected by non-cash items. We may incur other expenses or liabilities that could reduce or eliminate the cash available for distribution as dividends. Our credit facilities also restrict our ability to declare and pay dividends if an event of default has occurred and is continuing or if the payment of the dividend would result in an event of default. In addition, Marshall Islands law generally prohibits the payment of dividends other than from surplus (retained earnings in excess of consideration received for the sale of stock above the par value of the stock), or while a company is insolvent or if it would be rendered insolvent by the payment of such a dividend, and any dividend may be discontinued at the discretion of our board of directors. As a result of thesedeclared or other factors, we may pay dividends during periods when we record losses and may not pay dividends during periods when we record income.
Future sales ofpaid on our common shares could causestock unless, among other things, all accrued and unpaid dividends have been paid on the market priceSeries A Preferred Stock.
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Table of our common shares to decline.Contents
The market price for our common shares could decline as a result of sales by existing shareholders of large numbers of our common shares, or as a result of the perception that such sales may occur. Sales of our common shares by these shareholders also might make it more difficult for us to sell equity or equity-related securities in the future at a time and at the prices that we deem appropriate.
Anti-takeover provisions in our charterarticles of incorporation and bylaws documents could make it difficult for our shareholders to replace or remove our current board of directors or could have the effect of discouraging, delaying or preventing a merger or acquisition, which could adversely affect the market price of our common shares.
Several provisions of our articles of incorporation and bylaws could make it difficult for our shareholders to change the composition of our board of directors in any one year, preventing them from changing the composition of management. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that shareholders may consider favorable. These provisions include:
| ● | authorizing the board of directors to issue “blank check” preferred stock without shareholder approval; |
| ● | providing for a classified board of directors with staggered, three-year terms; |
| ● | prohibiting cumulative voting in the election of directors; |
| ● | authorizing the removal of directors only for cause and only upon the affirmative vote of the holders of two-thirds of the outstanding shares of our common stock entitled to vote for the directors; |
| ● | limiting the persons who may call special meetings of shareholders; and |
| ● | establishing advance notice requirements for nominating candidates for election to our board of directors or for proposing matters that can be acted on by shareholders at shareholder meetings. |
These anti-takeover provisions could substantially impede the ability of public shareholders to benefit from a change in control and, as a result, may adversely affect the market price of our common stock and your ability to realize any potential change of control premium.
We are an “emerging growth company”, and we cannot be certain if the reduced reporting requirements applicable to “emerging growth companies” will make our common shares less attractive to investors.
We are an “emerging growth company”, as defined in the Securities Act, and we may take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not “emerging growth companies”. Investors may find our common shares less attractive because we rely on certain of these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile.
Because of our status as an “emerging growth company” under the Jumpstart Our Business Startups Act status, our independent registered public accounting firm will not be required to attestredeem our outstanding shares of Series A Preferred Stock or to pay dividends on such shares at an increased rate.
The Series A Preferred Stock is redeemable, in whole or in part, upon the election of us or the holder of shares of Series A Preferred Stock, upon the occurrence of certain change of control events specified in the statement of designation relating to the effectiveness of our internal control over financial reporting pursuant to Section 404Series A Preferred Stock. The applicable redemption price would range between (a) 103% of the Sarbanes-Oxley Act for so long as we are an emerging growth company. As long as we take advantagethen applicable liquidation preference per share plus any accumulated and unpaid dividends through the redemption date and (b) 100% of the reduced reporting obligations,then applicable liquidated preference per share plus any accumulated and unpaid dividends through the information thatredemption date, depending upon when the redemption occurred. If we provide shareholderswere to fail to redeem all the Series A Preferred Stock elected to be redeemed following a change of control, the dividend rate payable on unredeemed shares would automatically increase to 15.0% per annum. The occurrence of other events specified in the statement of designation for the Series A Preferred Stock may be different from information provided by other public
companies. We may take advantagealso result in increases in the dividend rate of these provisions untilthe preferred shares, up to a maximum of 15.0% per annum. As of December 31, 2018 or such earlier time that we are no longer2021, there were 40,000 shares of Series A Preferred Stock outstanding, with an emerging growth company. We will cease to be an emerging growth company if, among other things, we have more than $1.0 billion in “total annual gross revenues” during the most recently completed fiscal year.aggregate liquidation preference of $40.0 million.
Tax Risks
TAX RISKS
U.S. tax authorities could treat us as a “passive foreign investment company”, which could have adverse U.S. federal income tax consequences to U.S. holders.
A foreign corporation will be treated as a passive foreign investment company (“PFIC”), for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of “passive income” or (2) at least 50% of the average value of the corporation’s assets produce or are held for the production of “passive income”. For purposes of these tests, “passive income” generally includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services generally does not constitute “passive income”. U.S. shareholders of a PFIC are subject to an adverse U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
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Based upon our operations as described herein, we do not have material income from time charters, however we may have income from time charters in future taxable years. We do not believe that our income from such time charters should be treated as “passive income” for purposes of determining whether we are a PFIC. Consequently,PFIC, and, consequently, the assets that we own and operate in connection with the production of that income should not constitute passive assets. Accordingly, based on our current operations, we do not believe we will be treated as a PFIC with respect to any taxable year.
There is substantial legal authority supporting this position consisting of case law and U.S. Internal Revenue Service (“IRS”), pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, there is also authority which characterizes time charter income as rental income rather than services income for other tax purposes.
Accordingly, no assurance can be given that the IRS or a court of law will accept this position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if the nature and extent of our operations change.
If the IRS were successful in asserting that we are or have been a PFIC for any taxable year, U.S. shareholders would face adverse U.S. federal income tax consequences. Under the PFIC rules, unless a shareholder makes an election available under the U.S. Internal Revenue Code of 1986, as amended, (“the Code”(the “Code”), (whichwhich election could itself have adverse consequences for such shareholders, as discussed below under Item 10.E (“Taxation of Holders — U.S. Federal Income Tax Considerations — U.S. Federal Income Taxation of United States Holders”)), excess distributions and any gain from the disposition of such shareholder’s common shares would be allocated ratably over the shareholder’s holding period of the common shares and the amounts allocated to the taxable year of the excess distribution or sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed with respect to such tax. See Item 10.E (“Taxation of Holders — U.S. Federal Income Tax Considerations — U.S. Federal Income Taxation of United States Holders”) for a more comprehensive discussion of the U.S. federal income tax consequences to United States shareholders if we are treated as a PFIC.
We may have to pay tax on U.S. source shipping income, which would reduce our earnings.
Under the U.S. Internal Revenue Code, of 1986, as amended (the “Code”), 50% of the gross shipping income of a corporation that owns or charters vessels, as we and our subsidiaries do, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States will be subject to
a 4% U.S. federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the applicable Treasury Regulations promulgated thereunder or that corporation is entitled to an exemption from such tax under an applicable U.S. income tax treaty.
We intendexpect to take the position that we qualifiedqualify for this statutory exemption for U.S. federal income tax return reporting purposes for our 20172021 taxable year and we intend to so qualify for future taxable years. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption and thereby cause us to become subject to U.S. federal income tax on our U.S. source shipping income. For example, there is a risk that we could no longer qualify for exemption under Section 883 of the Code for a particular taxable year if “non-qualified” shareholders with a 5% or greater interest in our stock were, in combination with each other, to own 50% or more of the outstanding shares of our stock on more than half the days during the taxable year. Due to the factual nature of the issues involved, we can give no assurances on our tax-exempt status or that of any of our subsidiaries.
If we or our subsidiaries were not entitled to exemption under Section 883 of the Code for any taxable year, we or our subsidiaries would be subject for such year to an effectivea 4% U.S. federal income tax on 50% of the shipping income we or our subsidiaries derive during the year which is attributable to the transport of cargoes to or from the United States. The imposition of this taxation would have a negative effect on our business and would decrease our earnings available for distribution to our shareholders. For a discussion of the U.S. federal income tax treatment of our operating income, please read “Additional Information—Taxation of Holders—U.S. Federal Income Tax Considerations—U.S. Federal Income Taxation of Operating Income: In General.”
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We may be subject to additional taxes, which could adversely impact our business and financial results.
We and our subsidiaries are subject to tax in certain jurisdictions in which we or our subsidiaries are organized, own assets or have operations. In computing our tax obligations in these jurisdictions, we are required to take various tax accounting and reporting positions on matters that are not entirely free from doubt and for which we have not received rulings from the governing authorities. We cannot assure you that, upon review of these positions, the applicable authorities will agree with our positions. A successful challenge by a tax authority could result in additional tax imposed on us or our subsidiaries, which could adversely impact our business and financial results.
GENERAL RISKS
Our business depends upon key members of our senior management team who may not necessarily continue to work for us.
Our future success depends to a significant extent upon certain members of our senior management team. Our management team includes members who have substantial experience in the product tanker and chemical shipping industries and have worked with us since inception. Our management team is crucial to the execution of our business strategies and to the growth and development of our business. If the individuals were no longer affiliated with us, we may be unable to recruit other employees with equivalent talent and experience, and our business and financial condition may suffer as a result.
Future sales of our common shares could cause the market price of our common shares to decline.
The market price for our common shares could decline as a result of sales by existing shareholders of large numbers of our common shares, or as a result of the perception that such sales may occur. Sales of our common shares by these shareholders also might make it more difficult for us to sell equity or equity-related securities in the future at a time and at the prices that we deem appropriate.
We may issue additional securities without shareholder approval, which could dilute the ownership interests of shareholders and may depress the market price of our securities.
We may issue additional securities of equal or senior rank to our common stock in the future in connection with, among other things, future vessel or business acquisitions, repayment of outstanding indebtedness or our equity incentive plan, without shareholder approval, in a number of circumstances.
The issuance by us of additional securities of equal or senior rank to our common stock may have the following effects:
| ● | our existing shareholders’ proportionate ownership interest in us may decrease; |
| ● | the amount of cash available, if any, for dividends or interest payments may decrease; |
| ● | the relative voting strength of previously outstanding securities may be diminished; and |
| ● | the market price of our securities may decline. |
Exposure to currency exchange rate fluctuations could result in fluctuations in our operating results.
We operate within the international shipping market, which utilizes the U.S. Dollar as its functional currency. As a consequence, the majority of our revenues and the majority of our expenses are in U.S. Dollars.
However, we incur certain general and operating expenses, including vessel operating expenses and general and administrative expenses, in foreign currencies, the most significant of which are the Euro, Singapore Dollar, and British Pound Sterling. This partial mismatch in revenues and expenses could lead to fluctuations in net income due to changes in the value of the U.S. Dollar relative to other currencies.
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Item 4. Information on the Company
A. History and Development of the Company
We are
Ardmore Shipping Corporation. We provideprovides seaborne transportation of petroleum products and chemicals worldwide to oil majors, national oil companies, oil and chemical traders, and chemical companies, with our modern, fuel-efficient fleet of mid-size product and chemical tankers. Our currentAs at February 15, 2022, our fleet consists of 2825 owned vessels, all of which are in operation.
Ardmore Shipping Corporation was incorporated under the laws of the Republic of the Marshall Islands on May 14, 2013. We commenced business operations through our predecessor company, Ardmore Shipping LLC, on April 15, 2010. On August 6, 2013, we completed our initial public offering (“IPO”) of 10,000,000 shares of our common stock. Prior to our IPO, GA Holdings LLC, who was our sole shareholder, exchanged its 100% interest in Ardmore Shipping LLC for 8,049,500 shares of Ardmore Shipping Corporation, and Ardmore Shipping LLC became a wholly owned subsidiary of Ardmore Shipping Corporation. In March 2014, we completed a follow-on public offering of 8,050,000 common shares. In November 2015, GA Holdings LLC sold 4,000,000 of its shares of our common stock in an underwritten public offering. In June 2016, we completed a public offering of 7,500,000 common shares, of which GA Holdings LLC purchased 1,277,250 shares. In November 2017, GA Holdings LLC disposed the balance of its remaining 5,787,942 common shares, of which 5,579,978 shares were sold in an underwritten public secondary offering, 85,654 shares were repurchased by us in a private transaction, and 122,310 shares were distributed to certain of its members, including Anthony Gurnee, our chief executive officer and a member of our board of directors. In addition to the 85,654 shares we repurchased from GA Holdings LLC in a private transaction, we also purchased from the underwriter 1,350,000 shares of our common stock that were sold by GA Holdings LLC in the underwritten public secondary offering. The price we paid for all such repurchases was equal to the price per share at which GA Holdings LLC sold shares to the underwriters in the public offering. As of November 30, 2017, GA Holdings LLC no longer owned any shares in Ardmore. As of February 28, 2018, 32,445,415 shares of our common stock were outstanding.
We have 5079 wholly owned subsidiaries, the substantial majority of which represent single ship-owning companies for our fleet, and a newly formedone 50%-owned joint venture entity, Anglo Ardmore Ship Management Limited (“AASML”), which provides technical management services to the majority of our fleet.fleet, one 33.33%-owned joint venture entity and one 10% equity stake in another entity. A list of our subsidiaries is included as Exhibit 8.1 to this Annual Report.
We maintain our principal executive and management offices at Belvedere Building, 69 Pitts Bay Road, Ground Floor, Pembroke, HM08, Bermuda. Our telephone number at these offices is +1 441 292 9332.405 7800. Ardmore Shipping (Bermuda)Maritime Services (Asia) Pte. Limited (“ASBL”AMSA”), a wholly-ownedwholly owned subsidiary incorporated in Bermuda,Singapore, carries out our management services and associated functions. Ardmore Shipping Services (Ireland) Limited (“ASSIL”), a wholly-ownedwholly owned subsidiary incorporated in Ireland, provides our corporate, accounting, fleet administration and operations services. Ardmore Shipping (Asia) Pte. Limited (“ASA”), a wholly-ownedwholly owned subsidiary incorporated in Singapore, performsand Ardmore Shipping (Americas) LLC (“ASUSA”), a wholly owned subsidiary incorporated in Delaware, each perform commercial management and chartering services for us. Ardmore Shipping (Americas) LLC (“ASUS”), a wholly-owned subsidiary incorporated in Delaware, performs commercial management
The SEC’s website at www.sec.gov contains reports, proxy and chartering services for us.
Vessel Acquisitions
Our current fleet consists of 28 double-hulled product and chemical tankers, all of which are in operation. We acquired 14 of our vessels as second-hand vessels, seven of which we have upgraded to increase efficiency and improve performance. In 2014, 2015, 2016 and 2017, we paid an aggregate of $209.7 million, $232.5 million, $174.0 million and $1.6 million (as a deposit, the balance of $14.8 million being payable in 2018), respectively, in capital expenditures for vessel acquisitions, vessel equipment, and newbuilding orders.
As of December 31, 2010, our operating fleet consisted of four vessels. During 2011, 2012, 2013, 2014, 2015 and 2016 we acquired or took delivery (on a net basis) of two, none, two, six, ten and three vessels respectively. In 2017, we took no vessel deliveries; however we did pay $1.6 million as a deposit for a vessel, theArdmore Sealancer, that was delivered in January 2018.
Implications of Being an Emerging Growth Company
We continue to qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). An emerging growth company may take advantage of specified reduced reportinginformation statements, and other burdensinformation regarding issuers that are otherwise applicable generally to public companies. These provisions include:
We may take advantage of these provisions until December 31, 2018 or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company if we have more than $1.0 billion in “totalthis annual gross revenues” during our most recently completed fiscal year, if we become a “large accelerated filer” with market capitalization of more than $700 million, or as of any date on which we have issued more than $1.0 billion in non-convertible debt over the three year period to such date. When we no longer qualify as an emerging growth company, our auditors will provide the auditor attestations of our internal control over financial reporting; however, for as long as we take advantage of the reduced reporting obligations, the information that we provide shareholders may be different from information provided by other public companies. We have irrevocably chosen to “opt out” of the extended transition period relating to the exemption from new or revised financial accounting standards and, as a result, we comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.report.
B. Business Overview
We commenced business operations in April 2010 with the goal of building an enduring product and chemical tanker company that emphasizes disciplined capital allocation, service excellence, innovation, and operational efficiency through our focus on high quality, fuel-efficient vessels. We are led by a team of experienced senior managers who have previously held senior management positions with highly regarded public shipping companies and financial institutions.
We are strategically focused on modern, fuel-efficient, mid-size product and chemical tankers. We actively pursue opportunities to exploit the overlap we believe exists between the clean petroleum product (“CPP”) and chemical sectors in order to enhance earnings, and also seek to engage in more complex CPP trades, such as multi-grade and multi-port loading and discharging operations, where our knowledge of chemical operations is beneficial to our CPP customers.
Our fuel-efficient operations are designed to enhance our investment returnsoperating performance and provide value-added service to our customers. We believe we are at the forefront of fuel efficiency and emissions reduction trends and are well positioned to capitalize on these developments with our fleet of Eco-design and Eco-mod vessels. Our acquisition strategy isincludes to continue to build our fleet with Eco-design newbuildings or Eco-design second-hand vessels and with modern second-hand vessels that can be upgraded to Eco-mod.
We believe that the global energy transition will have a profound impact on the shipping industry, including the product and chemical tanker segments. While this transition will unfold over years, the impact is already being felt through anticipated Energy Efficiency Existing Ship Index and Carbon Intensity Indicator regulations and constraints on newbuilding ordering activity. We view energy transition as less of a compliance challenge and more of an opportunity, which we have set out in our Energy Transition Plan (“ETP”), which is posted on our website.
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We have established Ardmore Ventures as our holding company for existing and future potential investments related to the ETP and we completed our first projects under the ETP in June 2021.
We are an integrated shipping company. The majority of our fleet is technically managed by a combination of ASSIL and our 50% owned joint venture AASML and we also retain a third-party technical manager for a numbersome of our vessels. We have a resolute focus on both high-quality service and efficient operations, and we believe that our corporate overhead and operating expenses are among the lowest of our peers.
Moreover, we
We are commercially independent, as we have no blanket employment arrangements with third-party or related-party commercial managers. Through our in-house chartering and commercial team, we market our services directly to a broad range of customers, including oil majors, national oil companies, oil and chemical traders, chemical companies, and pooling service providers. We monitor the tanker markets to understand andhow to best utilize our vessels and may change our chartering strategy to take advantage of changing market conditions.
We
Other than technical management services provided to us by our 50% joint venture AASML we have no related-party transactions concerning our vessel operations or vessel sale and purchase activities. Certain of our wholly-ownedwholly owned subsidiaries carry out our management and administrative services, with ASBL
AMSA providing ourus with corporate and executive management services and associated functions, ASSIL providing our corporate and accounting administrative services, as well as technical operations services and fleet administration, and operations services and ASA and ASUS performingASUSA providing our commercial management and chartering services.
We believe that
In terms of our industry, we expect continued challenging market conditions until a full economic recovery is underway, which will be largely dependent on the effectiveness and administration of the COVID-19 vaccines and the impact of COVID-19 variants. Further, commodity markets remain subject to heightened levels of uncertainty in connection with Russia’s invasion of Ukraine, which could give rise to regional or broader instability and has resulted in significant economic sanctions by the U.S., European nations and other countries which, in turn, could increase uncertainty with respect to global financial markets and production from OPEC and other oil producing nations. This could affect the demand for our services.
However, we expect a rebound in charter rates and financial performance in a recovering market for mid-size product and chemical tankers is recovering from cyclical lows, resulting from strong underlyingwith above-trend demand growth, drivenled by both cyclicalrefined product draws and secular trends, as well as a reduction indisruption and trading activity creating longer voyages getting refined products to markets where needed. We expect continued product tanker demand growth to 2030, with global economic growth and refinery activity away from points of consumption offsetting the supply overhang due to reduced ordering activity and an extended periodinitial impact of fleet growth at a rate below that of demand growth. energy transition.
We believe that we are well positioned to benefit from thea market recovery, with aour modern, fuel-efficient fleet, access to capital for growth, a diverse and high-quality customer base, an emphasis on service excellence in an increasingly demanding regulatory environment and a relative cost advantage in assets, operations and corporate overhead.
Please see Item 5 “Operating and Financial Review and Prospects – Recent Developments” for a description of certain of our recent transactions and developments.
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Fleet List
Our
As at February 15, 2022, our current fleet consists of 2825 owned vessels, including 21 Eco-design and sevenfour Eco-mod vessels, all of which are in operation. The average age of our vessels at February 28, 2018,15, 2022, was 5.68.7 years.
| | | | | | | | |||||||||||||||||||||
| Vessel Name | Type | Dwt Tonnes | IMO | Built | Country | Flag | Specification | |||||||||||||||||||||
| Ardmore Seavaliant | Product/Chemical | 49,998 | 2/3 | Feb-13 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Seaventure | Product/Chemical | 49,998 | 2/3 | Jun-13 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Seavantage | Product/Chemical | 49,997 | 2/3 | Jan-14 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Seavanguard | Product/Chemical | 49,998 | 2/3 | Feb-14 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Sealion | Product/Chemical | 49,999 | 2/3 | May-15 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Seafox | Product/Chemical | 49,999 | 2/3 | Jun-15 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Seawolf | Product/Chemical | 49,999 | 2/3 | Aug-15 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Seahawk | Product/Chemical | 49,999 | 2/3 | Nov-15 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Endeavour | Product/Chemical | 49,997 | 2/3 | Jul-13 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Enterprise | Product/Chemical | 49,453 | 2/3 | Sep-13 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Endurance | Product/Chemical | 49,466 | 2/3 | Dec-13 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Encounter | Product/Chemical | 49,478 | 2/3 | Jan-14 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Explorer | Product/Chemical | 49,494 | 2/3 | Jan-14 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Exporter | Product/Chemical | 49,466 | 2/3 | Feb-14 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Engineer | Product/Chemical | 49,420 | 2/3 | Mar-14 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Seafarer | Product/Chemical | 45,744 | 3 | Aug-04 | Japan | MI | Eco-mod | |||||||||||||||||||||
| Ardmore Seatrader | Product | 47,141 | — | Dec-02 | Japan | MI | Eco-mod | |||||||||||||||||||||
| Ardmore Seamaster | Product/Chemical | 45,840 | 3 | Sep-04 | Japan | MI | Eco-mod | |||||||||||||||||||||
| Ardmore Seamariner | Product/Chemical | 45,726 | 3 | Oct-06 | Japan | MI | Eco-mod | |||||||||||||||||||||
| Ardmore Sealancer | Product | 47,451 | — | Jun-08 | Japan | MI | Eco-mod | |||||||||||||||||||||
| Ardmore Sealeader | Product | 47,463 | — | Aug-08 | Japan | MI | Eco-mod | |||||||||||||||||||||
| Ardmore Sealifter | Product | 47,472 | — | Jun-08 | Japan | MI | Eco-mod | |||||||||||||||||||||
| Ardmore Dauntless | Product/Chemical | 37,764 | 2 | Feb-15 | Japan | MI | Eco-design | |||||||||||||||||||||
| Ardmore Defender | Product/Chemical | 37,791 | 2 | Feb-15 | Japan | MI | Eco-design | |||||||||||||||||||||
| Ardmore Cherokee | Product/Chemical | 25,215 | 2 | Jan-15 | Japan | MI | Eco-design | |||||||||||||||||||||
| Ardmore Cheyenne | Product/Chemical | 25,217 | 2 | Mar-15 | Japan | MI | Eco-design | |||||||||||||||||||||
| Ardmore Chinook | Product/Chemical | 25,217 | 2 | Jul-15 | Japan | MI | Eco-design | |||||||||||||||||||||
| Ardmore Chippewa | Product/Chemical | 25,217 | 2 | Nov-15 | Japan | MI | Eco-design | |||||||||||||||||||||
| Total | 28 | 1,250,019 | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | |
Vessel Name |
| Type |
| Dwt Tonnes |
| IMO |
| Built |
| Country |
| Flag |
| Specification |
Ardmore Seavaliant |
| Product/Chemical |
| 49,998 |
| 2/3 |
| Feb-13 |
| Korea |
| MI |
| Eco-design |
Ardmore Seaventure |
| Product/Chemical |
| 49,998 |
| 2/3 |
| Jun-13 |
| Korea |
| MI |
| Eco-design |
Ardmore Seavantage |
| Product/Chemical |
| 49,997 |
| 2/3 |
| Jan-14 |
| Korea |
| MI |
| Eco-design |
Ardmore Seavanguard |
| Product/Chemical |
| 49,998 |
| 2/3 |
| Feb-14 |
| Korea |
| MI |
| Eco-design |
Ardmore Sealion |
| Product/Chemical |
| 49,999 |
| 2/3 |
| May-15 |
| Korea |
| MI |
| Eco-design |
Ardmore Seafox |
| Product/Chemical |
| 49,999 |
| 2/3 |
| Jun-15 |
| Korea |
| MI |
| Eco-design |
Ardmore Seawolf |
| Product/Chemical |
| 49,999 |
| 2/3 |
| Aug-15 |
| Korea |
| MI |
| Eco-design |
Ardmore Seahawk |
| Product/Chemical |
| 49,999 |
| 2/3 |
| Nov-15 |
| Korea |
| MI |
| Eco-design |
Ardmore Endeavour |
| Product/Chemical |
| 49,997 |
| 2/3 |
| Jul-13 |
| Korea |
| MI |
| Eco-design |
Ardmore Enterprise |
| Product/Chemical |
| 49,453 |
| 2/3 |
| Sep-13 |
| Korea |
| MI |
| Eco-design |
Ardmore Endurance |
| Product/Chemical |
| 49,466 |
| 2/3 |
| Dec-13 |
| Korea |
| MI |
| Eco-design |
Ardmore Encounter |
| Product/Chemical |
| 49,478 |
| 2/3 |
| Jan-14 |
| Korea |
| MI |
| Eco-design |
Ardmore Explorer |
| Product/Chemical |
| 49,494 |
| 2/3 |
| Jan-14 |
| Korea |
| MI |
| Eco-design |
Ardmore Exporter |
| Product/Chemical |
| 49,466 |
| 2/3 |
| Feb-14 |
| Korea |
| MI |
| Eco-design |
Ardmore Engineer |
| Product/Chemical |
| 49,420 |
| 2/3 |
| Mar-14 |
| Korea |
| MI |
| Eco-design |
Ardmore Sealancer |
| Product |
| 47,451 |
| — |
| Jun-08 |
| Japan |
| MI |
| Eco-mod |
Ardmore Sealeader |
| Product |
| 47,463 |
| — |
| Aug-08 |
| Japan |
| MI |
| Eco-mod |
Ardmore Sealifter |
| Product |
| 47,472 |
| — |
| Jun-08 |
| Japan |
| MI |
| Eco-mod |
Ardmore Seafarer | | Product | | 49,999 | | — | | Jun-10 |
| Japan |
| SG |
| Eco-mod |
Ardmore Dauntless |
| Product/Chemical |
| 37,764 |
| 2 |
| Feb-15 |
| Japan |
| MI |
| Eco-design |
Ardmore Defender |
| Product/Chemical |
| 37,791 |
| 2 |
| Feb-15 |
| Japan |
| MI |
| Eco-design |
Ardmore Cherokee |
| Product/Chemical |
| 25,215 |
| 2 |
| Jan-15 |
| Japan |
| MI |
| Eco-design |
Ardmore Cheyenne |
| Product/Chemical |
| 25,217 |
| 2 |
| Mar-15 |
| Japan |
| MI |
| Eco-design |
Ardmore Chinook |
| Product/Chemical |
| 25,217 |
| 2 |
| Jul-15 |
| Japan |
| MI |
| Eco-design |
Ardmore Chippewa |
| Product/Chemical |
| 25,217 |
| 2 |
| Nov-15 |
| Japan |
| MI |
| Eco-design |
Total |
| 25 |
| 1,115,567 |
|
|
|
|
|
|
|
|
|
|
Business Strategy
Our primary objective is to solidify our position as a market leader in modern, fuel-efficient, mid-size product and chemical tankers by engaging in well-timed growth and utilizing our operational expertise and quality-focused approach to provide value-added services to our customers. The keyKey elements of our business strategy include:
| Disciplined capital allocation and well-timed growth. We have a diligent and patient approach to capital allocation and expanding our fleet and we are selective as to the quality of |
| Focus on modern |
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As a result of the overlap between the product and chemical sectors, we believe that our fleet composition enables us to take advantage of opportunities, both operationally and strategically, while also providing investment diversification.
| ● | Optimizing fuel efficiency. The shipping industry is experiencing a steady increase in fuel efficiency, and we intend to remain at the forefront of this development. Our Eco-design vessels incorporate many of the |
| Commercial independence, flexibility and customer service. Through our in-house chartering and commercial team and our ship management joint venture arrangement, we have an integrated operating platform resulting in leading commercial and operational performance. We maintain a broad range of existing and potential spot customers, as well as pooling alternatives and potential time-charter customers, to maximize commercial flexibility and customer diversification. Maintaining outstanding customer service is a cornerstone of our business and we seek customers |
| Low cost structure. We have established a solid foundation for growth while cost-effectively managing our operating expenses and corporate overhead. We intend to grow our staff as needed and to realize further economies of scale as our fleet expands. At the core of our business philosophy is the belief that well-run companies can deliver high quality service and achieve efficiency simultaneously, through hands-on management, effective communication with employees, and constant re-evaluation of budgets and operational performance. |
In addition, we view our ETP as being consistent with, and as an extension of, our business strategy; it builds on our core strengths, and we intend to play a leading role in moving toward true sustainability as a tanker company. The basic framework of our ETP is as follows:
| ● | We are in the business of liquid bulk transportation, and over time we anticipate that our activity will migrate more toward non-fossil fuel cargoes for which demand is expected to grow along with the global economy. Currently, already 25% of our business is the transportation of non-fossil fuel cargo. |
| ● | In keeping with our “eco mod” philosophy, we believe there is significant opportunity in our industry for continued improvement in fuel efficiency, as well as early adoption of transition and zero carbon fuels, and that we can play a role in assisting others through partnerships. |
| ● | We believe that many of our customers have similar incentives to decarbonize their supply chains and will approach this through close collaboration with shipping companies possessing the mindset and expertise to assist them in achieving their aims. |
As part of our growth strategy, we regularly monitor, evaluate and enter into discussions regarding potential expansion opportunities, including through vessel and business acquisitions and joint ventures. We are selective in implementing our growth strategy and there is no assurance that any existing or future evaluations, discussions or negotiations relating to these opportunities will result in competed or successful transactions.
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Corporate Officers, Staff and Seafarers
Biographical information with respect to each of our directors and executive officers is set forth in Item 6 (“Directors, Senior Management and Employees”) of this Annual Report.
As at December 31, 2017,2021, we employed 46 permanent47 full-time staff and seven part-time staff onshore. Through AASML, our 50%-owned joint venture ship manager, and Thome Ship Management, our third partythird-party technical manager, we currently employ approximately 1,060993 seafarers, including 569475 officers and cadets and 491 crew.518 crew serve our fleet.
Commercial management is provided directly by our in-house chartering and commercial team, and by third-party commercial pool managers, in the case of vessels participating in pooling arrangements. Commercial pools can provide many benefits for vessels operating in the spot market, including the ability to generate higher returns due to the economies of scale derived by operating a larger fleet.
Customers
Our customers include national, regional, and international companies and our fleet is employed directly on the tanker spot market through our in-house chartering and commercial team or via third party commercial pool employment.team. We may in the future seek to deploy our vessels on time charter arrangements.arrangements or on the tanker spot market via third party commercial pool employment. We believe that developing strong relationships with the end users of our services allows us to better satisfy their needs with appropriate and capable vessels.
A prospective charterer’s financial condition, creditworthiness, and reliability track record are important factors in negotiating our vessels’ employment.
Competition
We operate in markets that are highly competitive and based primarily on supply and demand. We compete for charters on the basis of price, vessel location, size, age and condition of the vessel, as well as our reputation. Ownership of tanker vessels is highly fragmented and is divided among publicly listed companies, state-controlled owners and private ship-owners.
The International Product and Chemical Tanker Industry
The information and data contained in this section relating to the international product and chemical tanker shipping industriesindustry have been provided by Drewry Maritime Research (“Drewry”), and is taken from Drewry’s database and other sources. Drewry has advised that: (i) some information in their database is derived from estimates or subjective judgments; and (ii) the information in the databases of other maritime data collection agencies may differ from the information in their database. We believe that all third-party data provided in this section, “The International Product and Chemical Tanker Industry,” is reliable.
The world tanker fleet is generally divided into four main categories of vessels based on the main type of cargocargoes carried. These categories are crude oil, refined petroleum products (both clean and dirty products), – hereinafter referred to as products, chemicals (including vegetable oils and fats) and specialist products such as bitumen. There is some overlap between the main tanker types and the cargoes carried, which is explained in the table below.
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Principal Tanker Types and Main Cargoes Carried
| | | | | | | | | | |
Vessel Type | Ship Size | Tank Type | IMO Status | Principal Cargo | Other Cargoes | |||||
ULCC/VLCC | 200,000+ | Uncoated | Non IMO | Crude Oil | ||||||
Suezmax | 125,000 - 199,999 | Uncoated | Non IMO | Crude Oil | ||||||
Aframax | 85,000 - 124,999 | Uncoated | Non IMO | Crude Oil | Refined Products | |||||
Panamax | 60,000 | Uncoated | Non IMO | Crude Oil | Refined Products | |||||
| | | | | | | | | | |
Large Range 3 (LR3) | 125,000-199,999 | Coated | Non IMO | Refined Products | Crude | |||||
Large Range 2 (LR2) | 85,000 - 124,999 | Coated | Non IMO | Refined Products | Crude | |||||
Large Range 1 (LR1) | 60,000 | Coated | Non IMO | Refined Products | Crude | |||||
| | | | | | | | | | |
Medium Range (MR) | 25,000 | Coated | IMO 2 | Refined Products | Chemicals/Veg Oils | |||||
| 25,000 | Coated | IMO 3 | Refined Products | Chemicals/Veg Oils | |||||
| 25,000 | Coated | Non IMO | Refined Products | | | ||||
| 25,000 | Uncoated | Non IMO | Refined Products | | | ||||
| | | | | | | | | | |
Small Range (SR) | 10,000 | Coated | Non-IMO | Refined Products | ||||||
| 10,000 | Coated | IMO 2 | Refined Products | Chemicals/Veg Oils | |||||
| | | | | | | | | | |
Stainless Steel Tankers | 10,000 + | Stainless | IMO 2 | Chemicals/Veg Oils | Refined Products | |||||
Specialist Tankers | 10,000+ | Uncoated/ | Non IMO | Various |
Source: Drewry
In the product and chemical sectors, there are a number of vessels that possess the ability tocan carry both products andas well as some chemicals. These vessels, therefore, representchemicals, representing a “swing”‘swing’ element in supply in both of these markets. However, in practice, many vessels will tend to trade in either refined products or chemicals/vegetable oils and fats.
In 2017, a total
The outbreak of 3.40 billion tonsCOVID-19 severely affected demand of crude oil and refined petroleum products as several major economies enforced lockdowns to contain the spread of the virus and mitigate the damage caused by the pandemic. Accordingly, the world seaborne tanker trade, including crude oil, oil products and chemicals were movedfell 9.1% to 3,105 million tons in 2020. Crude oil trade declined 9.4% and oil products trade declined 10.1% during the same period. However, world seaborne tanker trade grew slightly to 3,120 million tons in 2021 mainly due to a sharp recovery in global oil demand. Global oil demand increased 5.6 mbpd in 2021 fueled by sea. This wasrobust economic growth, rising vaccination rates and higher mobility levels. Several countries authorized emergency use of various COVID-19 vaccines and a widespread availability of these vaccines has played a key role in containing the pandemic, which will support the seaborne trade and tanker demand. Global economic recovery coupled with the recent global energy crisis, which started in October 2021, has provided the much-needed boost to oil demand. According to the latest report (February 2022) from IEA, global oil demand is expected to surpass 2019 oil demand in 3Q22. However, a surge in new COVID cases globally since November 2021 has slowed the recovery in global oil demand to some extent.
Between 2016 and 2021, seaborne trade fell at an increaseannual rate of 3.6% from 2016 (3.29 billion tons) and is the result of record1.8% for crude oil imports by Asian economies and rising refining activity leading to further growth in seaborne product trades. In 2017, China became the largest crude oil importer surpassing the United States. Over the period from 2007 to 2017, seaborne trade in1.2% for oil products, whereas it grew at an annual average rate of 3.6% and in 2017 totaled 1.03 billion tons. The growth in seaborne products trade between 2016 and 2017 was 2.6%, based on provisional figures.
Between 2012 and 2017 seaborne trade grew by an annual rate of 1.3% for crude oil, 3.8% for oil products, and 3.9%1.9% for chemicals. Over the period from 2012From 2011 to 2017, seaborne trade in refined products and2021, chemicals
were two of the fastest growing sectors ofsector in international tanker shipping. Changesshipping followed by refined products. After a sharp decline in world2020 due to the pandemic, seaborne tanker trade volumesincreased slightly in 2021 driven by a recovery in the period 2007 to 2017 are shown in the table below.global economy.
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World Seaborne Tanker Trade Volumes
| | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
| | Crude Oil |
| Oil Products |
| Chemicals |
| Total |
| Global |
| ||||||||||||||||||||||||||||||||||||||||||||
| Year | Crude Oil | Oil Products | Chemicals | Total | Global GDP (IMF) |
| Million tons |
| % y-o-y |
| Million tons |
| % y-o-y |
| Million tons |
| % y-o-y |
| Million tons |
| % y-o-y |
| % y-o-y |
| |||||||||||||||||||||||||||||||
| Mill T | % y-o-y | Mill T | % y-o-y | Mill T | % y-o-y | Mill T | % y-o-y | % y-o-y | |||||||||||||||||||||||||||||||||||||||||||||||
| 2007 | 2,008 | 0.6 | % | 723 | 6.8 | % | 170 | 2.5 | % | 2,902 | 2.2 | % | 5.6 | % | |||||||||||||||||||||||||||||||||||||||||
| 2008 | 2,014 | 0.3 | % | 765 | 5.8 | % | 169 | -0.6 | % | 2,947 | 1.6 | % | 3.0 | % | |||||||||||||||||||||||||||||||||||||||||
| 2009 | 1,928 | -4.2 | % | 777 | 1.6 | % | 178 | 5.4 | % | 2,883 | -2.2 | % | -0.1 | % | |||||||||||||||||||||||||||||||||||||||||
| 2010 | 1,997 | 3.6 | % | 810 | 4.3 | % | 189 | 6.2 | % | 2,996 | 3.9 | % | 5.4 | % | |||||||||||||||||||||||||||||||||||||||||
| 2011 | 1,941 | -2.8 | % | 860 | 6.3 | % | 194 | 2.6 | % | 2,996 | 0.0 | % | 4.3 | % |
| 1,941 |
| -2.8% | | 860 |
| 6.3% | | 228 |
| 5.1% | | 3,029 |
| 0.2% | | 4.3% | | ||||||||||||||||||||||
| 2012 | 1,988 | 2.4 | % | 859 | -0.2 | % | 202 | 4.2 | % | 3,049 | 1.8 | % | 3.5 | % |
| 1,988 |
| 2.4% | | 859 |
| -0.2% | | 240 |
| 5.3% | | 3,087 |
| 1.9% | | 3.5% | | ||||||||||||||||||||||
| 2013 | 1,918 | -3.6 | % | 904 | 5.3 | % | 211 | 4.1 | % | 3,033 | -0.6 | % | 3.5 | % |
| 1,920 |
| -3.4% | | 904 |
| 5.3% | | 252 |
| 5.1% | | 3,077 |
| -0.3% | | 3.5% | | ||||||||||||||||||||||
| 2014 | 1,893 | -1.3 | % | 914 | 1.1 | % | 215 | 2.1 | % | 3,022 | -0.3 | % | 3.6 | % |
| 1,904 |
| -0.9% | | 914 |
| 1.1% | | 252 |
| -0.1% | | 3,070 |
| -0.2% | | 3.6% | | ||||||||||||||||||||||
| 2015 | 1,954 | 3.2 | % | 958 | 4.8 | % | 231 | 7.5 | % | 3,144 | 4.0 | % | 3.4 | % |
| 1,974 |
| 3.7% | | 963 |
| 5.3% | | 266 |
| 5.4% | | 3,202 |
| 4.3% | | 3.5% | | ||||||||||||||||||||||
| 2016 | 2,042 | 4.5 | % | 1,008 | 5.2 | % | 235 | 1.6 | % | 3,285 | 4.5 | % | 3.2 | % |
| 2,060 |
| 4.4% | | 999 |
| 3.8% | | 267 |
| 0.6% | | 3,327 |
| 3.9% | | 3.4% | | ||||||||||||||||||||||
| 2017* | 2,125 | 4.1 | % | 1,034 | 2.6 | % | 245 | 4.1 | % | 3,404 | 3.6 | % | 3.6 | % | |||||||||||||||||||||||||||||||||||||||||
| CAGR (2012 – 2017) | 1.3 | % | 3.8 | % | 3.9 | % | 2.2 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| CAGR (2007 – 2017) | 0.6 | % | 3.6 | % | 3.7 | % | 1.6 | % | |||||||||||||||||||||||||||||||||||||||||||||||
2017 |
| 2,121 |
| 2.9% | | 1,043 |
| 4.3% | | 283 |
| 5.8% | | 3,447 |
| 3.6% | | 3.8% | | ||||||||||||||||||||||||||||||||||||
2018 |
| 2,116 |
| -0.2% | | 1,055 |
| 1.1% | | 293 |
| 3.4% | | 3,463 |
| 0.5% | | 3.6% | | ||||||||||||||||||||||||||||||||||||
2019 |
| 2,080 |
| -1.7% | | 1,036 |
| -1.8% | | 300 |
| 2.4% | | 3,415 |
| -1.4% | | 2.8% | | ||||||||||||||||||||||||||||||||||||
2020 |
| 1,885 |
| -9.4% | | 931 |
| -10.1% | | 289 |
| -3.6% | | 3,105 |
| -9.1% | | -3.1% | | ||||||||||||||||||||||||||||||||||||
2021* |
| 1,883 |
| -0.1% | | 943 |
| 1.2% | | 295 |
| 1.9% | | 3,120 |
| 0.5% | | 5.9% | | ||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
CAGR (2014-2019) |
| 1.8% | | | | 2.5% | | | | 3.5% | |
|
| 2.2% | | | | | | ||||||||||||||||||||||||||||||||||||
CAGR (2016-2021) |
| -1.8% | | | | -1.2% | | | | 1.9% | |
|
| -1.3% | | | | | | ||||||||||||||||||||||||||||||||||||
CAGR (2011-2021) |
| -0.3% | | | | 0.9% | | | | 2.6% | | | | 0.3% | | | | | | ||||||||||||||||||||||||||||||||||||
* Provisional estimates
Note: Historical trade numbers have been revised based on changes in the number of reported countries; and change in trade estimates for some of the reported countries, etc
Source: Drewry, IMF
The Product Tanker Industry
While crude oil tankers transport crude oil from points of production to points of consumption typically(typically oil refineries in consuming countries,countries), product tankers can carry both refined and unrefined petroleum products, including some crude oil, as well as fuel oil and vacuum gas oil (often referred to as ‘dirty products’) and gas oil, gasoline, jet fuel, kerosene and naphtha (often referred to as ‘clean products’). Tankers with no International Maritime OrganisationOrganization (IMO) certification, but with coated cargo tanks are designed to carry products, while tankers with IMO certification (normally IMO 2 or IMO 3) and coated cargo tanks are capable to carry both products and chemicals/vegetable oils and fats. Given the facts mentioned above, a tanker with IMO 2 certification and with an average tank size in excess of 3,000 cubic meters is normally classified as a product tanker, while a tanker with IMO 2 certification and an average tank size of less than 3,000 cubic meters is normally categorized as a chemical tanker.
In essence, products can be carried in coated non IMOnon-IMO tankers and IMO rated coated tankers. By this definition, the product capable tanker fleet comprisesconsists of nearly 45% of the total tanker fleet (above 10,000 dwt) in numbersnumber terms, and therefore plays a key part in the global tanker trade.market.
Demand
The demand for product tankers is determined by world oil demand and trade, which is influenced by various factors, including economic activity, geographic changes in oil production, consumption and refinery capacity, oil prices, the availability of transport alternatives (such as pipelines) and inventory policies of nations and oil trading companies. Tanker demand is a product ofof: (i) the volume of cargo transported in tankers, multiplied by (ii) the distance that cargo is transported.
Oil
Growth in oil demand growth and changes in the changing location of oil supply have altered the structure of the tanker marketsmarket in recent years. Between 2003 and 2008, more than half of new crude oil production was located in the Middle East and Africa, with theseAfrica. These two regions still producing approximatelyproduce around one third of global supply in 2017.supply. However, in recent years, the U.S. and Canadian crude oil production have significantly increased as a result of the development of shale oil deposit development.deposits in the U.S. and oil sands in Canada. This has reduced the demand of U.S. seaborne crude imports, but is resulting in greater oil product volumes becoming available for export from the U.S. Gulf as refiners have access to ample supplies of competitively priced feedstock.
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New technologies, such as horizontal drilling and hydraulic fracturing, have triggered a shale oil revolution in the U.S., and in 2013, for the first time in the previouspast two decades, the U.S. produced more oil than it imported. This has reduced U.S. seaborne crude import demand, while resulting in greater oil product exports fromIn view of the U.S. Gulf, giving refiners access to competitively priced feedstock.
As a result of rising surplus in oil production, in 2015 the U.S. Congress lifted a 40-year old40-year-old ban on crude oil exports thatin 2015, which was put in place after the Arab oil embargo in 1973, thereby allowing1973. Thereby, this allowed U.S. oil producers access to international markets.
The first shipments of the U.S. crude were sent to Europe immediately after the lifting of the ban, and since then, other destinations have followed. The U.S. exported nearly 0.5 mbpd of crude oil in 2015 and 2016. However, 2017 marked a very important development for the U.S. crude producers as the country exported crude to every major importer, including China, India, South Korea and several European countries. In October 2017,Consequently, U.S. crude export surpassed 2oil exports averaged 1.2 mbpd and 2.1 mbpd in 2017 and 2018 respectively, with increasing production encouraging greater loadings in the Gulf of Mexico. U.S. crude exports averaged 3.0 mbpd in 2019, inching up further in first quarter of 2020 to 3.5 mbpd. However, the outbreak of COVID-19 and steep decline in crude oil prices in 2020 adversely affected oil production, reducing exports from March 2020 with the country exporting 2.7 mbpd in November 2020. U.S. crude exports continued to decline in 2021 due to lower crude oil production.
In addition, in 2014, the Energy Information Administration (EIA) in the U.S. began classifying exports of U.S. treated condensate as ‘kerosene and light gas oils’ in its Petroleum Supply Monthly report. This followed from a decision by the U.S. Bureau of Industry and Security (BIS) to allow the export of distilled condensate as a refined product. Field condensate, which can be fed into a refinery or used as a chemical plant feedstock, had been considered as an upstream product until 2014, and therefore, was restricted for export under U.S. law. However, the BIS ruling that field stabilization processing changes condensate enough that it becomes a new product, opened up further export opportunities. In short, changes in the U.S. oil market have had a very positive impact on the demand of product tankers because U.S. product exports have risen sharply over the past decade. Although exports of products nosedived in April-May 2020 due to lockdown restrictions, it recovered quickly in the following few months. U.S. product exports grew 12.5% on average the country’s crude exports more than doubledto 3.8 mbpd in 2017 to 1.1 mbpd.2021 with recovery in oil demand.
U.S. Crude Oil Production and U.S. Product Exports
![[GRAPHIC MISSING]](https://files.docoh.com/20-F/0001144204-18-017953/tv488544_chrt-line1.jpg)
*Source: DrewryJODI
Much of the increase in U.S. exports has gone to satisfyinghelped fulfil the growing demand in South AmericanAmerica and African demandAfrica for oil products, while other U.S. exports have been moving transatlanticTransatlantic into Europe, where local refinery shutdowns have supported the rise in the import of products.
38
In terms of tonne-mile demand, a notable development in the patterns of world refining over the last five years has been the shift towards crude oil producingcrude-oil-producing regions developing their own refinery capacity in addition to capacity expansion in China and India, while at the same time, poor refinery margins have led to closuresthe closure of refineries in the developed world, most notably in Europe, Australia, Japan and on the U.S. east coast. In this context, it is already apparent that the closuresclosure of refining capacity in the developed world areis prompting longer haullong-haul imports to cater forto product demand for instance on routes such as the West Coast India to Europe and the U.S. eastern seaboard and Europe.seaboard. Refinery closuresshutdowns close to consuming regions elsewhere in the world will also help to support the demand for product import demand.imports. For example, in Australia, the trade from Singapore has become increasingly important to compensate for the conversion of local producing refineries into storage depots. This is part of a general increase in the intra-Asian trade, which is already boosting the demand for product tanker demand.tankers.
The shift in the location of global oil production is also being accompanied by a shift in the location of global
Between 2010 and 2019, refinery capacity and throughput. In short, capacity and throughput are moving from the developed to the developing world. Between 2007 and 2017 total OECD refining throughput declined by 1.7%, largely as a result of cutbacks in OECD Europe and OECD Asia Oceania. Conversely, throughput in the OECD Americas in the same periodand OECD Asia Oceania moved up by 4.1%6.5% and 1.5% to 19.3 million bpd. In 2017,19.1 mbpd and 6.8 mbpd respectively, whereas refining throughput in OECD Europe declined 0.5% to 12.2 mbpd. Cumulatively, this resulted in OECD’s refining throughput of OECD countries stood at 38.5 million bpd and accounted for 47.8%38.1 mbpd in 2019, totaling 46.6% of global refinery throughput. However, in 2020 refinery throughput of all OCED regions declined in double digits with the OECD refinery throughput falling 13.4% to 33.1 mbpd and accounting for 44.5% of the global refinery throughput. The demand destruction due to the pandemic led to a decline in refining activity in almost every region except China. After a record drop last year, global refinery runs gathered steam in 2021 with improvement in oil demand, but high prices led to drawdowns in inventory of refined products, limiting the gains in refinery runs to some extent.
Refinery Throughput(1) 2007 – 2017 2011-2021
(‘000 Barrels Per Day)
| | | | | | | | | | | | | | | | | | | | | | |
|
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| 2016 |
| 2017 |
| 2018 |
| 2019 |
| 2020 |
| 2021* |
OECD Americas |
| 17,898 |
| 18,190 |
| 18,492 |
| 18,934 |
| 18,850 |
| 18,960 |
| 19,290 |
| 19,400 |
| 19,100 |
| 16,500 |
| 17,700 |
OECD Europe |
| 11,935 |
| 11,942 |
| 11,304 |
| 11,232 |
| 11,900 |
| 11,920 |
| 12,300 |
| 12,100 |
| 12,200 |
| 10,700 |
| 10,900 |
OECD Asia Oceania |
| 6,586 |
| 6,609 |
| 6,720 |
| 6,652 |
| 6,700 |
| 6,890 |
| 7,200 |
| 7,000 |
| 6,800 |
| 5,800 |
| 5,700 |
FSU |
| 6,592 |
| 6,683 |
| 6,831 |
| 7,069 |
| 6,850 |
| 6,880 |
| 6,880 |
| 7,000 |
| 6,800 |
| 6,400 |
| 6,700 |
Non-OECD Europe |
| 627 |
| 587 |
| 559 |
| 557 |
| 500 |
| 500 |
| 570 |
| 600 |
| 600 |
| 400 |
| 400 |
China |
| 9,041 |
| 9,749 |
| 10,427 |
| 10,864 |
| 10,400 |
| 10,790 |
| 11,830 |
| 12,000 |
| 13,000 |
| 13,400 |
| 14,000 |
Other Asia |
| 8,637 |
| 8,792 |
| 8,588 |
| 8,541 |
| 10,000 |
| 10,380 |
| 10,440 |
| 10,600 |
| 10,300 |
| 9,300 |
| 9,500 |
Latin America |
| 4,873 |
| 4,470 |
| 4,589 |
| 4,545 |
| 4,550 |
| 4,200 |
| 3,830 |
| 3,500 |
| 3,200 |
| 3,000 |
| 3,200 |
Middle East |
| 6,324 |
| 6,257 |
| 6,202 |
| 6,501 |
| 6,450 |
| 6,810 |
| 7,520 |
| 8,000 |
| 7,700 |
| 6,800 |
| 7,500 |
Africa |
| 2,168 |
| 2,202 |
| 2,182 |
| 2,255 |
| 2,250 |
| 2,090 |
| 1,920 |
| 2,100 |
| 2,000 |
| 2,000 |
| 1,800 |
Total |
| 74,681 |
| 75,481 |
| 75,894 |
| 77,150 |
| 78,450 |
| 79,420 |
| 81,780 |
| 82,300 |
| 81,700 |
| 74,300 |
| 77,400 |
| | | | | | | | | | | | |||||||||||||||||||||||||||||||||
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||||||||||||||||||||
| OECD Americas | 18,524 | 17,973 | 17,480 | 17,931 | 17,898 | 18,190 | 18,492 | 18,934 | 18,850 | 18,960 | 19,290 | |||||||||||||||||||||||||||||||||
| OECD Europe | 13,462 | 13,364 | 12,377 | 12,265 | 11,935 | 11,942 | 11,304 | 11,232 | 11,900 | 11,920 | 12,210 | |||||||||||||||||||||||||||||||||
| OECD Asia Oceania | 7,136 | 7,049 | 6,549 | 6,697 | 6,586 | 6,609 | 6,720 | 6,652 | 6,700 | 6,890 | 6,960 | |||||||||||||||||||||||||||||||||
| FSU | 6,017 | 6,188 | 6,170 | 6,401 | 6,592 | 6,683 | 6,831 | 7,069 | 6,850 | 6,880 | 6,780 | |||||||||||||||||||||||||||||||||
| Non-OECD Europe | 767 | 699 | 641 | 658 | 627 | 587 | 559 | 557 | 500 | 500 | 520 | |||||||||||||||||||||||||||||||||
| China | 7,085 | 7,299 | 7,762 | 8,630 | 9,041 | 9,749 | 10,427 | 10,864 | 10,400 | 10,790 | 11,200 | |||||||||||||||||||||||||||||||||
| Other Asia | 7,762 | 7,695 | 8,224 | 8,598 | 8,637 | 8,792 | 8,588 | 8,541 | 10,000 | 10,380 | 10,420 | |||||||||||||||||||||||||||||||||
| Latin America | 5,266 | 5,181 | 4,729 | 4,678 | 4,873 | 4,470 | 4,589 | 4,545 | 4,550 | 4,200 | 3,850 | |||||||||||||||||||||||||||||||||
| Middle East | 6,213 | 6,211 | 6,069 | 6,164 | 6,324 | 6,257 | 6,202 | 6,501 | 6,450 | 6,810 | 7,160 | |||||||||||||||||||||||||||||||||
| Africa | 2,372 | 2,457 | 2,292 | 2,451 | 2,168 | 2,202 | 2,182 | 2,255 | 2,250 | 2,090 | 2,050 | |||||||||||||||||||||||||||||||||
| Total | 74,604 | 74,116 | 72,293 | 74,471 | 74,682 | 75,482 | 75,894 | 77,149 | 78,450 | 79,420 | 80,440 | |||||||||||||||||||||||||||||||||
Source: DrewryIEA
Asia (excluding China) and the Middle East added over 0.74 million bpd ofhave steadily increased their export-oriented refinery capacity in 2016.the last few years. As a result of these developments, countries such as India and Saudi Arabia have consolidated their positions as major exporters of products. It is also the case that export-orientedExport-oriented refineries in India and the Middle East, coupled with the closure of refining capacity in the developed world, have prompted longer-haulpromoted greater long-haul shipments to cater forto product demand.
New
Nearly 610 kbpd of new refining capacity of 1.0 million bpd came online in 2017 and further new refinery capacity is currently scheduled for both the Middle East and another 130 kbpd in Asia are scheduled to come online in 2022 with nearly 70 kbpd of existing refinery capacity in North America and Europe expected to be phased out during the period 2018same year. As a result of these developments, countries such as India and Saudi Arabia have consolidated their positions as major exporters of products. The shift in refinery capacity is likely to 2022. Incontinue as refinery development plans are heavily focused on areas such as Asia and the period 2018Middle East. From 2022 to 20222026, the anticipated additions to refinery capacity on a regional basis (illustrated in the chart below) amount to 5.8 million bpd,is 4.92 mbpd, or 6.0%4.8% of existingthe global refinery capacity.capacity at the end of 2020.
39
Planned Additions to Global Refining Capacity(1)
(Million Barrels Per Day)
![[GRAPHIC MISSING]](https://files.docoh.com/20-F/0001144204-18-017953/tv488544_chrt-bar5.jpg)
(1)Assumes all announced plans go ahead as scheduled
Source: DrewryIEA
In developed economies, such as Europe, refinery capacity is on the decline and this– a trend that is likely to continue as refinery development plans are concentrated in areas such as Asia and the Middle East or close to oil producingoil-producing centers and where the new capacitycapacities coming on stream is export orientated.are primarily for exports. These new refineries are more competitive as they can process sour crude oil and are technically more advanced as well as more environmentally friendlyenvironment-friendly compared with existing European refineries. It is also the case that a few new refineries or expansions are planned for Europe.in developed economies. By contrast, Chinese and Indian refinery capacity for example, has grown at faster rates than any other global region in the last decade due toon the back of strong domestic oil consumption and the construction of export-orientatedexport-oriented refineries. In the period 2007From 2011 to 2017,2021, Chinese refining capacity increased by 80.7% and53.9%, while the growth for India the growth was 66.4%39.1% (see chart below).
40
China &and India —– Refining Capacity(1)
(‘000 Barrels Per Day)
![[GRAPHIC MISSING]](https://files.docoh.com/20-F/0001144204-18-017953/tv488544_chrt-bar6.jpg)
| (1) | Capacity for |
Source: DrewryBP, IEA
As a result of the growth in trade and the changes in the location of refinery capacity, demand for product tankers expressed in terms of tonne-miles grew byat a CAGR of 4.3%2.8% between 20072010 and 2017.2019. However, the pace of growth reduced to 1.7% between 2011 and 2021 mainly due to a steep decline in tonne-mile demand because of weak demand on account of restrictions imposed by several major economies to contain the spread of COVID-19. However, product tanker tonne-mile demand recovered in 2021 compared to 2020. Generally, the growth in products trade and product tanker demand is more consistent and less volatile than in crude oil trade.
41
Seaborne Product Trade and Ton MileTonne-mile Demand
![[GRAPHIC MISSING]](https://files.docoh.com/20-F/0001144204-18-017953/tv488544_chrt-bar3.jpg)
* Provisional estimates
Source: Drewry
Product Tanker Supply
The global product tanker fleet is classified as any non stainlessnon-stainless steel/specialized tanker between 10,000 dwt and 60,000 dwt, as well as coated and other “product-capable”‘product-capable’ vessels over 60,000 dwt. As of February 25, 2018,December 31, 2021, the world product tanker capable fleet consisted of 3,7917,150 vessels with a combined capacity of 175.1648.7 million dwt. Within the total tanker fleet, MR vessels account for 32.5%32.4% of total ship numbers and, in the global product tanker fleet, they account for 55.7%with a total capacity of total ship numbers.105.0 million dwt. MR vessels are considered the “workhorses”‘workhorses’ of the fleet.
As of February 25, 2018,December 31, 2021, the MR product tanker orderbook was 87135 vessels totaling 4.36.5 million dwt. The MR orderbook as a percentage of the existing MR fleet, in terms of dwt, was 4.5%,6.2% compared with 4.7% in February 2017 and close to 50% at the last peak in 2008. Based on scheduled deliveries, 2.23.8 million dwt of MR product tankers are due for delivery in the remainder of 20182022 and a further 1.72.0 million dwt in 2019.2023. Approximately 50%59% of the vessels on order in the MR category are scheduled to be delivered in 2018 and this would2022, which will increase the MR fleet by 2.4%4%, assuming no vessel scrapping. In any year ships will be scrapped due to age and therefore in 2018 the growth in the MR fleet is likely to be less than 2.4%. Furthermore, in recent years the orderbook has been affected by the non-delivery of vessels or “slippage” as it is sometimes referred to.scrapped. Current estimates suggest that in 2017,there is approximately 20%63% of vesselsvessel capacity across the entire tanker orderbook which is scheduled for delivery in 2017 did not deliver during2022, adding 30.6 million dwt to the year. Some of the non-delivery was a result of delays, either through mutual agreement or through shipyard problems, while some were due to vessel cancellations. Slippage is likely to remain an issue going forward and will continue to temper fleet growth.total fleet.
The other factor that will affect future supply is vessel scrapping.demolition activity. The volume of scrapping is a function primarily of the age profile of the fleet, scrap prices in relation to the current and prospective charter market conditions as well as operating, repair and survey costs. In 2015,Low vessel earnings in a total of 56weak tanker market encouraged scrapping activity in 2018 when 154 tankers of a combined capacity of 2.5aggregating 19.8 million dwt were sold for scrap,to scrapyards, of which 2234 tankers of approximately 0.7aggregating 1.4 million dwt were in the MR size range.tankers. In comparison, only 46 tankers with a combined capacity of 2.1 million dwt of tonnage were scrapped in 2016, of which 28 tankers with a total capacity of 1.134 vessels totalling 2.7 million dwt were demolished in the MR size range. Provisional data suggests that in 2017 a further 24 MR2019, of which 20 tankers of 1totalling 0.8 million dwt were removed from the operating fleet.MRs. In 2020, 39 tankers with aggregate capacity of 3.1. million dwt were demolished. Demolition has slowedsurged in the2021 with relatively weak crude and product tanker sector dueearnings with 143 tankers aggregating 13.6 million dwt were sold to the fact that the global fleet is relatively young.scrapyards (52 MR tankers totalling 2.2 million dwt).
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World Tanker Fleet &and Orderbook: February 25, 2018December 31, 2021
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| Orderbook Delivery | ||||||||||||||||||||||||||||||||||||||||||||||
| Vessel Type/Class | Fleet | Size dwt | Orderbook | % Fleet Dwt | Orderbook Delivery Schedule (M Dwt) | | Fleet | | | | Orderbook | | | | Schedule (M Dwt) | |||||||||||||||||||||||||||||||||||||||||||||
| Number | M Dwt | Number | M Dwt | 2018 | 2019 | 2020 | 2021+ | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Crude Tankers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| UL/VLCC | 736 | 226.4 | 200,000+ | 90 | 28.1 | 12.4 | % | 13.7 | 11.2 | 2.5 | 0.6 | |||||||||||||||||||||||||||||||||||||||||||||||||
|
| Number |
| M Dwt |
| Size dwt |
| Number |
| M Dwt |
| % Fleet Dwt |
| 2022 |
| 2023 |
| 2024 |
| 2025+ | ||||||||||||||||||||||||||||||||||||||||
ULCC/VLCC |
| 849 |
| 261.9 |
| 200,000+ |
| 70 |
| 21.2 |
| 8.1% | | 13.9 |
| 7.3 |
| 0.0 |
| 0.0 | ||||||||||||||||||||||||||||||||||||||||
| Suezmax | 549 | 85.7 | 120,000 – 199,999 | 35 | 5.3 | 6.2 | % | 3.2 | 1.1 | 1.0 | 0.2 |
| 600 |
| 93.9 |
| 125,000-199,999 |
| 50 |
| 7.8 |
| 8.4% | | 6.1 |
| 1.6 |
| 0.2 |
| 0.0 | |||||||||||||||||||||||||||||
| Aframax (Uncoated) | 653 | 71.0 | 80,000 – 119,999 | 74 | 8.4 | 11.8 | % | 4.7 | 2.3 | 0.8 | 0.6 |
| 674 |
| 74.0 |
| 85,000-124,999 |
| 55 |
| 6.3 |
| 8.6% | | 3.3 |
| 2.1 |
| 0.4 |
| 0.6 | |||||||||||||||||||||||||||||
| Panamax (Uncoated) | 81 | 5.6 | 60,000 – 79,999 | 5 | 0.3 | 5.4 | % | 0.0 | 0.0 | 0.3 | 0.0 |
| 77 |
| 5.4 |
| 60,000-84,999 |
| 1 |
| 0.1 |
| 1.3% | | 0.1 |
| 0.0 |
| 0.0 |
| 0.0 | |||||||||||||||||||||||||||||
| Crude Tankers | 2,019 | 388.7 | 204 | 42.1 | 10.8 | % | 21.6 | 14.6 | 4.6 | 1.4 |
| 2,200 |
| 435.1 |
| |
| 176 |
| 35.4 | | 8.1% | | 23.4 |
| 10.9 |
| 0.5 |
| 0.6 | ||||||||||||||||||||||||||||||
| Long Range 3 (LR3) | 18 | 2.8 | 120,000 – 199,999 | 1 | 0.2 | 5.5 | % | 0.2 | 0.0 | 0.0 | 0.0 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Long Range 2 (LR2) | 345 | 37.7 | 80,000 – 119,999 | 35 | 4.0 | 10.6 | % | 1.9 | 0.7 | 0.3 | 1.0 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Long Range 1 (LR1) | 363 | 26.7 | 60,000 – 79,999 | 21 | 1.6 | 6.0 | % | 1.0 | 0.4 | 0.2 | 0.0 | |||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||
Large Range 3 (LR3) |
| 21 |
| 3.3 |
| 125,000-199,999 |
| 0 |
| 0.0 | | 0.0% | | 0.0 |
| 0.0 |
| 0.0 |
| 0.0 | ||||||||||||||||||||||||||||||||||||||||
Large Range 2 (LR2) |
| 401 |
| 44.2 |
| 85,000-124,999 |
| 44 |
| 5.1 | | 11.5% | | 2.3 |
| 2.1 |
| 0.7 |
| 0.0 | ||||||||||||||||||||||||||||||||||||||||
Large Range 1 (LR1) |
| 382 |
| 28.2 |
| 60,000-84,999 |
| 0 |
| 0.0 | | 0.0% | | 0.0 |
| 0.0 |
| 0.0 |
| 0.0 | ||||||||||||||||||||||||||||||||||||||||
| LR Product Tankers | 726 | 67.2 | 57 | 5.7 | 8.5 | % | 3.1 | 1.1 | 0.5 | 1.0 |
| 804 |
| 75.7 |
| |
| 44 |
| 5.1 | | 6.7% | | 2.3 |
| 2.1 |
| 0.7 |
| 0.0 | ||||||||||||||||||||||||||||||
| Medium Range (MR) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||
| Coated IMO 2 | 858 | 38.6 | 25,000 – 59,999 | 80 | 4.0 | 10.4 | % | 1.9 | 1.7 | 0.4 | 0.0 |
| 1,103 |
| 50.5 |
| 25,000-59,999 |
| 41 |
| 2.0 | | 4.0% | | 0.9 |
| 0.4 |
| 0.5 |
| 0.1 | |||||||||||||||||||||||||||||
| Coated IMO 3 & Non IMO Coated/Uncoated | 1,276 | 56.4 | 25,000 – 59,999 | 7 | 0.3 | 0.5 | % | 0.3 | 0.0 | 0.2 | 0.0 |
| 1,217 |
| 54.4 |
| 25,000-59,999 |
| 94 |
| 4.5 | | 8.3% | | 2.9 |
| 1.6 |
| 0.0 |
| 0.0 | |||||||||||||||||||||||||||||
| Total MR | 2,134 | 95.0 | 87 | 4.3 | 4.5 | % | 2.2 | 1.7 | 0.6 | 0.0 |
| 2,319 |
| 105.0 |
| |
| 135 |
| 6.5 | | 6.2% | | 3.8 |
| 2.0 |
| 0.5 |
| 0.1 | ||||||||||||||||||||||||||||||
| Short Range | 955 | 14.1 | 10,000 – 24,999 | 65 | 1.1 | 7.4 | % | 0.5 | 0.3 | 0.2 | 0.0 | |||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||
Small Range |
| 1,031 |
| 15.2 |
| 10,000-24,999 |
| 22 |
| 0.4 | | 2.5% | | 0.3 |
| 0.1 |
| 0.0 |
| 0.0 | ||||||||||||||||||||||||||||||||||||||||
| Stainless Steel Tankers | 696 | 15.3 | 10,000+ | 62 | 1.6 | 10.3 | % | 0.8 | 0.5 | 0.2 | 0.0 |
| 795 |
| 17.8 |
| 10,000+ |
| 48 |
| 1.1 | | 6.4% | | 0.8 |
| 0.2 |
| 0.1 |
| 0.0 | |||||||||||||||||||||||||||||
| Total All Tankers | 6,530 | 580.4 | 475 | 54.7 | 9.4 | % | 28.2 | 18.1 | 6.2 | 2.4 |
| 7,150 |
| 648.7 |
| |
| 425 |
| 48.5 | | 7.5% | | 30.6 |
| 15.4 |
| 1.8 |
| 0.7 | ||||||||||||||||||||||||||||||
Source: Drewry
Two other important factors are likely to affect product tanker supply in the future. The first is the requirement to retrofit ballast water management systems (“BWMS”) to existing vessels. In February 2004, the IMO adopted the International Convention for the Control and Management of Ships’ Ballast Water and Sediments (“BWM Convention”). The BWMManagement Convention contains an environmentally protective numeric standard for the treatment of ship’s ballast water before it is discharged. This standard, detailed
All deep-sea vessels engaged in Regulation “D-2” of the BWM Convention, sets out the numbers of organisms allowed in specific volumes of treated discharge water. The IMO “D-2” standard is also the standard that has been adopted by the USCG’s ballast water regulations and the U.S. EPA’s Vessel General Permit. The BWM Convention also contains an implementation schedule for the installation of IMO member state type approved treatment systems in existing ships and in new vessels, requirements for the development of vessel ballast water management plans, requirements for the safe removal of sediments from ballast tanks, and guidelines for the testing and type approval ofinternational trade are required to have ballast water treatment technologies. However, in July 2017 the IMO’s Maritime Environment Protection Committee (“MEPC”) decided to extend the time for compliance with the BWM Convention. As a result, only vessels built after its entry into force onsystem before September 8, 2017 will immediately be subject to the new ballast water performance standard. Other vessels will be exempt until their first International Oil Pollution Prevention (“IOPP”) renewal survey, which will be conducted after September 8, 2019. Such surveys typically take place every five years, thus some vessels will have until 2024 to comply.2024. For an MR2a VLCC tanker, the retrofit cost could be as much as $1.0$2.0 million per vessel, including labor. Expenditure of this kind will behas become another factor impacting on the decision to scrap older vessels.vessels after Ballast Water Management Convention came into force in 2019.
IMO 2020 Regulation on Low Sulfur Fuel
The second factor that is likely toregulation, which came into force on January 1, 2020, and will impact on future vessel supply, is the drive to introduce low sulfur fuels. For many years, heavy fuel oil (“HFO”) has been the main fuel of the shipping industry. It is relatively inexpensive and widely available, but it is ‘dirty’ from an environmental point of view. The sulfur content of HFO is extremely high and is the reason that maritime shipping accounts for 8% of global emissions of sulfur dioxide (“SO2”), an important source for acid rain as well as respiratory diseases.
The IMO, the governing body of international shipping, has made a decisive effort to diversifyshift the industry away from HFO intoto cleaner fuels.fuels with less harmful effects on the environment and human health. Effective in 2015, ships operating within the Emission Control Areas (“ECAs”) covering the Economic Exclusive Zone of North America, the Baltic Sea, the North Sea, and the English Channel, are required to use marine gas oil with allowable sulfur content up to 1,000 parts per million (“ppm”). FromIn the lead-up to 2020, when the shipping industry started to prepare for a new low sulfur norm, two factors were closely considered: 1) the spread between (expensive) very low-sulfur fuel and (cheaper) high-sulfur fuel and, 2) scrubber retrofitting activity. Starting 2020, high and low sulfur fuel demand from marine sector reported significant variation. The HSFO and LSFO price spread largely oscillated between $300 and $350 per metric tonne during the initial days and hovered around $190-200 per tonne in February 2020. Despite the initial speculation, the shipping industry did not see any systemic shortage of the new low sulfur fuel, which came out as a relief.
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The premium commanded by low sulfur fuel reduced to around $60 per tonne by December 2020 as the availability of compliant fuel is not an issue due to reduced demand and increased supply across major bunkering ports. Overall, installation of scrubbers and new fuel regulations turned out to be a non-event in the backdrop of COVID-19 and low bunker prices. However, the recent increase in crude oil prices since June 2021 and corresponding widening in the spread, should be giving some respite to shipowners who invested in scrubbers previously.
IMO GHG Strategy
The IMO has been devising strategies to reduce greenhouse gases (“GHG”) and carbon emissions from ships. According to the announcement in 2018, the IMO plans to initiate measures to reduce CO2 emissions intensity by at least 40% by 2030 and 70% by 2050 from the levels in 2008. It also plans to introduce measures to reduce GHG emissions by 50% by 2050 from the 2008 levels. These are likely to be achieved by setting energy efficiency requirements, energy saving technology and encouraging shipowners to use alternative fuels such as biofuels, and electro-/synthetic fuels such as hydrogen or ammonia. It may also include limiting the speed of the ships. Currently, there is uncertainty regarding the exact measures that the IMO will undertake to achieve these targets. Although the current macroeconomic environment is the main deterrent, IMO-related uncertainty is also a key factor preventing ship owners from placing new orders, as the vessels with conventional propulsion system may have a high environmental compliance cost and possible faster depreciation in asset values in the future. Some shipowners have decided to manage this risk by ordering LNG-fueled/methanol ships sailing outside ECAsin order to comply with stricter regulations that may be announced in future.
In June 2021, the IMO adopted amendments to the International Convention for the Prevention of Pollution from ships that will require vessels to reduce their greenhouse gas emissions. These amendments are a combination of technical and operational measures and are expected to come into force on November 1, 2022, with the requirements for Energy Efficiency Existing Ship Index (“EEXI”) and Carbon Intensity Indicator (“CII”) certification, effective January 1, 2023. These will be monitored by the flag administration and corrective actions will be required in the event of constant non-compliance. A review clause requires the IMO to review the effectiveness of the implementation of the CII and EEXI requirements by January 1, 2026, at the latest. EEXI is a technical measure and would apply to ships above 400 GT. It indicates the energy efficiency of the ship compared to a baseline and is based on a required reduction factor (expressed as a percentage relative to the Energy Efficiency Design Index baseline).
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On the other hand, CII is an operational measure which specifies carbon intensity reduction requirements for vessels with 5,000 GT and above. The CII determines the annual reduction factor needed to ensure continuous improvement of the ship’s operational carbon intensity within a specific rating level. The operational carbon intensity rating would be given on a scale of A, B, C, D or E indicating a major superior, minor superior, moderate, minor inferior, or inferior performance level, respectively. The performance level would be recorded in the ship’s Ship Energy Efficiency Management Plan (“SEEMP”). A ship rated D for three consecutive years, or E, would have to submit a corrective action plan, to show how the required index (C or above) would be achieved. To reduce carbon intensity, shipowners can switch from oil to alternative fuels such as LNG or methanol. Some marine fuels such as ammonia and hydrogen have zero-carbon content. In the long term, ammonia can emerge as a cost-effective alternative fuel but in the short term, it seems unviable. Other options include propeller upgrading/polishing, hull cleaning/coating and retrofitting vessels with the wind-assisted propulsion system. Reducing ship speeds also helps in complying with the regulations as it lowers fuel consumption, and it is easy to implement.
In addition to the IMO regulation, the EU has proposed a set of proposals including the EU Emissions Trading System and FuelEU Maritime Initiative. It lays down rules regarding GHG intensity of energy used on-board all ships arriving in the EU. It aims to reduce GHG emission by 26% by 2040 and 75% by 2050 compared to 2020 level. It also makes it obligatory for ships to use on-shore power supply or zero-emission technology in ports in the EU. These initiatives are applicable to 50% of the emission from voyages arriving at or departing from an EU port. All shipowners trading in the European waters will need to comply with these regulations.
The emission control regulations are likely to slow the speed of the vessels in next few years. Consequently, it will lead to a reduction in the supply of ships and therefore, in the short to medium-term, it will benefit shipowners with younger fleets as charter rates should potentially increase with lower supply of ships. In the long-term, the ships may switch to alternative low/zero carbon fuels to comply with emission regulations.
Besides the IMO regulations, the decarbonization of shipping is being propelled by various state and non-state stakeholders of the shipping industry. In recent years, there have been several developments towards the decarbonization of shipping such as the Sea Cargo Charter, Poseidon Principles (for ship finance banks) and Poseidon Principles for Marine Insurance. In addition, there have been several industry led initiatives to facilitate movement towards low/zero-carbon shipping such as the Getting to Zero Coalition, The Castor Initiative for Ammonia, Global Centre for Maritime Decarbonization and the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping.
Alternative Fuels for Shipping
The IMO has a target to reduce GHG emissions by 50% in 2050. This can’t be achieved with the low sulfur fuel and so has encouraged innovation in alternative fuels. IMO has also been planning other technical and operational measures in order to meet emission targets. Alternative fuels like LPG and methanol are mainly used on vessels carrying these as cargo. However, LNG is used as a fuel in LNG vessels and also in other vessels. Hydrogen and ammonia are in the initial stages of development as a marine diesel oil with permitted sulfur content upfuel. LNG is expected to 5,000 ppm. This will create openings forremain as a variety of new fuels, or capital expenditure for “scrubbers”preferred alternative fuel in the near to medium term due to its availability. However, LNG is still a fossil fuel and is unable to meet IMO 2050 decarbonization target and methane slips continue to be retrofitted on existing shipsa heavily debated issue. Another drawback is that LNG propulsion requires an LNG capable engine which, would require additional capex and increased fuel storage space. Biofuel could emerge as a preferred alternative fuel because of its successful trials, especially considering that no major modification of engine is needed, and therefore, no significant additional capex is required.
Energy Transition
Traditionally, fossil fuel-based energy sources such it may hastenas oil, natural gas and coal have propelled the demiseglobal economy, but their share has been declining over the past few years from 86.9% in 2011 to 84.3% in 2019 with the share of older ships.oil remaining stagnant at around 33% during the period. However, the energy transition from fossil fuel-based energy to renewable sources of energy is currently underway which has received a boost from the accelerated sales of electric vehicles (“EVs”), even though their share in total sales was a meagre 2.5% in 2019.
45
As the cost of EVs becomes competitive against internal combustion engine vehicles, and charging infrastructure is developed across the world, sales of EVs are expected to gain momentum, reducing the demand for gasoline and diesel in the long run. The demand for naphtha and jet fuel is likely to remain robust and will be the key driver of global trade in crude and refined petroleum products.
The Product Tanker Freight Market
Between 2003 and early 2008, the differential between demand and supply for tankers remained narrow and rates were generally very firm. Following the global financial crisis in 2009, tanker demand declined,nosedived, coinciding with substantial tonnage entering the fleet, driving earnings down until the market started to recover in 2014. Product tanker fleet growth in 2015 was approximately 5.0% in capacity terms and with demand growing by approximately 5.2%,6.0% improved utilization rates in the sector have led to much stronger freight rates. The specific factors which have led to improved market conditions include:
| ● | increased trade due to higher stocking activity and improved demand for oil products; |
| ● | longer voyage distances because of refining capacity additions in Asia; |
| ● | product tankers are also carrying crude oil encouraged by firm freight rates for dirty tankers; and |
| ● | lower bunker prices have also been a factor contributing to higher net earnings |
For example, the average time charter equivalent (“TCE”) of the spot rate for a Medium Range (MR)an MR product tanker in 2015 was $18,375/day, compared with an average of $9,833/day in 2014. On a one-year time charter rate basis, average MR rates rose from $14,438/day in 2014 to $17,271/day in 2015.
However, the surge in newbuild deliveries in 2016 and 2017 had a negative impact on vessel earnings.earnings, with average freight rates in the spot and one-year time charter markets falling to $9,767/day and $15,125/day, respectively. Another round of newbuilding deliveries in 2017 had an adverse effect on supply-demand dynamics and freight rates for product tanker declined further. In 2017, the average one-year time charter rate for MR tankers was $13,188/day, while on a TCE basis, the average rate during 2017 was $8,258/$9,158/day. The product tanker market remained weak in 1H18 and started to recover in 2H18 as the supply demand dynamics improved on the back of high demolitions in 2017-18, resulting in a small increase in TCE rates and one-year time charter rates, which averaged $9,299/day and $13,175/day, respectively. In 2019, freight rates remained strong, with the average TCE rate and one-year time charter rate increasing to $14,592 and $14,667, respectively. The surge in product tanker charter rates in 2019 was primarily driven by a spike in diesel trade before IMO 2020 regulations came into effect on January 1, 2020. Additionally, the trickle-down effect of the tight crude tanker market after U.S. sanctions on COSCO Shipping Tanker (Dalian) Co. pushed product tanker freight rates to multi-year highs towards the end of 2019 as several LR2 vessels moved into crude trade, thus reducing clean product capacity in the short term. However, in 2020 the tanker market underwent an unprecedented turbulence due to the outbreak of COVID-19. The sudden demand destruction due to lockdown measures and limited availability of onshore storage led to a surge in demand for tankers for floating storage of crude oil as well as refined products. Accordingly, TCE rates of oil tankers rallied across vessel classes in March and April 2020; for instance, average spot TCE rates for MR tankers shot up 131% from $19,289/day in February 2020 to $44,618 in April 2020. However, reduced crude oil production and refinery runs since May 2020 and gradual recovery in demand led to continuous decline in vessel earnings in the latter half of the year as several vessels locked-in for floating storage re-joined the trading fleet. As a result, in 2020 TCE rates and one-year time charter rates for MR tankers averaged $18,551/day and $14,879/day, respectively. In 2021, freight rates declined on account of inventory de-stocking and the supply of ships in the market increased as ships exited floating storage. The trend in MR spot and time charter rates in the period from January 20072011 to January 2018December 2021 is shown in the chart below.
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MR Product Tanker Freight Rates
(US$U.S.$ Per Day)
![[GRAPHIC MISSING]](https://files.docoh.com/20-F/0001144204-18-017953/tv488544_chrt-line2.jpg)
Source: Drewry
It should be noted that these rates are based on standard five-year old MR vessels, and there is some evidence that more recently builtmodern fuel-efficient vessels constructed to particularly fuel-efficient “Eco”with ‘Eco’ specifications are currently able to achievecommanding an additional premium on these levels of up to 10%. over freight rate realized by these vessels.
Asset Valuesvalues
Product tanker asset values have also fluctuated over time, and there is a relationship between changes in asset values and the charter market. Newbuilding prices increased significantly between 2003 and early 2008, primarily as a result of increased tanker demand and rising freight rates. Current newbuilding prices are significantly below the peaks reported at the height of the market in 2008, and in December 2017 the newbuilding price for an MR product tanker was estimated at $33.0 million.2008.
The secondhandsecond-hand sale and purchase market has traditionally been relatively liquid, with tankers changing hands between owners on a regular basis. SecondhandSecond-hand prices peaked over the summer of 2008 and have since followed a similar path to both freight rates and newbuilding prices. An increase in newbuild prices in 2021 occurred despite weak vessel earnings and was fueled by the increased bargaining power of shipyards that have emerged as price setters. Shipyards are flushed with excess ordering, albeit from other shipping sectors, and are hard pressed for time for any new orders. Tanker shipowners are also willing to pay extra sums in anticipation of improved market at the time of delivery of the vessels. The uptrend in newbuild tanker prices coupled with higher demolition prices pushed up second-hand vessel prices. In December 2017,2021, a five-year old MR product tanker was estimated to have a value of $24.0$29.0 million. The trendstrend in newbuilding prices, second handsecond-hand values and freight rates for an MR tanker in the period 2007from 2011 to December 20172021 are summarized in the table below.
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MR Product Tankers: Freight Rate and Asset Value Summary
| | | | | | |||||||||||||||||||||||||
| Spot (US$/day) | Timecharter (US$/day) | Asset Prices (US$ million) | ||||||||||||||||||||||||||||
| | | | | | | | | | | ||||||||||||||||||||
| | Spot TCE |
| Time charter (U.S.$/day) |
| Asset Prices (U.S.$million) | ||||||||||||||||||||||||
| Period Averages | Spot (US$/day) | 1 Year | 3 Year | Newbuild | 5 Year Old |
| (U.S.$/day) |
| 1 Year |
| 3 Year |
| Newbuild |
| 5 Year Old | |||||||||||||||
| 2007 | 25,367 | 22,146 | 49.5 | 50.0 | ||||||||||||||||||||||||||
| 2008 | 21,156 | 23,092 | 21,500 | 52.1 | 51.0 | |||||||||||||||||||||||||
| 2009 | 9,043 | 14,850 | 15,267 | 40.3 | 30.2 | |||||||||||||||||||||||||
| 2010 | 10,568 | 12,388 | 13,646 | 35.9 | 26.4 | |||||||||||||||||||||||||
| 2011 | 8,658 | 13,633 | 14,575 | 36.1 | 28.3 |
| 8,658 |
| 13,633 |
| 14,575 |
| 36.1 |
| 28.3 | |||||||||||||||
| 2012 | 8,000 | 13,325 | 14,500 | 33.2 | 25.2 |
| 8,000 |
| 13,325 |
| 14,500 |
| 33.2 |
| 25.2 | |||||||||||||||
| 2013 | 9,550 | 14,346 | 15,161 | 33.8 | 26.2 |
| 9,550 |
| 14,346 |
| 15,161 |
| 33.8 |
| 26.2 | |||||||||||||||
| 2014 | 9,833 | 14,438 | 15,417 | 36.9 | 27.1 |
| 9,833 |
| 14,438 |
| 15,417 |
| 36.9 |
| 27.1 | |||||||||||||||
| 2015 | 18,375 | 17,271 | 16,458 | 36.1 | 25.8 |
| 18,375 |
| 17,271 |
| 16,458 |
| 36.1 |
| 25.8 | |||||||||||||||
| 2016 | 9,767 | 15,125 | 15,354 | 33.1 | 24.8 |
| 9,767 |
| 15,125 |
| 15,354 |
| 33.1 |
| 24.8 | |||||||||||||||
| 2017 | 8,258 | 13,188 | 14,333 | 32.7 | 23.4 |
| 9,158 |
| 13,188 |
| 14,333 |
| 32.7 |
| 23.4 | |||||||||||||||
| Dec-17 | 7,900 | 14,000 | 14,500 | 33.0 | 24.0 | |||||||||||||||||||||||||
| 2013 – 2017 | ||||||||||||||||||||||||||||||
2018 |
| 9,299 |
| 13,175 |
| 14,500 |
| 35.3 |
| 26.5 | ||||||||||||||||||||
2019 |
| 14,592 |
| 14,667 |
| 15,500 |
| 36.0 |
| 28.8 | ||||||||||||||||||||
2020 |
| 18,551 | | 14,879 | | 15,083 | | 34.8 | | 28.0 | ||||||||||||||||||||
2021 |
| 6,398 | | 12,442 | | 14,500 | | 37.3 | | 27.8 | ||||||||||||||||||||
Dec-21 |
| 13,747 | | 13,000 | | 14,500 | | 41.0 | | 29.0 | ||||||||||||||||||||
| | | | | | | | | | | ||||||||||||||||||||
2017-2021 |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
| 5 Year Avg | 11,157 | 14,873 | 15,345 | 34.5 | 25.5 |
| 11,600 |
| 13,670 |
| 14,783 |
| 35.2 |
| 26.9 | |||||||||||||||
| 5 Year Low | 4,800 | 12,000 | 14,000 | 32.0 | 22.0 |
| 1,088 |
| 11,800 |
| 14,000 |
| 32.0 |
| 22.0 | |||||||||||||||
| 5 Year High | 23,600 | 19,500 | 18,000 | 37.0 | 29.0 |
| 44,618 |
| 17,000 |
| 16,000 |
| 41.0 |
| 31.0 | |||||||||||||||
| 2008 – 2017 | ||||||||||||||||||||||||||||||
| | | | | | | | | | | ||||||||||||||||||||
2012-2021 |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
| 10 Year Avg | 11,321 | 15,165 | 15,621 | 37.0 | 28.8 |
| 11,352 |
| 14,286 |
| 15,081 |
| 34.9 |
| 26.4 | |||||||||||||||
| 10 Year Low | 4,800 | 10,800 | 12,200 | 32.0 | 22.0 |
| 1,088 |
| 11,800 |
| 14,000 |
| 32.0 |
| 22.0 | |||||||||||||||
| 10 Year High | 27,809 | 25,000 | 22,500 | 54.0 | 53.5 |
| 44,618 |
| 19,500 |
| 18,000 |
| 41.0 |
| 31.0 | |||||||||||||||
Source: Drewry, Note – Spot TCE and Time charter rates are for non-eco vessels, Spot rates are for Atlantic market only and will differ from reported earnings
The Chemical Tanker Industry
Introduction
The world chemical industry is one of the largest and most diversified industries in the world, with more than 1,000 large and medium-sized companies manufacturing over 70,000 different product lines. Although most specialist chemicals are used locally, world trade is becoming an increasingly prominent part of the global chemical industry for a number of reasons ranging from local stock imbalances to a lack of local production of particular chemicals in various parts of the world. In broad terms, the growth of seaborne trade growth in bulk liquid chemicals has tracked trends in economic activity and globalization.
The seaborne transportation of chemicals is technically and logistically complex compared with the transportation of crude oil and oil products, with cargoes ranging from hazardous and noxious chemicals to products such as edible oils and fats. Consequently, the chemical tanker sector comprises a wide array of specially constructed small and medium sized tankers designed to carry chemical products in various stages of production.
Chemical Tanker Demand
Demand
The demand for chemicals is affected by, among other things, general economic conditions (including increases and decreases in industrial production and transportation), chemical prices, feedstock costs and chemical production capacity. Given their industrial usage, chemical demand, and as a result the demand for seaborne transport, is well-correlated with global GDP. Seaborne trade in chemicals is characterized by a wide range of individual cargoes and a relatively regionalized structure compared with crude and products. Given the geographical complexity and the diversity of cargoes involved and the way in which some cargoes are transported, estimating the total seaborne trade in chemicals is difficult.
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Essentially, there are four main types of chemicalchemicals transported by sea;sea: organic chemicals, inorganic chemicals;chemicals, vegetable oils and fats and other commodities such as molasses.
Seaborne Chemical Trades
(In Millions ofMillion Tons)
![[GRAPHIC MISSING]](https://files.docoh.com/20-F/0001144204-18-017953/tv488544_chrt-bar4.jpg)
* Provisional estimates
Source: Drewry
| | | | | | | ||||||||||||||||||
| Organics | Inorganics | Veg/Animal Oils & Fats | Other Chemical Cargoes | Total | % Change | |||||||||||||||||||
| 2007 | 85.8 | 24.8 | 50.4 | 9.2 | 170.2 | 2.5 | ||||||||||||||||||
| 2008 | 81.0 | 26.5 | 52.8 | 8.9 | 169.2 | -0.6 | ||||||||||||||||||
| 2009 | 89.0 | 25.3 | 55.0 | 9.1 | 178.4 | 5.4 | ||||||||||||||||||
| 2010 | 96.8 | 26.7 | 55.8 | 10.2 | 189.4 | 6.2 | ||||||||||||||||||
| 2011 | 99.0 | 28.2 | 56.8 | 10.2 | 194.3 | 2.6 | ||||||||||||||||||
| 2012 | 99.9 | 28.7 | 62.9 | 11.0 | 202.5 | 4.2 | ||||||||||||||||||
| 2013 | 106.2 | 27.3 | 65.8 | 11.6 | 210.8 | 4.1 | ||||||||||||||||||
| 2014 | 107.8 | 28.2 | 67.3 | 12.0 | 215.2 | 2.1 | ||||||||||||||||||
| 2015 | 109.8 | 29.7 | 78.2 | 13.7 | 231.3 | 7.5 | ||||||||||||||||||
| 2016 | 111.6 | 30.5 | 72.6 | 14.9 | 229.5 | -0.8 | ||||||||||||||||||
| 2017 | 117.6 | 33.5 | 77.2 | 16.4 | 244.8 | 6.7 | ||||||||||||||||||
TheSaudi Arabia and the U.S. is the largest exporterare two key exporters of organic chemicals, accounting for approximately one quarter25% of all exports, while China accounts for approximately one thirdabout 40% of the total organic chemical imports. South Korea and India are also important players in the trade of organic chemicals and together account for nearly 16% of all exports. The four organic chemicals most frequently traded by sea are methanol, styrene, benzene and para-xylene. Inorganicparaxylene. Organic chemicals represent around 40% to 45% of global seaborne trade of chemicals whereas inorganic chemical trade accounts for approximately 10 – 15%around 10-15% of total seaborne movements. They are not traded geographically as widely as organic chemicals andas they also present several transport problems;problems – not only are they very dense, they are also highly corrosive. Veg/Animal Oils & Fats is another key component of the seaborne chemical trade and accounts for nearly 30% of the total trade of chemicals. Palm oil accounts for about half of this, with the next top two commodities in this sector tradedVeg/Animal Oils & Fats trade, followed by sea being soybean oil and sunflower seed oil.
From a regional perspective, activity is focused on three main geographical areas. Europe is a mature, established producing region, contributing over one quarter of total chemical production. Much of Europe’s production serves domestic requirements. This manifests itself in increased demand for short-sea services rather than deep-sea trades. North American (predominantly the U.S.) manufacturers produce approximately one fifthabout one-fifth of the major chemical products in the world. Although the majority of themost U.S. production is for domestic use, particularly where gasoline additives are involved, the country also produces above domestic requirements, which results in significant export volumes.
In the U.S., the chemicals industry will be affected by the development of shale gas. Increased supplies of natural gas in the U.S. have already served to push down domestic gas prices, and the fall in natural gas prices has had a beneficial impact on feedstock costs for the petrochemical industry. In particular, the cost of ethane has fallen significantly since 2011, thereby increasing the competitiveness of the U.S. petrochemical industry within a global perspective. Accordingly, U.S. ethylene production costs have fallen to levels where the U.S. can now compete with Middle Eastern suppliers, and thiswhich opens up new opportunities to expand U.S. ethylene cracking capacity, and subsequently, petrochemical capacity.
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Ethylene cracker utilization in the U.S. has improved, and prior tobefore the recent fall in oil prices in late 2014, plans had been announced for a number of new petrochemical plants. Ethylene is a precursor for many of the organic chemicals shipped by sea (e.g. ethylene dichloride, ethylene glycol), so increased production wouldwill lead to increased availability of downstream chemical products for export from the U.S. Although the Middle East will continue to be the largest supplier of organic chemicals, the U.S. will be a major exporter of methanol and ethylene derivatives to the Far East market. Meanwhile, the U.S. and Iran’s new methanol projects may have a significant impact on global seaborne chemical trade.
Chemical Tanker Supply
Chemical tankers are characterized mainly by cargo containment systems, which are technically more sophisticated than those found in conventional oil and product tankers. Since chemical tankers are often required to carry many products, which are typically hazardous and easily contaminated, cargo segregation and containment is an essential feature of these tankers.
Chemicals can only be carried in a tanker which has a current IMO Certificate of Fitness.Fitness (CoF). The IMO regulates the carriage of chemicals by sea under the auspices of the International Bulk Chemical Code (IBC), which classifies potentially dangerous cargoes into three categories, typically referred to as IMO 1, IMO 2‘IMO 1’, ‘IMO 2’ and IMO 3.‘IMO 3’. Specific IMO conventions govern the requirements for particular tanks to be classified as each grading, whichwith the pertinent features of each tank being the internal volume and its proximity to the sides and bottom of the vessel’s hull.
The carriage of 18 cargoes is restricted to IMO Type 1 classified vessels, while the majority ofmost cargoes require IMO 2 vessels, including vegetable oils and palm oils. One concession to the IBC Code regulations is an allowance that IMO 3 tankers maymight carry other edible oils – an exemption introduced because ofdue to the tendency for such cargoes to be shipped in large bulk parcels. This often requires ships of up to MR size. Despite this exemption, these vessels are not ‘true’ chemical tankers in the general sense of the word as they are not able to carry IMO 2 cargoes.
As well as defining the chemical tanker fleet in terms of IMO type, it is also possible to further define the fleet according to the degree of tank segregation, tank size and tank coating as detailed below.
| Chemical parcel tankers: Over 75% of the tanks are segregated with an average tank size less than 3,000 cbm, all of which are stainless steel. A typical chemical parcel tanker might be IMO 2 with a capacity of 20,000 dwt and have |
| Chemical bulk tankers: Vessels with a lower level of tank segregations (below 75%), with an average tank size below 3,000 cbm, and with coated tanks. A typical chemical bulk tanker might be 17,000 dwt with 16 coated tanks, but |
Given the above, a broad definition of a chemical tanker is any vessel with a current IMO certificate of fitnessCoF with coated/and or stainless steelstainless-steel tanks and an average tank size of less than 3,000 cbm.
Overall, within the product and chemical tanker fleets, it is important to recognize that there are a group of “swing”‘swing’ ships which can trade in either products or in chemicals, vegetable oils and fats. For example, a product tanker with IMO 2 certification maymight trade from time to time in easy chemicals such as caustic soda. Equally, an IMO 2 chemical tanker can, in theory, carry in products. The sector in which these “swing”‘swing’ ships trade will depend on a number of factors, with the main influences being the exact technical specifications of the ship;ship, the last cargo carried;carried, the state of the freight market in each sector and the operating policy of the ship owner/operator.
As of February 25, 2018,December 31, 2021, the worldglobal IMO 2 Coatedcoated and Stainless Steelstainless-steel tanker fleet consisted of 1,6191,790 vessels with a combined capacity of 3539.4 million dwt. The orderbook consisted of 11694 vessels with an aggregate capacity of 2.63.0 million dwt, or 7.5%7.7% of the existing fleet. In 2017, provisional data suggest that only four MR chemical tankers totaling 0.2 million dwt were sent for demolition. In addition, chemical tankers are relatively complex vessel types to build, and thiswhich increases the barriers to entry for shipyards, and the pool of yards that ownersshipowners are willing to consider is small.
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World Coated IMO 2 and Stainless Steel Tanker Fleet and Orderbook: February 25, 2018December 31, 2021
| | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Ship Type | Size (DWT) | Fleet | Orderbook – Feb 2018 | Orderbook Delivery Schedule (M Dwt) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||
|
| |
| Fleet |
| Orderbook |
| Orderbook Delivery Schedule (M Dwt) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Ship Type | Size (DWT) | Number | M Dwt | Number | M Dwt | % Fleet | 2018 | 2019 | 2020 | 2021+ | | Size (DWT) | | Number | | M Dwt | | Number | | M Dwt | | % Fleet |
| 2022 | | 2023 | | 2024 | | 2025+ | ||||||||||||||||||||||||||||||
| 923 | 19.7 | 54 | 1.0 | 5 | % | 0.5 | 0.2 | 0.3 | 0.1 |
| 10,000+ |
| 995 |
| 21.6 |
| 46 |
| 1.9 |
| 8.7% | | 0.8 |
| 0.5 |
| 0.5 |
| 0.1 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||
| Stainless Steel | 10,000+ | 696 | 15.3 | 62 | 1.6 | 10 | % | 0.8 | 0.5 | 0.2 | 0.0 |
| 10,000+ |
| 795 |
| 17.8 |
| 48 |
| 1.1 |
| 6.4% | | 0.8 |
| 0.2 |
| 0.1 |
| 0.0 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||
| Total | 1,619 | 35.0 | 116 | 2.6 | 7.5 | % | 1.3 | 0.8 | 0.5 | 0.1 |
| | | 1790 |
| 39.4 |
| 94 |
| 3.0 |
| 7.7% | | 1.5 |
| 0.7 |
| 0.6 |
| 0.1 | ||||||||||||||||||||||||||||||
Source: Drewry
The Chemical Tanker Freight Market
Some 50%
Nearly 40% to 60% of all chemical movements are covered by COAs, while the spot market covers 35% to 40%. of the movements. The remainder is made up by other charter arrangements and cargoes moved in tonnagethe vessels controlled by exporters or importers. However, the COA-spot ratio varies depending on the vessel sizes, shipowners’/operators’ chartering strategy and other factors. In the chemical tanker freight market, the level of reporting of fixture information is far less widespread than for the oil tanker market. Furthermore, it is not always possible to establish a monthly series of rates for an individual cargo, on a given route, asbecause fixing is often sporadic, or more often than not covered by contract business. For these reasons, the assessment of spot freight rate trends in the freight market is made by using a small number of routes where there is sufficient fixture volume to produce meaningful measurements.
Following an increasethe global financial crisis in 2008-09, chemical tanker pool TCE rates in 2011 after the decline in 2009declined between 2008 and 2010,2010. However, freight rates on most major trade lanes declined during 2012 as market sentiment eroded. In 2013 spot rates on most routes strengthened and in 20142011 followed by a decline in 2012. Freight rates continued to record small gains on the back of increased vessel demand. In 2015, freight rates moved up by 4.6% on account ofdemand in 2013 and 2014 due to improved seaborne chemical trade. Pool TCE earnings of chemical tankers surged 33.7% in 2015 as many of these vessels switched to trade in a strong product tanker market limiting the supply in addition to growing seaborne trade of chemicals. However, the freightpool TCE rates on average declined by 4.5%plunged 27.9% in 2016 as a result of a slowdown in demand growth. Provisional data for 2017 suggest that global seaborne chemical trade grew by 4.1%, whereas, average time chartergrowth and increased supply of vessels. Pool TCE rates dropped further by 14.2%.12.1% in 2017 on account of supply side pressure due to a greater number of newbuilding deliveries and subdued demolitions in an already weak market. In 2018, freight rates declined by another 2.4%, despite the strengthening of world seaborne trade due to oversupply of vessels. However, pool TCE rates increased by 18.6% in 2019 on the back of growing trade and improved supply-demand dynamics. Global seaborne chemical trade fell 3.6% in 2020 due to weak demand on account of the COVID-19 pandemic however pool TCE rates increased by 4.6% as many vessels shifted to trade in product tanker market which limited the availability of vessels operating chemical tanker market. The ongoing contraction in production and consumption of chemicals due to COVID led to a slowdown in the shipping market for chemicals / vegoils in 2021.
Chemical Tanker Asset Values
As in other shipping sectors, chemical tanker sale and purchase values also show a relationship towith the charter market and newbuilding prices. Newbuilding prices are influenced by shipyard capacity and increased steel prices; secondhandsecond-hand vessel values may vary because of the country of construction and the level of outfitting of such vessels. Although there has been a relatively high level of activity in recent years, chemical vessels can be difficult to market to buyers due to the complexity of operations in the chemical market and they may not always achieve their initial newbuilding premium. Newbuilding price trends in the chemical tanker sector are more difficult to track than product tankers due to the lower volume of ordering and variation in specification. However, at the end of 2017In 2021, prices were generally 30%about the same or a little higher than the average of newbuild prices over the past ten years, whereas in the second-hand market, asset values are 3.1% to 40%4.9% lower than the market peakaverage of the vessel values over the last ten years.
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Chemical Tankers: Freight Rate and Asset Value Summary
| | | | | | | | | | | |
|
| | Pool TCE |
| Newbuilding Price |
| Secondhand Price(1) | ||||
| | | U.S.$/Day | | (U.S.$million) | | (U.S.$million) | ||||
Year |
|
| 35-37,000 |
| 22-24,000 |
| 35-37,000 |
| 22-24,000 |
| 35-37,000 |
2011 | | | 13,931 | | 27.0 | | 32.0 | | 14.3 | | 15.6 |
2012 | | | 13,280 | | 27.9 | | 32.9 | | 14.3 | | 14.8 |
2013 | | | 13,864 | | 28.6 | | 33.6 | | 14.5 | | 14.1 |
2014 | | | 14,719 | | 29.2 | | 34.2 | | 14.5 | | 15.7 |
2015 | | | 19,675 | | 27.8 | | 32.8 | | 13.8 | | 17.0 |
2016 | | | 14,178 | | 26.9 | | 31.9 | | 14.6 | | 16.5 |
2017 | | | 12,462 | | 26.0 | | 31.0 | | 13.4 | | 14.6 |
2018 | | | 12,159 | | 26.4 | | 31.7 | | 12.6 | | 13.6 |
2019 | | | 14,424 | | 29.0 | | 34.0 | | 12.5 | | 14.2 |
2020 | | | 15,093 | | 27.1 | | 32.5 | | 12.7 | | 14.7 |
2021* | | | 12,264 | | 27.6 | | 33.9 | | 12.9 | | 14.5 |
| | | | | | | | | | | |
2012-2021 | | | | | | | | | | | |
10 Year Avg | | | 14,212 | | 27.7 | | 32.8 | | 13.6 | | 15.0 |
10 Year Low | | | 12,159 | | 26.0 | | 31.0 | | 12.5 | | 13.6 |
10 Year High | | | 19,675 | | 29.2 | | 34.2 | | 14.6 | | 17.0 |
* Provisional estimates
| (1) | For a 10-year old vessel |
Note: The above values are for coated chemical tankers
Source: Drewry
COVID-19 Pandemic
COVID-19 initially resulted and may again result in early 2008. Similarly,a significant decline in global demand for refined oil products. As our business is the secondhand market, asset valuestransportation of refined oil products on behalf of oil majors, oil traders and other customers, any significant decrease in some cases have dropped by nearly 50% since 2008.demand for cargo we transport could adversely affect demand for our vessels and services.
Environmental and Other Regulations in the Shipping Industry
Government lawsregulation and regulationslaws significantly affect the ownership and operation of our tankers.fleet. We are subject to international conventions and treaties, national, state and local laws and regulations in force in the countries in
which our vessels may operate or are registered.registered relating to safety and health and environmental protection including the storage, handling, emission, transportation and discharge of hazardous and non-hazardous materials, and the remediation of contamination and liability for damage to natural resources. Compliance with such laws, regulations and other requirements entails significant expense, including vessel modifications and implementation of certain operating procedures.
A variety of governmental, quasi-governmentalgovernment and private organizationsentities subject our tankersvessels to both scheduled and unscheduled inspections. These organizationsentities include the local port authorities (applicable national authorities such as the United States Coast Guard (“USCG”), harbor masters,master or equivalent), classification societies, flag state administrations labor organizations,(countries of registry) and charterers, particularly terminal operators and oil companies. Someoperators. Certain of these entities require us to obtain permits, licenses, certificates and approvalsother authorizations for the operation of our tankers. Our failurevessels. Failure to maintain necessary permits licenses, certificates or approvals could require us to incur substantial costs or temporarily suspendresult in the temporary suspension of the operation of one or more of the vessels in our fleet, or lead to the invalidation or reductionvessels.
52
Table of our insurance coverage.Contents
We believe that the heightened levels of environmental and quality concerns among insurance underwriters, financial institutions, regulators and charterers have led to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the tanker industry.
Increasing environmental concerns have created a demand for tankersvessels that conform to stricter environmental standards and these standards are expected to increase in stringency.standards. We are required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, and procedural compliance, together with continuous training of our officers and crews to maintainand compliance with United States and international regulations. We believe that the operation of our vessels is in substantial compliance with applicable local, national and international environmental laws and regulations. Suchregulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations. However, because such laws and regulations frequently change and may impose increasingly strict requirements. Westricter requirements, we cannot predict the ultimate cost of complying with these or future requirements, or the impact of these requirements on the resale value or useful lives of our tankers.vessels. In addition, a future serious marine incident that results in significant oil pollution, release of hazardous substances, loss of life or otherwise causes significant adverse environmental impact such as the 2010Deepwater Horizon oil spill in the Gulf of Mexico, could result in additional legislation regulation or other requirementsregulation that could negatively affect our business, results of operations or financial position.profitability.
International Maritime Organization (“IMO”)
The IMO,International Maritime Organization, the United Nations agency for maritime safety and the prevention of pollution by vessels (the “IMO”), has adopted the International Convention for the Prevention of Pollution from Ships of 1973 (“MARPOL”), which has been updated through various amendments. MARPOL establishes environmental standards relating to, among other things, oil leakage or spilling, garbage management, sewage, air emissions, handling and disposal of noxious liquids and the handling of harmful substances in packaged forms.
In 2012, the IMO’s Marine Environmental Protection Committee (“MEPC”) IMO committees also have adopted a resolution amending the International Code for the Construction and Equipment of Ships Carrying Dangerous Chemicals in Bulk (the “IBC Code”). The provisions of the IBC Code are mandatory under MARPOL and SOLAS. These amendments, which entered into force in June 2014, pertainresolutions relating to revised international certificates of fitness for the carriage of dangerous chemicals in bulk and identifying new products that fall under the IBC Code. As of January 1, 2016, amendments to Annex I, the IBC Code, require that all chemical tankers must be fitted with approved stability instruments capable of verifying compliance with both intact and damage stability. providing for enhanced vessel inspection programs.
We may need to make certain financial expenditures to comply with these amendments.
In 2013, the MEPC adopted a resolution amending MARPOL Annex I Conditional Assessment Scheme (“CAS”). The amendments, which became effective on October 1, 2014, pertain to revising references to the inspections of bulk carriers and tankers after the 2011 International Code on the Enhanced Programme of Inspections during Surveys of Bulk Carriers and Oil Tankers (“ESP Code”), which provides for enhanced inspection programs, became mandatory. We may need to make certain financial expenditurescontinue to comply with these amendments.regulations. We believe that all our vessels are currently compliant in all material respects with these regulations.
Air Emissions
In September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution from vessels. Effective May 2005, Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from all commercial vessel exhausts and prohibits “deliberate emissions” of ozone depleting substances (such as halons and chlorofluorocarbons), emissions of volatile compounds from cargo tanks, and the shipboard incineration of specific substances. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for
special areas to be established with more stringent controls on sulfur emissions, as explained below. Emissions of “volatile organic compounds” from certain tankers,vessels, and the shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as polychlorinated biphenyls, or PCBs)“PCBs”) are also prohibited. We believe that all our vessels are currently compliant in all material respects with these regulations.
The MEPCMarine Environment Protection Committee, or “MEPC” adopted amendments to Annex VI regarding emissions of sulfur oxide, nitrogen oxide, particulate matter and ozone depleting substances, which entered into force on July 1, 2010. The amended Annex VI seeks to further reduce air pollution by, among other things, implementing a progressive reduction of the amount of sulfur contained in any fuel oil used on board ships. On October 27, 2016, at its 70th session, the MEPC agreed to implement a global 0.5% m/m sulfur oxide emissions limit (reduced from the current 3.50%) starting from January 1, 2020. This limitation can be met by using low-sulfur compliant fuel oil, alternative fuels, or certain exhaust gas cleaning systems. Once the cap becomes effective, ships will beShips are now required to obtain bunker delivery notes and International Air Pollution Prevention (“IAPP”) Certificates from their flag states that specify sulfur content. This subjectsAdditionally, at MEPC 73, amendments to Annex VI to prohibit the carriage of bunkers above 0.5% sulfur on ships, with the exception of vessels fitted with exhaust gas cleaning equipment (“scrubbers”) which can carry fuel of higher sulfur content, were adopted and took effect March 1, 2020. In November 2020, MEPC 75 adopted amendments to Annex VI which, among other things, added new paragraphs related to in-use and onboard fuel oil sampling and testing. These paragraphs would require one or more sampling points to be fitted or designated for the purpose of taking representative samples of the fuel oil being used or carried for use on board the ship. These amendments are expected to enter into force on April 1, 2022. These regulations subject ocean-going vessels in these areas to stringent emissions controls and may cause us to incur additionalsubstantial costs.
Sulfur content standards are even stricter within certain “Emission Control Areas,” or (“ECAs”). As of January 1, 2015, ships operating within an ECA were not permitted to use fuel with sulfur content in excess of 0.1%.m/m. Amended Annex VI establishes procedures for designating new ECAs.
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Currently, the IMO has designated four ECAs, including specified portions of the Baltic Sea area, North Sea area, North American area and United States Caribbean area. Ocean-going vessels in these areas will be subject to stringent emission controls thatand may cause us to incur additional costs. Other areas in China are subject to local regulations that impose stricter emission controls. In December 2021, the member states of the Convention for the Protection of the Mediterranean Sea Against Pollution (“Barcelona Convention”) agreed to support the designation of a new ECA in the Mediterranean. The group plans to submit a formal proposal to the IMO by the end of 2022 with the goals of having the ECA implemented by 2025. If other ECAs are approved by the IMO, or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the U.SU.S. Environmental Protection Agency (“EPA”) or the states where we operate, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations.
Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for marine diesel engines, depending on their date of installation. At the MEPC meeting held from March to April 2014, amendments to Annex VI were adopted which address the date on which Tier III Nitrogen Oxide (NOx) standards in ECAs will go into effect. Under the amendments, Tier III NOx standards apply to ships that operate in the North American and U.S. Caribbean Sea ECAs designed for the control of NOx produced by vessels with a marine diesel engine installed and constructed on or after January 1, 2016. Tier III requirements could apply to areas that will be designated for Tier III NOx in the future. At MEPC 70 and MEPC 71, the MEPC approved the North Sea and Baltic Sea as ECAs for nitrogen oxide for ships built on or after January 1, 2021. The U.S. Environmental Protection AgencyEPA promulgated equivalent (and in some respectssenses stricter) emissions standards in late 2009.2010. As a result of these designations or similar future designations, we may be required to incur additional operating or other costs.
As determined at the MEPC 70, the new Regulation 22A of MARPOL Annex VI isbecame effective as of March 1, 2018 and requires ships above 5,000 gross tonnage to collect and report annual data on fuel oil consumption to an IMO database, with the first year of data collection commencinghaving commenced on January 1, 2019. The IMO intends to use such data as the first step in its roadmap (through 2023) for developing its strategy to reduce greenhouse gas emissions from ships, as discussed further below.
As of January 1, 2013, MARPOL made mandatory certain measures relating to energy efficiency for ships. All ships are now required to develop and implement Ship Energy Efficiency Management Plans (“SEEMPS”SEEMP”), and new ships must be designed in compliance with minimum energy efficiency levels per capacity mile as defined by the Energy Efficiency Design Index.Index (“EEDI”). Under these measures, by 2025, all new ships built will be 30% more energy efficient than those built in 2014. Notably, MEPC 75 adopted amendments to MARPOL Annex VI which brings forward the effective date of the EEDI’s “phase 3” requirements from January 1, 2025 to April 1, 2022 for several ship types, including gas carriers, general cargo ships, and LNG carriers.
Additionally, MEPC 75 introduced draft amendments to Annex VI which impose new regulations to reduce greenhouse gas emissions from ships. These amendments introduce requirements to assess and measure the energy efficiency of all ships and set the required attainment values, with the goal of reducing the carbon intensity of international shipping. The requirements include (1) a technical requirement to reduce carbon intensity based on a new Energy Efficiency Existing Ship Index (“EEXI”), and (2) operational carbon intensity reduction requirements, based on a new operational carbon intensity indicator (“CII”). The attained EEXI is required to be calculated for ships of 400 gross tonnage and above, in accordance with different values set for ship types and categories. Additionally, MEPC 75 proposed draft amendments requiring that, on or before January 1, 2023, all ships above 400 gross tonnage must have an approved SEEMP on board. For ships above 5,000 gross tonnage, the SEEMP would need to include certain mandatory content. The draft amendments introduced at MEPC 75 were adopted at the MEPC 76 session on June 2021 and are expected to enter into force in November 2022, with the requirements for EEXI and CII certification coming into effect from January 1, 2023. MEPC 77 adopted a non-binding resolution which urges Member States and ship operators to voluntarily use distillate or other cleaner alternative fuels or methods of propulsion that are safe for ships and could contribute to the reduction of Black Carbon emissions from ships when operating in or near the Arctic. We may incur costs to comply with these revised standards. Additional or new conventions, laws and regulations may be adopted that could require the installation of expensive emission control systems and could adversely affect our business, results of operations, cash flows and financial condition.
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Safety Management System Requirements
The IMO also adopted the InternationalSOLAS Convention for the Safety of Life at Sea of 1974 (“SOLAS”) and the International Convention on Load Lines (“LL Convention”), which impose a variety of standards that regulate
the design and operational features of ships. The IMO periodically revises the SOLAS and LL Convention standards. The May 2012 SOLAS amendments that relatewas amended to address the safe manning of vessels entered into force on January 1, 2014. Several SOLAS regulations also came into effect in 2016, including regulations regarding adequate vessel integrity maintenance, structural requirements, and construction.
emergency training drills. The IMO Legal Committee also adopted the 1996 Protocol to the Convention onof Limitation of Liability for Maritime Claims (the “LLMC”), which specifies limits sets limitations of liability for a loss of life or personal injury claimsclaim or a property claim against ship owners. We believe that our vessels are in full compliance with SOLAS and property claims against ship-owners. The limitsLLMC standards.
Under Chapter IX of liability are periodically amended to adjust to inflation. Amendments to the LLMC, which were adopted in April 2012, went into effect on June 8, 2015.
Our operations are also subject to environmental standards and requirements contained inSOLAS Convention, or the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention (“ISM(the “ISM Code”), promulgated by the IMO under SOLAS.our operations are also subject to environmental standards and requirements. The ISM Code requires the party with operational control of a vessel to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policiespolicy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies. We rely upon the safety management system that has beenwe and our technical management team have developed for our vessels for compliance with the ISM Code. The failure of a vessel owner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports.
The ISM Code requires that vessel operators also obtain a safety management certificate for each vessel they operate. This certificate evidences compliance by a vessel’s management with codethe ISM Code requirements for a safety management system. No vessel can obtain a safety management certificate unless its manager has been awarded a document of compliance, issued by each flag state, under the ISM Code. Our technical managersWe have obtained applicable documents of compliance for itsour offices and safety management certificates for all of our vessels for which the certificates are required by the ISM Code. These documentsIMO. The document of compliance and safety management certificates are renewed as required.
Noncompliance
Regulation II-1/3-10 of the SOLAS Convention governs ship construction and stipulates that ships over 150 meters in length must have adequate strength, integrity and stability to minimize risk of loss or pollution. Goal-based standards amendments in SOLAS regulation II-1/3-10 entered into force in 2012, with July 1, 2016 set for application to new oil tankers and bulk carriers. The SOLAS Convention regulation II-1/3-10 on goal-based ship construction standards for bulk carriers and oil tankers, which entered into force on January 1, 2012, requires that all oil tankers and bulk carriers of 150 meters in length and above, for which the ISM Codebuilding contract is placed on or after July 1, 2016, satisfy applicable structural requirements conforming to the functional requirements of the International Goal-based Ship Construction Standards for Bulk Carriers and other IMO regulations may subjectOil Tankers (“GBS Standards”).
Amendments to the ship-owner or bareboat chartererSOLAS Convention Chapter VII apply to increased liability, may lead to decreases in, or invalidation of, available insurance coverage for affected vessels transporting dangerous goods and may result in the denial of access to, or detention in, some ports. The USCG and EU authorities have indicated thatrequire those vessels notbe in compliance with the ISMInternational Maritime Dangerous Goods Code by(“IMDG Code”). Effective January 1, 2018, the applicable deadlines will be prohibitedIMDG Code includes (1) updates to the provisions for radioactive material, reflecting the latest provisions from trading in United States and EU ports, as the case may be.
Pollution Control and Liability Requirements
Many countries have ratified and follow the liability plan adopted by the IMO and set out in the International ConventionAtomic Energy Agency, (2) new marking, packing and classification requirements for dangerous goods and (3) new mandatory training requirements. Amendments which took effect on Civil LiabilityJanuary 1, 2020 also reflect the latest material from the UN Recommendations on the Transport of Dangerous Goods, including (1) new provisions regarding IMO type 9 tanks, (2) new abbreviations for Oil Pollution Damagesegregation groups, and (3) special provisions for carriage of 1969, as from time to time amended (“CLC”), although the United States is notlithium batteries and of vehicles powered by flammable liquid or gas. The upcoming amendments, which will come into force on June 1, 2022, include (1) addition of a party. Under the CLC and depending on whether the country in which the damage results is a partydefinition of dosage rate, (2) additions to the 1992 Protocollist of high consequence dangerous goods, (3) new provisions for medical/clinical waste, (4) addition of various ISO standards for gas cylinders, (5) a new handling code, and (6) changes to the CLC, a vessel’s registered owner is strictly liable, subject to certain affirmative defenses, for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil. The limits on liability outlined in the 1992 Protocol use the International Monetary Fund currency unit of Special Drawing Rights (“SDR”). The limits on liability have since been increased.stowage and segregation provisions
The right to limit liability is forfeited under the CLC where the spill is caused by the ship owner’s personal fault and under the 1992 Protocol where the spill is caused by the ship owner’s personal act or omission or by intentional or reckless conduct. Vessels trading in the territory of a state that is a party to these conventions must provide evidence of insurance covering the liability of the owner. In jurisdictions where the CLC has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or in a manner similar to that of the CLC. We believe that our protection and indemnity insurance will cover the liability under the plan adopted by the IMO.
The IMO has also adopted the International Convention on Civil LiabilityStandards of Training, Certification and Watchkeeping for Bunker Oil Pollution DamageSeafarers (“STCW”). As of 2001 (the “Bunker Convention”),February 2017, all seafarers are required to impose strict liability on ship ownersmeet the STCW standards and be in possession of a valid STCW certificate. Flag states that have ratified SOLAS and STCW generally employ the classification societies, which have incorporated SOLAS and STCW requirements into their class rules, to undertake surveys to confirm compliance.
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Furthermore, recent action by the IMO’s Maritime Safety Committee and United States agencies indicates that cybersecurity regulations for pollution damagethe maritime industry are likely to be further developed in jurisdictional waters of ratifying states caused by discharges of bunker fuel. The Bunker Convention, which became effective on November 21, 2008, requires registered owners of ships over 1,000 gross tons to maintain insurance, or other financial security, for pollution damagethe near future in an amount equalattempt to combat cybersecurity threats. By IMO resolution, administrations are encouraged to ensure that cyber-risk management systems are incorporated by ship-owners and managers by their first annual Document of Compliance audit after January 1, 2021. In February 2021, the limits of liability under the applicable national or international limitation regime (but not exceeding the amount calculated in accordance with the ConventionU.S. Coast Guard published guidance on Limitation of Liability for Maritime Claims of 1976, as amended). With
respect to non-ratifying states, liability for spills or releases of oil carried as fueladdressing cyber risks in a ship’s bunkers typicallyvessel’s safety management system. This might cause companies to create additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. The impact of future regulations is determined by the national or other domestic laws in the jurisdiction where the events or damages occur.hard to predict at this time.
In 1996, the IMO International Convention on
Pollution Control and Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea (“HNS”), was adopted and subsequently amended by the 2010 Protocol. If it enters into force, the HNS Convention will provide for compensation to be paid out to victims of accidents involving HNS, such as chemicals. The HNS Convention introduces strict liability for the ship-owner and covers pollution damage as well as the risks of fire and explosion, including loss of life or personal injury and damage to property. HNS are defined by reference to lists of substances included in various IMO Conventions and Codes and include oils, other liquid substances defined as noxious or dangerous, liquefied gases, liquid substances with a flashpoint not exceeding 60°C, dangerous, hazardous and harmful materials and substances carried in packaged form, solid bulk materials defined as possessing chemical hazards, and certain residues left by the previous carriage of HNS. The HNS Convention introduces strict liability for the ship-owner and a system of compulsory insurance and insurance certificates. However, the HNS Convention lacked the ratifications required to come into force. In April 2010, a consensus at the Diplomatic Conference convened by the IMO adopted the 2010 Protocol. Under the 2010 Protocol, if damage is caused by bulk HNS, compensation would first be sought from the ship-owner. The 2010 Protocol has not yet entered into effect. It will enter into force 18 months after the date on which certain consent and administrative requirements are satisfied. While a majority of the necessary number of states has indicated their consent to be bound by the 2010 Protocol, the required minimum has not been met.Requirements
The IMO has negotiated international conventions that impose liability for pollution in international waters and the territorial waters of the signatories to such conventions. For example, the IMO adopted an International Convention for the Control and Management of Ships’ Ballast Water and Sediments (the “BWM Convention”) in 2004. The BWM Convention entered into force on September 9,8, 2017. The BWM Convention requires ships to manage their ballast water to remove, render harmless or avoid the uptake or discharge of new or invasive aquatic organisms and pathogens within ballast water and sediments. The BWM Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits, and require all ships to carry a ballast water record book and an international ballast water management certificate.
On December 4, 2013, the IMO Assembly passed a resolution revising the application dates of the BWM Convention so that the dates are triggered by the entry into force date and not the dates originally in the BWM Convention. This, in effect, makes all vessels delivered before the entry into force date “existing vessels” and allows for the installation of ballast water management systems on such vessels at the first International Oil Pollution Prevention (“IOPP”) renewal survey following entry into force of the convention. The Marine Environment Protection Committee (“MEPC”)MEPC adopted updated guidelines for approval of ballast water management systems (G8) at MEPC 70. At MEPC 71, the schedule regarding the BWM Convention’s implementation dates was also discussed and amendments were introduced to extend the date existing vessels are subject to certain ballast water standards. Those changes were adopted at MEPC 72. Ships over 400 gross tons generally must comply with a “D-1 standard,” requiring the exchange of ballast water only in open seas and away from coastal waters. The “D-2 standard” specifies the maximum amount of viable organisms allowed to be discharged, and compliance dates vary depending on the IOPP renewal dates. Depending on the date of the IOPP renewal survey, existing vessels must comply with the D2D-2 standard on or after September 8, 2019. For most ships, compliance with the D2D-2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. Ballast water management systems, which include systems that make use of chemical, biocides, organisms or biological mechanisms, or which alter the chemical or physical characteristics of the ballast water, must be approved in accordance with IMO Guidelines (Regulation D-3). As of October 13, 2019, MEPC 72’s amendments to the BWM Convention took effect making the Code for Approval of Ballast Water Management Systems, which governs assessment of ballast water management systems, mandatory rather than permissive, and formalized an implementation schedule for the D-2 standard. Under these amendments, all ships must meet the D-2 standard by September 8, 2024. Costs of compliance with these regulations may be substantial. Additionally, in November 2020, MEPC 75 adopted amendments to the BWM Convention which would require a commissioning test of the ballast water management system for the initial survey or when performing an additional survey for retrofits. This analysis will not apply to ships that already have an installed BWM system certified under the BWM Convention. These amendments are expected to enter into force on June 1, 2022.
Once mid-ocean ballast water exchange or ballast water treatment requirements become mandatory under the BWM Convention, the cost of compliance could increase for ocean carriers and may be material.have a material effect on our operations. However, many countries already regulate the discharge of the ballast water carried by vessels from country to country to prevent the introduction of invasive and harmful species via such discharges. The United States,U.S., for example, requires vessels entering its waters from another country to conduct mid-ocean ballast exchange, or undertake some alternativealternate measure, and to comply with certain reporting requirements.
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The costsIMO adopted the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended by different Protocols in 1976, 1984 and 1992, and amended in 2000 (“the CLC”). Under the CLC and depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel’s registered owner may be strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain exceptions. The 1992 Protocol changed certain limits on liability expressed using the International Monetary Fund currency unit, the Special Drawing Rights. The limits on liability have since been amended so that the compensation limits on liability were raised. The right to limit liability is forfeited under the CLC where the spill is caused by the shipowner’s actual fault and under the 1992 Protocol where the spill is caused by the shipowner’s intentional or reckless act or omission where the shipowner knew pollution damage would probably result. The CLC requires ships over 2,000 tons covered by it to maintain insurance covering the liability of the owner in a sum equivalent to an owner’s liability for a single incident. We have protection and indemnity insurance for environmental incidents. P&I Clubs in the International Group issue the required Bunkers Convention “Blue Cards” to enable signatory states to issue certificates. All of our vessels are in possession of a CLC State issued certificate attesting that the required insurance coverage is in force.
The IMO also adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage (the “Bunker Convention”) to impose strict liability on ship owners (including the registered owner, bareboat charterer, manager or operator) for pollution damage in jurisdictional waters of ratifying states caused by discharges of bunker fuel. The Bunker Convention requires registered owners of ships over 1,000 gross tons to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable national or international limitation regime (but not exceeding the amount calculated in accordance with the LLMC). With respect to non-ratifying states, liability for spills or releases of oil carried as fuel in ship’s bunkers typically is determined by the national or other domestic laws in the jurisdiction where the events or damages occur.
Ships are required to maintain a certificate attesting that they maintain adequate insurance to cover an incident. In jurisdictions, such as the United States where the CLC or the Bunker Convention has not been adopted, various legislative regulatory regimes or common law govern, and liability is imposed either on the basis of fault or on a strict-liability basis.
Anti-Fouling Requirements
In 2001, the IMO adopted the International Convention on the Control of Harmful Anti-fouling Systems on Ships, or the “Anti-fouling Convention.” The Anti-fouling Convention, which entered into force on September 17, 2008, prohibits the use of organotin compound coatings to prevent the attachment of mollusks and other sea life to the hulls of vessels. Vessels of over 400 gross tons engaged in international voyages will also be required to undergo an initial survey before the vessel is put into service or before an International Anti-fouling System Certificate is issued for the first time; and subsequent surveys when the anti-fouling systems are altered or replaced. In November 2020, MEPC 75 approved draft amendments to the Anti-fouling Convention to prohibit anti-fouling systems containing cybutryne, which would apply to ships from January 1, 2023, or, for ships already bearing such an anti-fouling system, at the next scheduled renewal of the system after that date, but no later than 60 months following the last application to the ship of such a system. In addition, the IAFS Certificate has been updated to address compliance couldoptions for anti-fouling systems to address cybutryne. Ships which are affected by this ban on cybutryne must receive an updated IAFS Certificate no later than two years after the entry into force of these amendments. Ships which are not affected (i.e. with anti-fouling systems which do not contain cybutryne) must receive an updated IAFS Certificate at the next Anti-fouling application to the vessel. These amendments were formally adopted at MEPC 76 in June 2021.
Compliance Enforcement
Noncompliance with the ISM Code or other IMO regulations may subject the ship owner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports. The USCG and European Union authorities have indicated that vessels not in compliance with the ISM Code by applicable deadlines will be material,prohibited from trading in U.S. and itEuropean Union ports, respectively. As of the date of this Annual Report, each of our vessels is difficult to predictISM Code certified. However, there can be no assurance that such certificates will be maintained in the overall impact of such requirements on our operations.
future. The IMO continues to review and introduce new regulations.
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It is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any, such regulations might have on our operations.
United States Regulations
The U.S. Oil Pollution Act of 1990 and the Comprehensive Environmental Response, Compensation and Liability Act
The United StatesU.S. Oil Pollution Act of 1990 (“OPA”) established an extensive regulatory and liability regime for the protection and clean-upcleanup of the environment from oil spills. OPA affects all owners“owners and operatorsoperators” whose vessels trade inor operate within the United States,U.S., its territories and possessions or whose vessels operate in United StatesU.S. waters, which includes the United StatesU.S.’s territorial sea and its 200 nautical mile exclusive economic zone.zone around the U.S. The United StatesU.S. has also enacted the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), which applies to the discharge of hazardous substances other than oil, except in limited circumstances, whether on land or at sea. OPA and CERCLA both define “owner and operator” in the case of a vessel as any person owning, operating or chartering by demise, the vessel. Both OPA and CERCLA impact our operations.
Under OPA, vessel owners operators and bareboat charterersoperators are “responsible parties” and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels.vessels, including bunkers (fuel). OPA defines these other damages broadly to include:
| (1) | injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs; |
| (2) | injury to, or economic losses resulting from, the destruction of real and personal property; |
| (3) | loss of subsistence use of natural resources that are injured, destroyed or lost; |
| (4) | net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal property, or natural resources; |
| (5) | lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural resources; and |
| (6) | net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources. |
OPA contains statutory caps on liability and damages, whichdamages; such caps do not apply to direct clean-upcleanup costs. Effective December 21, 2015,November 12, 2019, the USCG adjusted the limits of OPA liability for a tank vessel, other than a single-hull tank vessel, over 3,000 gross tons liability to the greater of $2,200$2,300 per gross ton or $18,796,800 for any double-hull tanker that is over 3,000 gross tons$19,943,400 (subject to possibleperiodic adjustment for inflation), and our fleet is entirely composed of vessels of this size class.. These limits of liability do not apply if an incident was proximately caused by the violation of an applicable U.S. federal safety, construction or operating regulation by a responsible party (or its agent, employee or a person acting pursuant to a contractual relationship), or a responsible party’s gross negligence or willful misconduct. The limitation on liability similarly does not apply if the responsible party fails or refuses to (i) report the incident as required by law where the responsibilityresponsible party knows or has reason to know of the incident; (ii) reasonably cooperate and assist as requested in connection with oil removal activities; or (iii) without sufficient cause, comply with an order issued under the Federal Water Pollution Act (Section 311 (c), (e)) or the Intervention on the High Seas Act.
CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as well as damages for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing the same, and health assessments or health effects studies. There is no liability if the discharge of a hazardous substance results solely from the act or omission of a third party, an act of God or an act of war. Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $500,000 for any other vessel.
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These limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible person fails or refused to provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA.
OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law.
OPA and CERCLA alsoboth require owners and operators of vessels to establish and maintain with the USCG evidence of financial responsibility sufficient to meet the limitmaximum amount of their potential liability under OPA and CERCLA.to which the particular responsible person may be subject. Vessel owners and operators may satisfy their financial responsibility obligations by providing a proof of insurance, a surety bond, self-insurancequalification as a self-insurer or a guaranty.guarantee. We comply and plan to comply going forward with the USCG’s financial responsibility regulations by providing applicable certificates of financial responsibility.
The 2010 Deepwater Horizon oil spill in the Gulf of Mexico resulted in additional regulatory initiatives or statutes, including higher liability caps under OPA, new regulations regarding offshore oil and gas drilling and a certificatepilot inspection program for offshore facilities. However, several of responsibility evidencing sufficient self-insurance.these initiatives and regulations have been or may be revised. For example, the U.S. Bureau of Safety and Environmental Enforcement’s (“BSEE”) revised Production Safety Systems Rule (“PSSR”), effective December 27, 2018, modified and relaxed certain environmental and safety protections under the 2016 PSSR. Additionally, the BSEE amended the Well Control Rule, effective July 15, 2019 which rolled back certain reforms regarding the safety of drilling operations, and former U.S. President Trump had proposed leasing new sections of U.S. waters to oil and gas companies for offshore drilling. In January 2021, current U.S. President Biden signed an executive order temporarily blocking new leases for oil and gas drilling in federal waters. However, attorney generals from 13 states filed suit in March 2021 to lift the executive order, and in June 2021, a federal judge in Louisiana granted a preliminary injunction against the Biden administration, stating that the power to pause offshore oil and gas leases “lies solely with Congress.” With these rapid changes, compliance with any new requirements of OPA and future legislation or regulations applicable to the operation of our vessels could impact the cost of our operations and adversely affect our business.
OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, provided they accept, at a minimum, the levels of liability established under OPA. SomeOPA and some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters; however, in some cases, states which have enacted this type of legislation have not yet issued implementing regulations defining tanker owners’ responsibilities under these laws.
The 2010 Deepwater Horizon oil spill in the Gulf of Mexico may also result in additional regulatory initiatives or statutes, including the raising of liability caps under OPA. However, the status of several of these initiatives and regulations is currently in flux. For example, the U.S. Bureau of Safety and Environmental
Enforcement (“BSEE”) announced a new Well Control Rule in April 2016, but pursuant to orders by the U.S. president in early 2017, the BSEE announced in August 2017 that this rule would be revised. In January 2018, the U.S. president proposed leasing new sections of U.S. waters to oil and gas companies for offshore drilling, vastly expanding the U.S. waters that are available for such activity over the next five years. The effects of the proposal are currently unknown. Compliance with any new requirements of OPA may substantially impact our cost of operations or require us to incur additional expenses to comply with any new regulatory initiatives or statutes. Additional legislation or regulations applicable to the operation of our vessels that may be implemented in the future could adversely affect our business.
We have and expect to maintain pollution liability coverage insurance in the amount of $1 billion per incident for each of our vessels. If the damages from a catastrophic spill were to exceed our insurance coverage or if our insurance providers were to not respond, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.
The United States Clean Water Act (“CWA”) prohibits the discharge of oil or hazardous substances in United States navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal and remediation and damages and complements the remedies available under OPA and CERCLA. In addition, manyspills. Many U.S. states that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law. Moreover, some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters, although in some cases, states which have enacted this type of legislation have not yet issued implementing regulations defining vessel owners’ responsibilities under these laws. We intend to comply with all applicable state regulations in the ports where our vessels call.
We currently maintain pollution liability coverage insurance in the amount of $1 billion per incident for each of our vessels. If the damages from a catastrophic spill were to exceed our insurance coverage, it could have an adverse effect on our business and results of operation.
Other United States Environmental Initiatives
The U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990) (“CAA”) requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. The CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards in each state. Although state-specific, SIPs may include regulations concerning emissions resulting from vessel loading and unloading operations by requiring the installation of vapor control equipment. Our vessels operating in such regulated port areas with restricted cargoes are equipped with vapor return lines that satisfy these existing requirements.
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The U.S. Clean Water Act (“CWA”) prohibits the discharge of oil, hazardous substances and ballast water in U.S. navigable waters unless authorized by a duly issued permit or exemption and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA. In 2015, the EPA expanded the definition of “waters of the United States” (“WOTUS”), thereby expanding federal law.authority under the CWA. Following litigation on the revised WOTUS rule, in December 2018, the EPA and Department of the Army proposed a revised, limited definition of WOTUS. In 2019 and 2020, the agencies repealed the prior WOTUS Rule and promulgated the Navigable Waters Protection Rule (“NWPR”) which significantly reduced the scope and oversight of EPA and the Department of the Army in traditionally non-navigable waterways. On August 30, 2021, a federal district court in Arizona vacated the NWPR and directed the agencies to replace the rule. On December 7, 2021, the EPA and the Department of the Army proposed a rule that would reinstate the pre-2015 definition, which is subject to public comment until February 7, 2022.
The EPA and the USCG have also enacted rules relating to ballast water discharge, compliance with which requires the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial cost, costs, and/or otherwise restrict our vessels from entering United States waters.
U.S. Waters. The EPA regulates the discharge of ballast and bilge water and other substances in United States waters under the CWA. The EPA regulations require vessels 79 feet in length or longer (other than commercial fishing vessels and recreational vessels) to comply with a permit that regulateswill regulate these ballast water discharges and other discharges incidental to the normal operation of certain vessels within United States waters pursuant to the Vessel Incidental Discharge Act (“VIDA”), which was signed into law on December 4, 2018 and replaced the 2013 Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels (“VGP”). For a new vessel delivered to an owner or operator after September 19, 2009 to be covered by the VGP, the owner must submit a Notice of Intent at least 30 days before the vessel operates in United States waters. In March 2013 the EPA re-issued the VGP for another five years, and the new VGP took effect in December 2013. The VGP focuses on authorizing program (which authorizes discharges incidental to operations of commercial vessels and the 2013 VGP contains numeric ballast water discharge limits for most vessels to reduce the risk of invasive species in United StatesU.S. waters, more stringent requirements for exhaust gas scrubbers, and requirements for the use of environmentally acceptable lubricants.
USCGlubricants) and current Coast Guard ballast water management regulations adopted and proposed for adoption under the U.S. National Invasive Species Act (“NISA”) also impose mandatory, such as mid-ocean ballast water management practicesexchange programs and installation of approved USCG technology for all vessels equipped with ballast water tanks bound for U.S. ports or entering U.S. waters. VIDA establishes a new framework for the regulation of vessel incidental discharges under the U.S. Clean Water Act (“CWA”), requires the EPA to develop performance standards for those discharges within two years of enactment, and requires the U.S. Coast Guard to develop implementation, compliance and enforcement regulations within two years of EPA’s promulgation of standards. Under VIDA, all provisions of the 2013 VGP and USCG regulations regarding ballast water treatment remain in force and effect until the EPA and U.S. Coast Guard regulations are finalized. Non-military, non-recreational vessels greater than 79 feet in length must continue to comply with the requirements of the VGP, including submission of a Notice of Intent (“NOI”) or operating in United States waters, whichretention of a PARI form and submission of annual reports. We have submitted NOIs for our vessels where required. Compliance with the EPA, U.S. Coast Guard and state regulations could require the installation of ballast water treatment equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangementsprocedures at potentially substantial cost or procedures, ormay otherwise restrict our vessels from entering United StatesU.S. waters. The USCG must approve any technology before it is placed on a vessel, but has not yet approved the technology necessary for vessels to meet the foregoing standards.
However, as of January 1, 2014, vessels became technically subject to the phasing-in of these standards. As a result, the USCG has provided waivers to vessels which cannot install the as-yet unapproved technology. The EPA, on the other hand, has taken a different approach to enforcing ballast discharge standards under the VGP. In December 2013, the EPA issued an enforcement response policy in connection with the new VGP in which the EPA indicated that it would take into account the reasons why vessels do not have the requisite technology installed, but will not grant any waivers.
It should also be noted that in October 2015, the U.S. Second Circuit Court of Appeals issued a ruling that directed the EPA to redraft the sections of the 2013 VGP that address ballast water. However, the Second Circuit stated that 2013 VGP will remains in effect until the EPA issues a new VGP.
Compliance with the EPA and the USCG regulations could require the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial cost, and/or otherwise restrict our vessels from entering United States waters.
European Union Regulations
In October 2009, the EUEuropean Union amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water.
Aiding and abetting the discharge of a polluting substance may also lead to criminal penalties. Member States were requiredThe directive applies to enact lawsall types of vessels, irrespective of their flag, but certain exceptions apply to warships or regulations to comply withwhere human safety or that of the directive by the end of 2010.ship is in danger. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims. Regulation (EU) 2015/757 of the European Parliament and of the Council of 29 April 2015 (amending EU Directive 2009/16/EC) governs the monitoring, reporting and verification of carbon dioxide emissions from maritime transport, and, subject to some exclusions, requires companies with ships over 5,000 gross tonnage to monitor and report carbon dioxide emissions annually, which may cause us to incur additional expenses.
From January 2011, new EU legislation came into effect which bans from EU member states’ waters manifestly sub-standard vessels (vessels which have been detained twice
The European Union has adopted several regulations and directives requiring, among other things, more frequent inspections of high-risk ships, as determined by EU port authorities)type, age and created obligations on EU member port states to inspect vessels using EU member ports annually,flag as well as increasing surveillancethe number of vessels posingtimes the ship has been detained. The European Union also adopted and extended a high risk to maritime safety orban on substandard ships and enacted a minimum ban period and a definitive ban for repeated offenses. The regulation also provided the marine environment. The legislation also gave the EU port authorities great powersEuropean Union with greater authority and control over classification societies, includingby imposing more requirements on classification societies and providing for fines or penalty payments for organizations that failed to comply.
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Furthermore, the abilityEU has implemented regulations requiring vessels to request a suspension or revocationuse reduced sulfur content fuel for their main and auxiliary engines. The EU Directive 2005/33/EC (amending Directive 1999/32/EC) introduced requirements parallel to those in Annex VI relating to the sulfur content of any negligent societies continuing to have a right to retain their classification authority.marine fuels. In addition, new legislation also came into effect in January 2011 which introducedthe EU imposed a ranking system displaying shipping companies which had low safety records. These records would be published on a public website updated daily. This ranking would be based upon the results of technical inspections carried out vessels and those shipping companies with positive safety records would be rewarded0.1% maximum sulfur requirement for fuel used by being subjected to fewer inspections and in turn those shipping companies with safety or technical failings or shortcomings would be subjected to more frequent inspections.
The EU has adopted new low sulphur fuel legislation which came into effect from January 2015. This requires vessels to only burn fuel with a sulphur content which does not exceed 0.1% while they areships at berth in the territorial watersBaltic, the North Sea and the English Channel (the so called “SOx-Emission Control Area”). As of January 2020, EU member states must also ensure that ships in all EU waters, except the SOx-Emission Control Area, use fuels with a 0.5% maximum sulfur content.
On September 15, 2020, the European Parliament voted to include greenhouse gas emissions from the maritime sector in the European Union’s carbon market. On July 14, 2021, the European Parliament formally proposed its plan, which would involve gradually including the maritime sector from 2023 and phasing the sector in over a three-year period. This will require shipowners to buy permits to cover these emissions. Contingent on negotiations and a formal approval vote, these proposed regulations may not enter into force for another year or EU exclusive economic zones, pollution control zones, or Sulphur Oxide Emissions Control Areas (“SOx Emissions Control Areas”). two.
International Labor Organization
The IMO designated ECAs in other jurisdictions, such asInternational Labor Organization (the “ILO”) is a specialized agency of the United States, and similar regulations also came into effect in January 2015, as discussed above under “International Maritime Organization — Air Emissions.”
Recently, the EUUN that has adopted regulationsthe Maritime Labor Convention 2006 (“MLC 2006”). A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance is required to ensure compliance with the MLC 2006 for all ships that are 500 gross tonnage or over and are either engaged in relation to recyclinginternational voyages or flying the flag of a Member and management of hazardous materials onoperating from a port, or between ports, in another country. We believe that all ships. Parts of such regulations concerning carrying statements of compliance and an inventory of hazardous materials, became effective starting on December 31, 2015 and EU newbuilds must be compliant by December 31, 2018 (certain provisions also come into effect between December 31, 2014 and December 31, 2020 respectively). These recycling regulations apply to any vessels which are flagged under an EU member. None of our vessels are flagged under an EU member state. However, even though a vessel is flagged in a country outside of the EU, the vessel will still havesubstantial compliance with and are certified to keep a record on-board an inventory of any hazardous materials on vessels and be able to submit to the relevant authorities a copy of a statement of compliance verifying this inventory.meet MLC 2006.
Greenhouse Gas Regulation
Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions with targets extended through 2020. International negotiations are continuing with respect to a successor to the Kyoto Protocol, and restrictions on shipping emissions may be included in any new treaty. In December 2009, more than 27 nations, including the U.S. and China, signed the Copenhagen Accord, which includes a non-binding commitment to reduce greenhouse gas emissions. The 2015 United Nations Climate Change Conference in Paris resulted in the Paris Agreement, which entered into force
on November 4, 2016 and does not directly limit greenhouse gas emissions from ships. OnThe U.S. initially entered into the agreement, but on June 1, 2017, theformer U.S. presidentPresident Trump announced that the U.S. is withdrawingUnited States intends to withdraw from the Paris Agreement. The timingAgreement and effect of such action has yetthe withdrawal became effective on November 4, 2020. On January 20, 2021, U.S. President Biden signed an executive order to be determined.rejoin the Paris Agreement, which the U.S. officially rejoined on February 19, 2021.
At MEPC 70 and MEPC 71, a draft outline of the structure of the initial strategy for developing a comprehensive IMO strategy on reduction of greenhouse gas emissions from ships was approved. In accordance with this roadmap, in April 2018, nations at the MEPC 72 adopted an initial IMO strategy for reduction of greenhouse gas emissions is expected to be adopted at MEPC 72 in April 2018. The IMO may implement market-based mechanisms to reduce greenhouse gas emissions from ships. The initial strategy identifies “levels of ambition” to reducing greenhouse gas emissions, including (1) decreasing the carbon intensity from ships through implementation of further phases of the EEDI for new ships; (2) reducing carbon dioxide emissions per transport work, as an average across international shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008 emission levels; and (3) reducing the upcomingtotal annual greenhouse emissions by at least 50% by 2050 compared to 2008 while pursuing efforts towards phasing them out entirely. The initial strategy notes that technological innovation, alternative fuels and/or energy sources for international shipping will be integral to achieve the overall ambition. These regulations could cause us to incur additional substantial expenses. At MEPC session.77, the Member States agreed to initiate the revision of the Initial IMO Strategy on Reduction of GHG emissions from ships, recognizing the need to strengthen the ambition during the revision process. A final draft Revised IMO GHG Strategy would be considered by MEPC 80 (scheduled to meet in spring 2023), with a view to adoption.
The EU made a unilateral commitment to reduce overall greenhouse gas emissions from its member states from 20% of 1990 levels by 2020. The EU also committed to reduce its emissions by 20% under the Kyoto Protocol’s second period from 2013 to 2020.
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Starting in January 2018, large ships over 5,000 gross tonnage calling at EU ports are required to collect and publish data on carbon dioxide emissions and other information.As previously discussed, regulations relating to the inclusion of greenhouse gas emissions from the maritime sector in the European Union’s carbon market are also forthcoming.
In the United States, the EPA issued a finding that greenhouse gases endanger the public health and safety, adopted regulations to limit greenhouse gas emissions from certain mobile sources and proposed regulations to limit greenhouse gas emissions from large stationary sources. However, in March 2017, theformer U.S. presidentPresident Trump signed an executive order to review and possibly eliminate the EPA’s plan to cut greenhouse gas emissions. The outcome of this order is not yet known. Althoughemissions, and in August 2019 the mobile sourceAdministration announced plans to weaken regulations for methane emissions regulations do not applyand on August 13, 2020, the EPA released rules rolling back standards to greenhouse gascontrol methane and volatile organic compound emissions from vessels,new oil and gas facilities. However, U.S. President Biden recently directed the EPA to publish a proposed rule suspending, revising, or individual U.S. statesrescinding certain of these rules. On November 2, 2021, the EPA issued a proposed rule under the CAA designed to reduce methane emissions from oil and gas sources. The proposed rule would reduce 41 million tons of methane emissions between 2023 and 2035 and cut methane emissions in the oil and gas sector by approximately 74 percent compared to emissions from this sector in 2005. EPA also anticipates issuing a supplemental proposed rule in 2022 to include additional methane reduction measures following public input and anticipates issuing a final rule by the end of 2022. If these new regulations are finalized, they could enact environmental regulations that would affect our operations. For example, California has introduced a cap-and-trade program for greenhouse gas emissions, aiming to reduce emissions 40% by 2030.
Any passage of climate control legislation or other regulatory initiatives by the IMO, the EU, the U.S. or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol or Paris Agreement, that restricts emissions of greenhouse gases could require us to make significant financial expenditures which we cannot predict with certainty at this time. Even in the absence of climate control legislation, our business may be indirectly affected to the extent that climate change may result in sea level changes or more intensecertain weather events.
International Labour Organization
The International Labour Organization (“ILO”) is a specialized agency of the UN with headquarters in Geneva, Switzerland. The ILO has adopted the Maritime Labour Convention 2006 (“MLC 2006”).
A Maritime Labour Certificate and a Declaration of Maritime Labour Compliance will be required to ensure compliance with the MLC 2006 for all ships above 500 gross tons in international trade. Amendments to the MLC 2006 were adopted in 2014 and more amendments were proposed in 2016. The MLC 2006 entered into force on August 20, 2013. The MLC 2006 requires us to develop new procedures to ensure full compliance with its requirements.
VesselSecurity Regulations
Since the terrorist attacks of September 11, 2001 in the United States, there have been a variety of initiatives intended to enhance vessel security. On November 25, 2002,security such as the United StatesU.S. Maritime Transportation Security Act of 2002 (the “MTSA”(“MTSA”) came into effect.. To implement certain portions of the MTSA, in July 2003, the USCG issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. The regulations also impose requirements onStates and at certain ports and facilities, some of which are regulated by the EPA.
Similarly, in December 2002, amendments to SOLAS created a new chapterChapter XI-2 of the convention dealing specifically with maritime security. The new chapter became effective in July 2004 andSOLAS Convention imposes various detailed security obligations on vessels and port authorities most of which are contained inand mandates compliance with the International Ship and Port FacilitiesFacility Security Code (the “ISPS(“the ISPS Code”).
The ISPS Code is designed to protectenhance the security of ports and international shippingships against terrorism. To trade internationally, a vessel must attain an International Ship Security Certificate (“ISSC”) from a recognized security organization approved by the vessel’s flag state. Among theShips operating without a valid certificate may be detained, expelled from, or refused entry at port until they obtain an ISSC. The various requirements, some of which are found in the SOLAS are:
Ships operating without a valid certificate may be detained at port until it obtains an ISSC, or it may be expelled from port, or refused entry at port.
The USCG regulations, intended to be alignedalign with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security measures, provided such vessels have on board a valid ISSC that attests to the vessel’s compliance with the SOLAS Convention security requirements and the ISPS Code. Future security measures could have a significant financial impact on us. We intend to comply with the various security measures addressed by MTSA, the SOLAS Convention and the ISPS Code.
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The cost of vessel security measures has also been affected by the escalation in the frequency of acts of piracy against ships, notably off the coast of West Africa and Somalia, including the Gulf of Aden and Arabian Sea area. Substantial loss of revenue and other costs may be incurred as a result of detention of a vessel or additional security measures, and the risk of uninsured losses could significantly affect our business. Costs are incurred in taking additional security measures in accordance with Best Management Practices to Deter Piracy, notably those contained in the BMP WAF and BMP5 industry standard.
Inspection by Classification Societies
Every oceangoing
The hull and machinery of every commercial vessel must be “classed”classed by a classification society.society authorized by its country of registry. The classification society certifies that thea vessel is “in-class”, signifying that the vessel has been builtsafe and maintainedseaworthy in accordance with the rules of International Association of Classification Standards and complies, as appointed, with applicable rules and regulations of the vessel’s country of registry and the international conventions of which that country is a member. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned.
The classification society also undertakes on request other surveysvessel and checks that are required by regulations and requirements of the flag state. These surveys are subject to agreements made in each individual case and/or to the regulations of the country concerned.
For maintenance of the class, regular and extraordinary surveys of hull, machinery, and any special equipment classed are required to be performed as follows:
All areas subject to survey as defined by the classification society are required to be surveyed at least once per class period, unless shorter intervals between surveys are prescribed elsewhere. The period between two subsequent surveys of each area must not exceed five years.
Vessels have their underwater parts inspected every 30 to 36 months. Depending on the vessel’s classification status and constructed notation and other factors, this inspection can often be done afloat with minimal disruption to the vessel’s commercial deployment. However, vessels are required to be drydocked, meaning physically removed from the water, for inspection and related repairs at least once every five years from delivery. If any defects are found, the classification surveyor will issue a condition of class or recommendation which must be rectified by the ship owner within prescribed time limits.
SOLAS. Most insurance underwriters make it a condition for insurance coverage and lending that a vessel be certified as “in-class”“in class” by a classification society which is a member of the International Association of Classification Societies, (“IACS”). All our vessels are certified as being “in-class” by American Bureau of Shipping and Lloyds Register. In December 2013 the IACS. The IACS has adopted new harmonized Common Structural Rules, or the Rules, which apply to oil tankers and bulk carriers to be constructedcontracted for construction on or after July 1, 2015. The Rules attempt to create a level of consistency between IACS Societies. All newof our vessels are certified as being “in class” by all the applicable Classification Societies (e.g., American Bureau of Shipping, Lloyd’s Register of Shipping, and second-hand vessels that we purchaseDNV-GL).
A vessel must undergo annual surveys, intermediate surveys, drydockings and special surveys. In lieu of a special survey, a vessel’s machinery may be certified prioron a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. Every vessel is required to their deliverybe physically drydocked by its fifth and tenth anniversary to us. Ifcoincide with its first and second special surveys, respectively, and every 30 to 36 months thereafter, for inspection of the underwater parts of the vessel. Provided the vessel is not certified onhas an in-water-survey notation, in-water-surveys can take place at the scheduled date of closing, we have no obligation2.5 to take delivery3 years & 7.5 to 8 years anniversary of the vessel.vessel in lieu of a physical drydocking.
In additionIf any vessel does not maintain its class and/or fails any annual survey, intermediate survey, drydocking or special survey, the vessel will be unable to the classification inspections, manycarry cargo between ports and will be unemployable and uninsurable which could cause us to be in violation of certain covenants in our customers regularly inspectloan agreements. Any such inability to carry cargo or be employed, or any such violation of covenants, could have a material adverse impact on our vessels as a precondition to chartering them for voyages. We believe that our well-maintained, high-quality vessels provide us with a competitive advantage in the current environmentfinancial condition and results of increasing regulation and customer emphasis on quality.operations.
Risk of Loss and Liability Insurance
General
The operation of any cargo vessel includes risks such as mechanical failure, physical damage, collision, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, piracy incidents, hostilities and labor strikes and acts of God.strikes. In addition, there is always an inherent possibility of marine disaster, including oil spills and other environmental incidents,mishaps, and the liabilities arising from owning and operating vessels in international trade. For example, OPA, which in certain circumstances imposes virtually unlimited liability upon owners,shipowners, operators and demisebareboat charterers of any vessel trading in the U.S. exclusive economic zone of the United States for certain oil pollution accidents in the United States, and other regulations havehas made liability insurance more expensive for vessel ownersshipowners and operators trading in the U.S. market and elsewhere. While we believe that our presentUnited States market. We carry insurance coverage is adequate,as customary in the shipping industry. However, not all risks can be insured, against,specific claims may be rejected, and there canwe might not be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates.
Marine
Hull and War RisksMachinery Insurance
We have in force marine and war risks insurance for all of our vessels. Our marineprocure hull and machinery insurance, protection and indemnity insurance, which includes environmental damage and pollution insurance and war risk insurance and freight, demurrage and defense insurance for our fleet. We generally do not maintain insurance against loss of hire (except for certain charters for which we consider it appropriate), which covers risks of particular average and actual or constructive total loss from collision, fire, grounding, engine breakdown and other insured named perils up to an agreed amount per vessel. Our war risks insurance covers the risks of particular average and actual or constructive total loss from confiscation, seizure, capture, vandalism, sabotage, and other war-related named perils. We have also arranged coverage for increased value for each vessel. Under this increased value coverage,business interruptions that result in the event of total loss of use of a vessel, we will be able to recover amounts in excess of those recoverable under the hull and machinery policy in order to compensate for additional costs associated with replacement of the vessel. Each vessel is covered up to at least its fair market value at the time of the insurance attachment and is subject to a fixed deductible per accident or occurrence, but excluding actual or constructive total loss.
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Protection and Indemnity Insurance
Protection and indemnity insurance is provided by mutual protection and indemnity associations, or “P&I Associations”, and covers our third-party liabilities in connection with our shipping activities. This includes third-party liability and other related expenses of injury or death of crew, passengers and other third parties, loss or damage to cargo, claims arising from collisions with other vessels, damage to other third-party property, pollution arising from oil or other substances and salvage, towing and other related costs, including wreck removal. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by protection and indemnity mutual associations, or “clubs.”
Our current protection and indemnity insurance coverage for pollution is $1.0$1 billion per vessel per incident. We are a member of aThe 13 P&I Club that is a member of the International Group of P&I Clubs (“International Group”). The P&I ClubsAssociations that comprise the International Group insure approximately 90% of the world’s commercial tonnage and have entered into a pooling agreement to reinsure each association’s liabilities.
Although The International Group’s website states that the P&I Clubs compete with each other for business, they have found it beneficial to pool their larger risks under the auspices of the International Group. This pooling is regulated by a contractual agreement which defines the risks that are to be pooled and exactly how these risks are to be shared by the participating P&I Clubs. The pool provides a mechanism for sharing all claims in excess of $10.0$10 million up to, currently, approximately $7.5$8.0 billion. WeAs a member of a P&I Association, which is a member of the International Group, we are subject to calls payable to the associations based on itsour claim record,records as well as the claim records of all other members of the individual associations and members of the shipping pool of P&I ClubsAssociations comprising the International Group.
Exchange Controls
Under Marshall Islands law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to non-resident holders of our common shares.
C. Organizational Structure
Please see Item 4.A (“Information on the Company — History and Development of the Company”) in this Annual Report for information about our organizational structure. We have 5079 wholly owned subsidiaries andsubsidiaries. In addition we have one 50%-owned joint venture entity, one 33.33%-owned joint venture entity and one 10% equity stake in another entity. A list of our subsidiaries is included as Exhibit 8.1 to this Annual Report.
D. Property, Plant and Equipment
Other than our vessels, a description of which is included in Item 4.B “Business Overview — Fleet List” of this Annual Report, and is incorporated herein by reference, we own no material property. We have entered into a lease with a third party for our office space in Cork, Ireland. The lease commenced in March 2016 and is for a period of 15 years, with an option to terminate the lease after ten years. We have entered into a lease which commenced in December 2017leases with a third party for office space at Pembroke, Bermuda. This lease is for an initial period of six months, with an option for an additional two year term. We have entered into leasesparties for our offices in Singapore and Houston, Texas with third parties which commenced on March 2018 and April 2016, respectively. These leases are for periods of two years and one year respectively, with an option for a one year further term in Singapore, and automatically for successive one year terms in Houston until terminated.Texas. Average aggregate payments under these leases are approximately $0.3$0.5 million per annum.
As at February 28, 2018,15, 2022, all of our 2825 owned vessels are subject to liensmortgages relating to our credit facilities.facilities or are subject to finance leases under which we are the lessee.
Item 4.A. Unresolved Staff Comments
None.
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Item 5. Operating and Financial Review and Prospects
The following discussion and analysis should be read in conjunction with our consolidated financial statements, accompanying notes thereto and other financial information, appearing elsewhere in this Annual Report. The consolidated financial statements as ofat and for the years ended December 31, 2017, 2016,2021, 2020 and 20152019, have been prepared in accordance with U.S. GAAP. The consolidated financial statements are presented in U.S. dollars unless otherwise indicated.
Please see Item 5 (“Operating and Financial Review and Prospects”) in our Annual Report on Form 20-F for the year ended December 31, 2020 for a discussion of our results of operations for the year ended December 31, 2019.
General
We are Ardmore Shipping Corporation, a company incorporated in the Republic of the Marshall Islands. We provide seaborne transportation of petroleum products and chemicals worldwide to oil majors, national oil companies, oil and chemical traders, and chemical companies, with our modern, fuel-efficient fleet of mid-size product and chemical tankers.
We are commercially independent as we have no blanket employment arrangements with third-party or related-party commercial managers. We market our services directly to our broad range of customers and commercial pool operators.
Our Charters
We generate revenuesrevenue by charging customers for the transportation of their petroleum or chemical products using our vessels. Historically, these services generally have been provided under the following basic types of contractual arrangements:
| Spot Charter. We arrange spot employment for our vessels in-house. We are responsible for all costs associated with operating the vessel, including vessel operating expenses and voyage expenses. |
| Time Charter. Vessels we operate, and for which we are responsible for crewing and for paying other vessel operating expenses (such as repairs and maintenance, insurance, stores, lube oils, communication expenses) and technical management fees, are chartered to customers for a fixed period of time at rates that are generally fixed, but may contain a variable component based on inflation, interest rates, or current market rates. |
| ● | Commercial Pooling Arrangements. Our vessels are pooled together with a group of |
The table below illustrates the primary distinctions among these types of charters and contracts.
| | | | | | | ||||||
| Time Charter | Commercial Pool | Spot Charter | |||||||||
Typical contract length | 1 – 5 years | Indefinite | Single voyage | |||||||||
Hire rate basis(1) | Daily | Varies (daily rate reported) | Varies | |||||||||
Voyage expenses(2) | Charterer pays | Pool pays | We pay | |||||||||
Vessel operating expenses(3) | We pay | We pay | We pay | |||||||||
Off-hire(4) | We pay | We pay | We pay |
| (1) | “Hire rate” refers to the basic payment from the charterer for the use of the vessel. |
| (2) | “Voyage expenses” are all expenses related to a particular voyage, |
| (3) | “Vessel operating expenses” are costs of operating a vessel that are incurred during a charter, including costs of crewing, repairs and maintenance, insurance, stores, lube oils, communication expenses, and technical management fees. |
| (4) | “Off-hire” refers to the time a vessel is not available for service, due primarily to scheduled and unscheduled repairs or drydocking. |
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Recent Developments
Financing
On June 25, 2021, we completed financing transactions for two vessels, Ardmore Seawolf and Ardmore Seahawk, which were refinanced with an existing lender. The net cash proceeds to us from these transactions, after prepayment of existing debt, were $15.5 million in the aggregate.
In December 2021, we issued 15,000 shares of our Series A 8.5% Cumulative Redeemable Perpetual Preferred Stock (“Series A Preferred Stock”) for a purchase price of $15.0 million from an affiliate of Maritime Partners, LLC. The purchase and sale of the shares was made pursuant to the amended purchase agreement pursuant to which, in June 2021, the purchaser acquired 25,000 shares of the preferred stock for a purchase price of $25.0 million.
Anticipated Exercise of Vessel Purchase Options
On May 30, 2017, two of our subsidiaries entered into an agreement for the sale and leaseback (under a finance lease arrangement) of the Ardmore Sealeader and Ardmore Sealifter. The finance leases are scheduled to expire in 2023 and include purchase options exercisable by us. On February 16, 2022, we gave notice to exercise the purchase options, for both the Ardmore Sealeader and Ardmore Sealifter, with the intention to purchase the vessels on May 30, 2022..
Pandemic
In response to the COVID-19 pandemic, many countries, ports and organizations, including those where Ardmore conducts a large part of its operations, have implemented measures to combat the outbreak, such as quarantines and travel restrictions. Such measures have caused severe trade disruptions. In addition, the pandemic initially resulted and may again result in a significant decline in global demand for refined oil products. As Ardmore’s business is the transportation of refined oil products on behalf of oil majors, oil traders and other customers, any significant decrease in demand for the cargo Ardmore transports has and could continue to adversely affect demand for its vessels and services. The extent to which the pandemic may impact Ardmore’s results of operations and financial condition, including possible impairments, will depend on future developments, which are highly uncertain and cannot be predicted, including, among others, new information which may emerge concerning the virus and of its variants and the level of the effectiveness and administration of vaccines and other actions to contain or treat its impact. Accordingly, an estimate of the impact of the COVID-19 pandemic on Ardmore cannot be made at this time.
A. Operating Results
Important Financial and Operational Terms and Concepts
We use a variety of financial and operational terms and concepts. These include the following:
Vessel Revenues. Vessel revenues primarily include revenues
Revenue. Revenue is generated from spot charter arrangements, time charters, spot charterscharter arrangements and commercial poolingpool arrangements. Vessel revenues areRevenue is affected by hire rates and the number of days a vessel operates. Vessel revenues are
Revenue is also affected by the mix of business among vessels onspot charter arrangements, time charter spot charterarrangements and vessels in pools. Revenuespool arrangements. Revenue from vessels in poolspool arrangements or employed in the spot market are more volatile, as they are typically tied to prevailing market rates.
Voyage Expenses. Voyage expenses are all expenses related to a particular voyage, including any bunker fuel expenses, port fees, cargo loadingwhich include, among other things, bunkers and unloading expenses, port/canal tolls and agency fees.costs. These expenses are subtracted from shipping revenuesrevenue to calculate TCE rates (as defined below).
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Vessel Operating Expenses. We are responsible for vessel operating expenses, which include crewing,crew, repairs and maintenance and insurance stores, lube oils, communication expenses,costs, and fees paid to technical management fees.managers of our vessels. The largest components of our vessel operating expenses are generally crews and repairs and maintenance. Expenses for repairs and maintenance tend to fluctuate from period to period because most repairs and maintenance typically occur during periodic drydockings. We expect these expenses to increase as our fleet matures and to the extent that it expands.
Drydocking. We must periodically drydock each of our vessels for inspection, and any modifications to comply with industry certification or governmental requirements. Generally, each vessel is drydocked every 30 to 60 months. The capitalized costsdeferred expenditures of drydockings for a given vessel are amortized on a straight linestraight-line basis to the next scheduled drydocking of the vessel.
Depreciation. Depreciation expense typically consists of charges related to the depreciation of the historical cost of our fleet (less an estimated residual value) over the estimated useful lives of the vessels and charges relating to the depreciation of upgrades to vessels, which are depreciated over the shorter of the vessel’s remaining useful life or the life of the renewal or upgrade. We depreciate our vessels over an estimated useful life of 25 years from the vessel’s initial delivery from the shipyard, on a straight linestraight-line basis to their residual scrap value. The rate we use to calculate the residual scrap value is $300 per lightweight ton.
Amortization of Deferred Drydock Expenditure.Expenditures. Amortization of deferred drydock expenditureexpenditures relates to the amortization of drydocking expenditures over the estimated number of yearsperiod to the next scheduled drydocking.drydocking on a straight line basis.
Time Charter Equivalent (“TCE”) Rates. TCE rates are a standard industry measure of the average daily revenue performance of a vessel. The Rate. TCE rate, isa non-GAAP measure, represents net revenue (revenue less voyage expenses) divided by revenue days. We principally use net revenue, a non-GAAP financial measure, because it provides more meaningful information to us about the gross charter rate or gross pool rate, as applicable, perdeployment of our vessels and their performance than revenue, day plus allowances paid by charterersthe most directly comparable financial measure under U.S. GAAP. Net revenue utilized to owners for communications, victualing and entertainment costs for crew. Revenue days are the total number of calendar days the vessels are in our possession less off-hire days generally associated with drydocking or repairs. For vessels employed on voyage charters,calculate TCE is determined on a discharge to discharge basis, which is different from how we record revenue under U.S. GAAP. Under discharge to discharge, revenue is recognized beginning from the net rate after deductingdischarge of cargo from the prior voyage to the anticipated discharge of cargo in the current voyage, and voyage expenses incurred by commercial managers.are recognized as incurred.
Revenue Days. Revenue days are the total number of calendar days our vessels were in our possession during a period, less the total number of off-hire days during the period generally associated with repairs or drydockings. Idledrydockings and idle days which are days when a vessel is available to earn revenue, yet is not employed, are included in revenue days. We use revenue days to show changes in net voyage revenues between periods.associated with repositioning of vessels held for sale.
Operating Days. Operating days are the number of days our vessels are in operation during the year. Where a vessel is under our ownership for a full year, operating days will generally equal calendar days. Days when a vessel is in drydock are included in the calculation of operating days, as we incur operating expenses while in drydock.
Net Voyage Revenues. Net voyage revenues represent revenues less voyage expenses. Because the amount of voyage expenses we incur for a particular charter depends upon the type of the charter, we use net voyage revenues to improve the comparability between periods of reported revenues that are generated by the different types of charters and contracts. We principally use net voyage revenues, a non-GAAP financial measure, because it provides more meaningful information to us about the deployment of our vessels and their performance than revenues, the most directly comparable financial measure under U.S. GAAP.
Commercial Pools.Pooling Arrangements. To increase vessel utilization and thereby revenues,revenue, we may participate in commercial pools with other ship owners of similar modern, well-maintained vessels. By operating a large number of vessels as an integrated transportation system, commercial pools offer customers greater flexibility while achieving scheduling efficiencies. Pools typically employ experienced commercial charterers and operators who have close working relationships with customers and brokers, while technical management is performed by each ship owner. Pools negotiate charters with customers primarily in the spot market. The size and scope of these pools enhance utilization rates for pool vessels by securing backhaul voyages and contracts of affreightment, which may generate higher effective TCE revenuesrevenue than otherwise might be obtainable in the spot market, while providing a higher level of service offerings to customers. We did not participate in commercial pools for the years ended December 31, 2021, 2020 and 2019.
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Factors You Should Consider When Evaluating Our Results
We face a number of risks associated with our business and industry and must overcome a variety of challenges to utilize our strengths and implement our business strategy. These risks include, among others: the highly cyclical tanker industry; partial dependence on spot charters; fluctuating charter values; changing economic, political and governmental conditions affecting our industry and business, including changes in energy prices; material changes in applicable laws and regulations; level of performance by counterparties, particularly charterers; acquisitions and dispositions; increased operating expenses; increased capital expenditures; taxes; maintaining customer relationships; maintaining sufficient liquidity; financing availability and terms; and management turnover.
Ship-owners base economic decisions regarding the deployment of their vessels upon actual and anticipated TCE rates, and industry analysts typically measure rates in terms of TCE rates. This is because under time charters the customer typically pays the voyage expenses, while under voyage charters, also known as spot market charters, the shipowner usually pays the voyage expenses. Accordingly, the discussion of revenue below focuses on TCE rates where applicable.
Recent
Fleet Growth
Our current
As at February 15, 2022, our owned fleet consists of 2825 double-hulled product and chemical tankers all of which are in operation. We acquired 1411 of our vessels as second-hand vessels, all of which seven of our vessels were upgraded to increase efficiency and improve performance.performance; we sold a total of three of such Eco-mod vessels during 2019 and one vessel in 2020 which was delivered in 2021. In 2014, 2015, 20162017, 2018, 2019, 2020 and 20172021 we paid an aggregate$0.4 million, $16.8 million ($1.6 million of $209.7which was paid as a deposit in 2017), $2.6 million, $232.5 million, $174.0$18.7 million and $1.6$2.5 million, (as a deposit, the balance of $14.8 million being payable in 2018), respectively, for vessel acquisitions, vessel equipment and newbuilding orders.
As of December 31, 2010, our operating fleet consisted of four vessels. DuringFrom 2011 2012, 2013, 2014,to 2015, and 2016, our fleet grew on a net basis by two, none, two, six, ten and20 vessels. In 2016 we acquired on a net basis three vessels respectively.
In 2017,and in January 2018 we took no deliveries, however we did pay $1.6 milliondelivery of one vessel. During 2018, the Eco-mod Ardmore Seatrader was classified as a depositheld for asale; the vessel theArdmore Sealancer, that was delivered to the buyer in January 2018.2019. In February and May 2019, we sold the Eco-mod vessels Ardmore Seamaster and Ardmore Seafarer, respectively. In August 2020, we took delivery of one Eco-mod vessel. During 2020, the Eco-mod Ardmore Seamariner was classified as held for sale; the vessel was delivered to the buyer in January 2021.
Operating Results
The following tables presenttable below presents our operating results for the years ended December 31, 20172021 and 2016.2020 and includes related disclosure about year-to-year changes.
Statement
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Consolidated Statements of Operations for the YearYears Ended December 31, 20172021 and December 31, 20162020
| | | | | ||||||||||||
| Year Ended | Variance | Variance (%) | ||||||||||||||
| INCOME STATEMENT DATA | Dec. 31, 2017 | Dec 31, 2016 | ||||||||||||||
| REVENUE | ||||||||||||||||
| Revenue | $ | 195,935,392 | 164,403,938 | 31,531,454 | 19 | % | ||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Commissions and voyage related costs | 72,737,902 | 37,121,398 | (35,616,504 | ) | (96 | )% | ||||||||||
| Vessel operating expenses | 62,890,401 | 56,399,979 | (6,490,422 | ) | (12 | )% | ||||||||||
| Depreciation | 34,271,091 | 30,091,237 | (4,179,854 | ) | (14 | )% | ||||||||||
| Amortization of deferred drydock expenditure | 2,924,031 | 2,715,109 | (208,922 | ) | (8 | )% | ||||||||||
| General and administrative expenses: | ||||||||||||||||
| Corporate | 11,979,017 | 12,055,725 | (76,708 | ) | (1 | )% | ||||||||||
| Commercial and chartering | 2,619,748 | 2,021,487 | 598,261 | 30 | % | |||||||||||
| Total operating expenses | 187,422,190 | 140,404,935 | (47,017,255 | ) | (33 | )% | ||||||||||
| Profit from operations | 8,513,202 | 23,999,003 | (15,485,801 | ) | (65 | )% | ||||||||||
| Interest expense and finance costs | (21,380,165 | ) | (17,754,118 | ) | (3,626,047 | ) | (20 | )% | ||||||||
| Interest income | 436,195 | 164,629 | 271,566 | 165 | % | |||||||||||
| Loss on disposal of vessels | — | (2,601,148 | ) | 2,601,148 | N/A | |||||||||||
| (Loss)/profit before taxes | (12,430,768 | ) | 3,808,366 | (16,239,134 | ) | (426 | )% | |||||||||
| Income tax | (59,567 | ) | (60,434 | ) | 867 | 1 | % | |||||||||
| Net (loss)/profit | $ | (12,490,335 | ) | 3,747,932 | (16,238,267 | ) | (433 | )% | ||||||||
| | | | | | | | | |
| | Year Ended December 31, |
| Variance |
| Variance (%) | |||
|
| 2021 |
| 2020 |
| |
| | |
Revenue, net | | $ | 192,484,301 | | 220,057,606 | | (27,573,305) | | (13)% |
| | | | | | | | | |
Voyage expenses | |
| (88,577,719) | | (81,253,212) | | (7,324,507) | | (9)% |
Vessel operating expenses | |
| (60,833,537) | | (62,546,733) | | 1,713,196 | | 3% |
Charter hire costs | | | (6,930,193) | | (1,367,528) | | (5,562,665) | | (407)% |
Depreciation | |
| (31,703,305) | | (32,187,324) | | 484,019 | | 2% |
Amortization of deferred drydock expenditures | |
| (5,168,526) | | (6,198,245) | | 1,029,719 | | 17% |
General and administrative expenses | |
| | | | |
| | |
Corporate | |
| (16,071,865) | | (15,122,906) | | (948,959) | | (6)% |
Commercial and chartering | |
| (3,125,574) | | (2,780,970) | | (344,604) | | (12)% |
Loss on vessel held for sale | |
| — | | (6,447,309) | | 6,447,309 | | 100% |
Unrealized gains / (losses) on derivatives | | | 276,268 | | (113,591) | | 389,859 | | 343% |
Interest expense and finance costs | |
| (16,771,198) | | (18,168,155) | | 1,396,957 | | 8% |
Interest income | |
| 55,088 | | 281,618 | | (226,530) | | (80)% |
Loss before taxes | |
| (36,366,260) | | (5,846,749) | | (30,519,511) | | (522)% |
Income tax | |
| (149,593) | | (199,446) | | 49,853 | | 25% |
Loss from equity method investments | | | (316,790) | | — | | (316,790) | | (100)% |
Net loss | | $ | (36,832,643) | | (6,046,195) | | (30,786,448) | | (509)% |
Preferred dividend | | | (1,254,058) | | — | | (1,254,058) | | (100)% |
Net loss attributable to common stockholders | | | (38,086,701) | | (6,046,195) | | (32,040,506) | | (530)% |
Revenue.
Revenue, net. Revenue, net for the year ended December 31, 20172021 was $195.9$192.5 million, an increasea decrease of $31.5$27.6 million from $164.4$220.1 million for the year ended December 31, 2016.2020.
The
Our average number of ownedoperating vessels increased to 27.026.6 for the year ended December 31, 2017,2021, from 24.125.4 for the year ended December 31, 2016, resulting in revenue2020.
We had four product tankers employed under long term time charters (i.e. greater than three months duration) as at December 31, 2021 compared with none as at December 31, 2020. Revenue days of 9,741derived from time charters were 1,560 for the year ended December 31, 2017,2021, as compared to 8,635524 for the year ended December 31, 2016.2020. The increase in revenue days for long term time-chartered vessels resulted in an increase in revenue of $12.4 million.
We had eight and ten vessels employed under time charter and pool arrangements as at December 31, 2017 and December 31, 2016, respectively. Revenue7,953 spot revenue days derived from time charter and pool arrangements were 2,987 for the year ended December 31, 2017,2021, as compared to 4,4778,525 for the year ended December 31, 2016.
The decrease in revenue days derived from time charter and pool arrangements resulted in a decrease in revenue of $23.7 million compared to the year ended December 31, 2016, while a decrease in pool earnings for the year ended December 31, 2017 resulted in a decrease in revenue of $7.5 million compared to the year ended December 31, 2016.
2020. We had 1923 and 1726 vessels employed directly in the spot market as at December 31, 20172021 and 2020, respectively. We consider employment under voyage charters, trip charters and time charters of less than three months duration as being employed in the spot market. The decrease in spot revenue days resulted in a decrease in revenue of $14.2 million, while changes in spot rates resulted in a decrease in revenue of $26.5 million. We managed four third party chemical tankers employed under spot as at December 31, 2016, respectively. For spot chartering arrangements, we had 6,754 revenue days for the year ended2021, compared with none as at December 31, 2017, as compared to 4,158 for the year ended December 31, 2016. This increase in revenue days derived from spot chartering arrangements2020 and this resulted in an increase in revenue of $58.2 million compared to the year ended December 31, 2016, while changes in spot rates resulted in an increase in revenue of $4.5 million compared to the year ended December 31, 2016.$0.7 million.
For vessels employed directly in the spot market, we typically pay all voyage expenses, and revenue is recognized on a gross freight basis, while under time chartering and pool arrangements, the charterer typically pays voyage expenses and revenue is recognized on a net basis.
Commissions and voyage related costs. Commissions and voyage related costs
Voyage Expenses. Voyage expenses were $72.7$88.6 million for the year ended December 31, 2017,2021, an increase of $35.6$7.3 million from $37.1$81.3 million for the year ended December 31, 2016. Revenue2020. Voyage expenses increased primarily due to an increase in bunker prices, resulting in an increase of $14.4 million, partially offset by a decrease in spot revenue days increased to 9,741of $7.1 million for the year ended December 31, 2017,2021, as compared to 8,635 for the year ended December 31, 2016. For spot chartering arrangements, we had 6,754 revenue days for the year ended December 31, 2017, as compared to 4,158 for the year ended December 31, 2016. This increase in revenue days derived from spot chartering arrangements resulted in an increase in commissions and voyage related expenses. For vessels employed directly in the spot market, all voyage expenses are borne by us as opposed to the charterer, while under time chartering and pool arrangements, the charterer typically pays voyage expenses.2020.
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TCE rate.Rate. The average TCE rate for our fleet was $12,709$11,216 per day for the year ended December 31, 2017,2021, a decrease of $2,076$4,139 per day from $14,785$15,355 per day for the year ended December 31, 2016.2020. The decrease in average TCE rate was the result of lower spot rates for the year ended December 31, 2021 as compared to the year ended December 31, 2020.
Vessel operating expenses.Operating Expenses. Vessel operating expenses were $62.9$60.8 million for the year ended December 31, 2017, an increase2021, a decrease of $6.5$1.7 million from $56.4$62.5 million for the year ended December 31, 2016. This increase is primarily due to an increase in the number of vessels in operation for 2017. Due to the nature of this expenditure, vessel2020. Vessel operating expenses, by their nature, are prone to fluctuations between periods. Average fleet operating costs per vesselexpenses per day, including technical management fees, were $6,298$6,426 for the year ended December 31, 2017,2021, as compared to $6,405$6,509 for the year ended December 31, 20162020.
Charter Hire Costs. Charter hire costs were $6.9 million for the year ended December 31, 2021, an increase of $5.6 million from $1.4 million for the year ended December 31, 2020. We currently have two vessels chartered-in, as compared to one vessel chartered-in as at December 31, 2020.
Depreciation. Depreciation expense for the year ended December 31, 20172021 was $34.3$31.7 million, an increasea decrease of $4.2$0.5 million from $30.1$32.2 million for the year ended December 31, 2016. The increase is due to an increase in the average number2020.
Amortization of owned vessels to 27.0 for 2017 from 24.1 for 2016.
Deferred Drydock Expenditures.Amortization of deferred drydock expenditure. Amortization of deferred drydock expenditureexpenditures for the year ended December 31, 20172021 was $2.9$5.2 million, as compared to $2.7a decrease of $1.0 million from $6.2 million for the year ended December 31, 2016. There were five drydockings in 2017 which was consistent with 2016.2020. The capitalizeddeferred costs of drydockings for a given vessel are amortized on a straight-line basis to the next scheduled drydocking of the vessel.
General and administrative expenses:Administrative Expenses: Corporate. Corporate related Corporate-related general and administrative expenses for the year ended December 31, 20172021 were $12.0$16.1 million, in line with $12.1an increase of $1.0 million from $15.1 million for the year ended December 31, 2016. Average headcount increased2020. The increase in corporate-related general and administrative expenses is primarily due to 30 forincreases in D&O insurance and staff costs during the year ended December 31, 2017 as2021, compared to 29 for the year ended December 31, 2016.2020.
General and administrative expenses:Administrative Expenses: Commercial and Chartering. Commercial and chartering related general and administrative expenses are the expenses attributable to our chartering and commercial operations departments in connection with our spot market trading activities. These commercialCommercial and chartering expenses for the year ended December 31, 20172021 were $2.6$3.1 million, compared to $2.0an increase of $0.3 million from $2.8 million for the year ended December 31, 2016. This increase reflects the expansion2020.
Interest Expense and Finance Costs. Interest expense and finance costs include loan interest, finance lease interest, and amortization of charteringdeferred finance fees. Interest expense and commercial activities in our
Singapore and Houston offices, and an increased headcount in the commercial and chartering departmentsfinance costs for the year ended December 31, 2017. Average headcount increased to 16 as compared to seven for the year ended December 31, 2016.
Interest expense and finance costs. Interest expense and finance costs (which include loan interest, capital lease interest, amortization2021 were $16.8 million, a decrease of deferred finance fees and are net of capitalized interest) for the year ended December 31, 2017 were $21.4$1.4 million as compared to $17.8from $18.2 million for the year ended December 31, 2016.2020. Cash interest expense increaseddecreased by $4.0$2.1 million to $18.3$14.2 million for 2017the year ended December 31, 2021, from $14.3$16.3 million for 2016.the year ended December 31, 2020. The increasedecrease in interest expense and finance costs wasis primarily due to an increaseda decreased average LIBOR rate during the year ended December 31, 2021, compared to the year ended December 31, 2020, as well as a changeour entering into three-year floating-to-fixed interest rate swap agreements with an average fixed interest rate of 0.32% in debt structure due to the new capital leases.2020. Amortization of deferred finance chargesfees for 2017the year ended December 31, 2021 was $3.1$2.2 million, compared to $3.4an increase of $0.4 million from $1.8 million for 2016. The 2016 amount includesthe year ended December 31, 2020. Included in the $2.2 million for the year ended December 31, 2021, is a write-offwrite off of deferred finance fees of $0.6 million relatingin relation to the sale of theArdmore Calypso, theArdmore Capella and theArdmore Centurion.
Statement of Operations for the Year Ended December 31, 2016 and December 31, 2015
| | | | | ||||||||||||
| Year Ended | Variance | Variance (%) | ||||||||||||||
| INCOME STATEMENT DATA | Dec. 31, 2016 | Dec 31, 2015 | ||||||||||||||
| REVENUE | ||||||||||||||||
| Revenue | $ | 164,403,938 | 157,882,259 | 6,521,679 | 4 | % | ||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Commissions and voyage related costs | 37,121,398 | 30,137,173 | (6,984,225 | ) | (23 | )% | ||||||||||
| Vessel operating expenses | 56,399,979 | 46,416,510 | (9,983,469 | ) | (22 | )% | ||||||||||
| Depreciation | 30,091,237 | 24,157,022 | (5,934,215 | ) | (25 | )% | ||||||||||
| Amortization of deferred drydock expenditure | 2,715,109 | 2,120,974 | (594,135 | ) | (28 | )% | ||||||||||
| General and administrative expenses: | ||||||||||||||||
| Corporate | 12,055,725 | 10,418,876 | 1,636,849 | 16 | % | |||||||||||
| Commercial and chartering | 2,021,487 | 329,746 | 1,691,741 | 513 | % | |||||||||||
| Total operating expenses | 140,404,935 | 113,580,301 | (26,824,634 | ) | (24 | )% | ||||||||||
| Profit from operations | 23,999,003 | 44,301,958 | (20,302,955 | ) | (46 | )% | ||||||||||
| Interest expense and finance costs | (17,754,118 | ) | (12,282,704 | ) | (5,471,414 | ) | (45 | )% | ||||||||
| Interest income | 164,629 | 15,571 | 149,058 | 957 | % | |||||||||||
| Loss on disposal of vessels | (2,601,148 | ) | — | (2,601,148 | ) | N/A | ||||||||||
| Profit before taxes | 3,808,366 | 32,034,825 | (28,226,459 | ) | (88 | )% | ||||||||||
| Income tax | (60,434 | ) | (79,860 | ) | 19,426 | 24 | % | |||||||||
| Net profit | $ | 3,747,932 | 31,954,965 | (28,207,033 | ) | (88 | )% | |||||||||
Revenue. Revenue for the year ended December 31, 2016 was $164.4 million, an increase of $6.5 million from $157.9 million for the year ended December 31, 2015.
The average number of owned vessels increased to 24.1 for the year ended December 31, 2016, from 19.8 for the year ended December 31, 2015, resulting in revenue days of 8,635 for the year ended December 31, 2016, as compared to 7,069 for the year ended December 31, 2015.
We had 10 and 16 vessels employed under time charter and pool arrangements as at December 31, 2016 and December 31, 2015, respectively. Revenue days derived from time charter and pool arrangements were 4,477 for the year ended December 31, 2016, as compared to 4,474 for the year ended December 31, 2015. Lower charter rates for the year ended December 31, 2016 resulted in a decrease in revenue of $3.1 million, compared to the year ended December 31, 2015.
We had 17 and eight vessels employed directly in the spot market as at December 31, 2016 and December 31, 2015, respectively. For spot chartering arrangements, we had 4,158 revenue days for the year ended December 31, 2016, as compared to 2,595 for the year ended December 31, 2015. This increase in revenue days derived from spot chartering arrangements resulted in an increase in revenue of $50.5 million, offset by a $41.0 million decrease in spot market revenue related to softer market conditions.
Commissions and voyage related costs. Commissions and voyage related costs were $37.1 million for the year ended December 31, 2016, an increase of $7.0 million from $30.1 million for the year ended December 31, 2015. Revenue days increased to 8,635 for the year ended December 31, 2016, as compared to 7,069 for the year ended December 31, 2015. For spot chartering arrangements, we had 4,158 revenue days for the year ended December 31, 2016, as compared to 2,595 for the year ended December 31, 2015. This increase in revenue days resulted in an increase in commissions and voyage related expenses of $7.0 million. For vessels employed directly in the spot market, all voyage expenses are borne by us as opposed to the charterer, while under time chartering and pool arrangements, the charterer typically pays voyage expenses.
TCE rate. The TCE rate for our fleet was $14,785 per day for the year ended December 31, 2016, a decrease of $3,524 per day from $18,309 per day for the year ended December 31, 2015.
Vessel operating expenses. Vessel operating expenses were $56.4 million for the year ended December 31, 2016, an increase of $10.0 million from $46.4 million for the year ended December 31, 2015. This increase is primarily due to an increase in the number of vessels in operation for 2016. Due to the nature of this expenditure, vessel operating expenses are prone to fluctuations between periods. Average operating costs per vessel per day, including technical management fees, were $6,405 for the year ended December 31, 2016, as compared to $6,333 for the year ended December 31, 2015
Depreciation. Depreciation expense for the year ended December 31, 2016 was $30.1 million, an increase of $5.9 million from $24.2 million for the year ended December 31, 2015. The increase is due to an increase in the average number of owned vessels to 24.1 for 2016 from 19.8 for 2015.
Amortization of deferred drydock expenditure. Amortization of deferred drydock expenditure for the year ended December 31, 2016 was $2.7 million, as compared to $2.1 million for the year ended December 31, 2015. This increase is due to the timing of scheduled drydockings occurring across the fleet; there were five drydockings in 2016 as compared to three in 2015. The capitalized costs of drydockings for a given vessel are amortized on a straight-line basis to the next scheduled drydocking of the vessel.
General and administrative expenses:Corporate. Corporate related general and administrative expenses for the year ended December 31, 2016 were $12.1 million, as compared to $10.4 million for the year ended December 31, 2015. The increase reflects additional staff and travel costs associated with operating a larger fleet. Average headcount was 29 for the year ended December 31, 2016 as compared to 24 for the year ended December 31, 2015. Non-recurring transactions fees of $0.9 million were also incurred in 2016.
General and administrative expenses: Commercial and Chartering. Commercial and chartering expenses are the expenses attributable to our chartering and commercial operations department in connection with our spot market trading activities. Commercial and chartering related general and administrative expenses for the year ended December 31, 2016 were $2.0 million compared to $0.3 million for the year ended December 31, 2015. This increase reflects the expansion of chartering and commercial activities in our Singapore and Houston offices, and an increased headcount in the commercial and chartering departments for the year ended December 31, 2016. Average headcount increased to seven as compared to one for the year ended December 31, 2015.
Interest expense and finance costs. Interest expense and finance costs (which include loan interest, capital lease interest, amortization of deferred finance fees and are net of capitalized interest) for the year ended December 31, 2016 were $17.8 million, as compared to $12.3 million for the year ended December 31, 2015. Cash interest expense increased by $1.3 million to $14.3 million for 2016 from $13.0 million for 2015. The increase in interest expense and finance costs was primarily as a result of an increase in costs following the delivery of the six acquired vessels, partially offset by a reduction in the interest expense following the refinancing of debt completed duringtwo vessels previously under the firstNordea facility which were refinanced under finance leases in the second quarter of 2016 and the sale of theArdmore Calypso,Ardmore Capella andArdmore Centurion. Capitalized interest, which relates to vessels under construction, amounted to nil for 2016, as compared to $2.4 million for 2015 as there were no vessels under construction during 2016. Amortization of deferred finance charges for 2016 was $3.4 million, compared to $1.7 million for 2015. The 2016 amount includes a write-off of deferred finance fees of $0.6 million relating to the sale of theArdmore Calypso, theArdmore Capella and theArdmore Centurion.2021.
B. Liquidity and Capital Resources
Our primary sources of liquidity are cash and cash equivalents, with the majority of our cash in the currency of U.S. Dollars, cash flows provided by our operations, our undrawn credit facilities and capital raised through financing transactions. As at December 31, 2017, our total2021 we had $67.0 million in liquidity available, with cash and cash equivalents were $39.5of $55.4 million a decrease(December 31, 2020 $58.4 million) and amounts available and undrawn under our revolving credit facilities of $16.5$11.6 million from $56 million as at December(December 31, 2016, following payments made for long term debt.2020: $0.0 million). We believe that our working capital, together with expected cash flows from operations and availability under credit facilities, will be sufficient for our present requirements.
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Our short-term liquidity requirements include the payment of operating expenses (including voyage expenses and bunkers from spot chartering our vessels), drydocking expenditures, debt servicing costs, lease payments, quarterly preferred stock dividends, interest rate swap settlements, any dividends on our shares of common stock, scheduled repayments of long-term debt, as well as funding our other working capital requirements. Our short-term and spot charters, including participating in spot charter pooling arrangements, contribute to the volatility of our net operating cash flow, and thus our ability to generate sufficient cash flows to meet our short-term liquidity needs. Historically, the tanker industry has been cyclical, experiencing volatility in profitability and asset values resulting from changes in the supply of, and demand for, vessel capacity. In addition, tanker spot markets historically have exhibited seasonal variations in charter rates. Tanker spot markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere and unpredictable weather patterns that tend to disrupt vessel scheduling. Time charters provide contracted revenue that reducesmay reduce the volatility (as rates can fluctuate within months) and seasonality from revenue generated by vessels that operate in the spot market. Commercial pools reduce revenue volatility because they aggregate the revenues and expenses of all pool participants and distribute net earnings to the participants based on an agreed upon formula. Spot charters preserve flexibility to take advantage of increasing rate environments, but also expose the ship-owner to decreasing rate environments. Variability in our net operating cash flow also reflects changes in interest rates, fluctuations in working capital balances, the timing and the amount of drydocking expenditures, repairs and maintenance activities and the average number of vessels in service. The number of vessel dry dockings tends to vary each period depending on the vessel's maintenance schedule and required maintenance.
The cash flows we generate from our vessels have been and continue to be impacted by the COVID-19 pandemic. Initially, the onset of the COVID-19 pandemic resulted in a sharp reduction of economic activity and a corresponding reduction in the global demand for oil and refined petroleum products. This period of time was marked by extreme volatility in the oil markets and the development of a steep contango in the prices of oil and refined petroleum products. Consequently, an abundance of arbitrage and floating storage opportunities opened up, which resulted in record increases in spot TCE rates during the second quarter of 2020. These market dynamics led to a build-up of global oil and refined petroleum product inventories. In June 2020, the underlying oil markets stabilized and global economies began to recover, although at a slow pace. These conditions led to the gradual unwinding of excess inventories and a reduction in spot TCE rates. Spot TCE rates have remained subdued, as the continuation of the unwinding of inventories, coupled with modest demand for oil, have had an adverse impact on the demand for our vessels. We expect that the COVID-19 pandemic will continue to cause volatility in the commodities markets. The scale and duration of these circumstances is unknown but could have a material impact on our earnings, cash flow and financial condition in 2022.
Our primary known and estimated liquidity needs for 2022 include obligations related to finance leases ($32.2 million), scheduled repayments of long-term debt ($15.8 million), debt and lease service costs ($6.0 million), quarterly preferred stock dividend distributions ($3.3 million), committed capital expenditures ($2.7 million), drydocking expenditures ($2.0 million), operating lease payments ($0.3 million), the funding of general working capital requirements and funding any common stock repurchases we may undertake. The capital expenditures are related to our obligations under the purchase and installation of ballast water treatment systems. For at least the one-year period following the filing of this Form 20-F for the year ended December 31, 2021, we expect that our existing liquidity, combined with the cash flow we expect to generate from our operations, will be sufficient to finance our liquidity needs for this period.
Our long-term capital needs are primarily for capital expenditures and debt repayment.repayment and finance lease payments. Our long-term known and estimated liquidity needs from 2023 through to 2026 include obligations related to finance leases ($167.7 million), scheduled repayments and maturities of long-term debt ($131.1 million), forecasted drydock expenditures ($28.9 million), debt and lease service costs ($16.9 million), aggregate capital expenditures ($8.3 million), operating lease payments ($0.8 million) and our quarterly preferred stock dividend distributions ($3.4 million per annum). Our scheduled finance lease payment obligations and estimated lease interest service costs beyond 2026 through 2030 total $71 million and $1.3 million, respectively. Additional information on our annual scheduled obligations under our debt, finance and operating leases are described in Notes 6 (“Debt”), 7 (“Finance leases”) and 8 (“Operating leases) to our consolidated financial statements included in Item 18 of this Annual Report. Debt and lease service costs are estimated based on assumed LIBOR forward curve rates. Generally, we expect that our long-term sources of funds will be cash balances, long-term bank borrowings, lease financings and other debt or equity financings.
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We expect that we will rely upon internal and external financing sources, including, cash balances, bank borrowings, lease financings and the issuance of debt and equity securities, to fund vessel acquisitions or newbuildings and expansion capital expenditures.
Our credit facilities and capitalfinance leases are described in Notes 86 (“Debt”) and 97 (“CapitalFinance leases”) to our consolidated financial statements included in Item 18 of this Annual Report. Our financing facilities contain covenants and other restrictions we believe are typical of debt financing collateralized by vessels, including those that restrict the relevant subsidiaries from incurring or guaranteeing additional indebtedness, granting certain liens, and selling, transferring, assigning or conveying assets. Our financing facilities do not impose a restriction on dividends, distributions, or returns of capital unless an event of default has occurred, is continuing or will result from such payment. The majority of our financing facilities require us to maintain various financial covenants. Should we not meet these financial covenants or other covenants, the lenders may declare our obligations under the agreements immediately due and payable, and terminate any further loan commitments, which would significantly affect our short-term liquidity requirements. As at December 31, 2017,2021, we were in compliance with all covenants relating to our financing facilities.
Our debt facilities and certain of our obligation related to finance leases typically require us to make interest payments based on LIBOR. Significant increases in interest rates could adversely affect results of operations and our ability to service our debt; however, as part of our strategy to minimize financial risk, we use interest rate swaps to reduce our exposure to market risk from changes in interest rates. Our current positions are described in further detail in Note 9 (“Interest Rate Swaps”) to our consolidated financial statements included in Item 18 of this Annual Report.
Cash Flow Data for the Years Ended December 31, 2017, 20162021 and 20152020
| | | | |||||||||
| For the years ended | ||||||||||||
| CASH FLOW DATA | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | |||||||||
| Net cash provided by operating activities | $ | 18,416,228 | 42,634,500 | 37,659,686 | ||||||||
| Net cash used in investing activities | $ | (2,282,251 | ) | (122,311,231 | ) | (232,849,734 | ) | |||||
| Net cash (used in)/provided by financing activities | $ | (32,629,443 | ) | 95,520,221 | 175,419,834 | |||||||
For the year ended December 31
CASH FLOW DATA
2021
2020
Net cash (used in) / provided by operating activities
$
(2,885,404)
46,094,449
Net cash provided by / (used in) investing activities
$
1,626,560
(20,993,433)
Net cash used in financing activities
$
(1,657,591)
(18,458,793)
For the year ended December 31
CASH FLOW DATA
2021
2020
Net cash (used in) / provided by operating activities
$
(2,885,404)
46,094,449
Net cash provided by / (used in) investing activities
$
1,626,560
(20,993,433)
Net cash used in financing activities
$
(1,657,591)
(18,458,793)
Cash (used in) / provided by operating activities
Changes in net cash flow from operating activities primarily reflect changes in fleet size, fluctuations in spot tanker rates, changes in interest rates, fluctuations in working capital balances, and the timing and the amount of drydocking expenditures, repairs and maintenance activities. Our exposure to the highly cyclical spot tanker market and the growth of our fleet have contributed significantly to historical fluctuations in operating cash flows.
For the year ended December 31, 2017,2021, cash flow provided byused in operating activities was $18.4$2.9 million. The reduction in cash flows from operating activities was primarily due to a higher operating loss in 2021 compared to 2020 as well as net outflows from working capital movements. Net profitloss (after adding back depreciation, amortization of deferred drydock expenditures, share-based compensation, loss on vessel held for sale, amortization of deferred finance fees, unrealized losses on derivatives, foreign exchange losses on operating leases and other non-cash items)losses on equity investments of $41.6 million) was an inflow of $28.2$4.8 million. Changes in operating assets and liabilities resulted in an outflow of $6.0$1.8 million and drydock payments were $3.8$5.9 million.
For the year ended December 31, 2016,2020, cash flow provided by operating activities was $42.6$46.1 million. Net profitloss (after adding back depreciation, amortization of deferred drydock expenditures, share-based compensation, loss on vessel held for sale, amortization of deferred finance fees, unrealized losses on derivatives and other non-cash items)foreign exchange losses on operating leases of $49.8 million) was an inflow of $43.8 million. Changes in operating assets and liabilities resulted in an inflow of $1.9$9.3 million and drydock payments were $3.1$7.0 million.
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Cash provided by / (used in) investing activities
For the year ended December 31, 2015,2021, net cash flow provided by operatinginvesting activities was $37.7 million. Net profit (after adding back depreciation, amortization$1.6 million, with proceeds from the sale of the Ardmore Seamariner in January 2021 of $9.9 million partially offset by payments made for our investments in Element 1 Corp. and our e1 Marine joint venture and related transaction costs of $5.5 million, as well as payments in relation to vessel equipment, advances for ballast water treatment systems and other non-cash items) was an inflownon-current assets of $61.4$2.7 million. Changes in operating assets and liabilities resulted in an outflow of $20.4 million and drydock payments were $3.3 million.
Cash used in investing activities
For the year ended December 31, 2017,2020, the net cash used in investing activities was $2.3 million.$21.0 million consisting of payments in relation to vessel equipment, including the purchase of the Ardmore Seafarer for $16.7 million, advances for ballast water treatment systems, leasehold improvements and other non-current assets. Payments for vessel equipment, advances for ballast water treatment systems and vessels acquiredother non-current assets were $0.4$21.0 million for 2017. Proceeds from sale of vessels were $0 million. Payments for deposit to purchase a new vessel was $1.6 million. Payments for office equipment, and fixtures and fittings and leasehold improvements were $0.3 million.2020.
Cash (used in) financing activities
For the year ended December 31, 2016, net cash used in investing activities was $122.3 million. Payments for vessel equipment and vessels acquired were $174.0 million for 2016. Proceeds from sale of vessels were $52.7 million. Payments for office equipment, and fixtures and fittings and leasehold improvements were $1.0 million.
For the year ended December 31, 2015, net cash used in investing activities was $232.9 million. Payments for the completion of vessels under construction, along with vessel equipment, were $232.5 million for 2015. Payments for office equipment, and fixtures and fittings during the year were $0.4 million.
Cash (used in)/provided by financing activities
For the year ended December 31, 2017,2021, the net cash used in financing activities was $32.6$1.7 million. DrawdownsRepayments of
debt amounted to $66.9 million and total principal repayments of finance lease arrangements were $20.0 million. Net
proceeds from the issue of preferred stock were $38.0 million and proceeds from finance lease arrangements were $49.0
million. Dividend payments on Series A Preferred Stock amounted to $0.8 million. We issued 25,000 shares of Series A Preferred Stock in June 2021 and an additional 15,000 share in December 2021.
For the year ended December 31, 2020, the net cash used in financing activities was $18.5 million. Proceeds from long-term debt amounted to $11.0$19.6 million and repayments of debt amounted to $62.7$17.3 million. Total principal repayments of the capitalfinance lease arrangementarrangements were $2.0 million and total proceeds from capital lease were $33.1$18.7 million. We also paid dividends of $1.7 million related to the fourth quarter of 2019, repurchased shares amounting to $0.3 million and incurred payments of $0.8$0.2 million relating to deferred finance chargesfees for loandebt facilities. As part of GA Holdings LLC’s sale of its 5,787,942 remaining shares of our common stock, we repurchased 1,435,654 common shares for $11.1 million (excluding professional fees). In connection with GA Holdings LLC’s public offering of our common shares in November 2017, we granted the underwriter an option to purchase additional shares of our common stock, which option the underwriter exercised in January 2018, for a total of 305,459 shares, resulting in proceeds to us of $2.4 million.
For the year ended December 31, 2016, the net cash provided by financing activities was $95.6 million. Drawdowns of long-term debt amounted to $110.0 million and repayments of debt amounted to $42.2 million. Total principal repayments of the capital lease arrangement were $27.1 million and total proceeds from capital lease were $9.3 million. We also incurred payments of $6.0 million relating to deferred finance charges for loan facilities. Quarterly cash dividends paid for 2016 were $9.3 million and $3.0 million was used to repurchase common stock. In June 2016, we completed a public offering of 7,500,000 of our common shares for net proceeds of $63.9 million.
For the year ended December 31, 2015, the net cash provided by financing activities was $175.4 million. Drawdowns of long-term debt amounted to $216.5 million and repayments of debt amounted to $24.8 million. Total principal repayments of the capital lease arrangement were $1.7 million. We also incurred payments of $1.6 million relating to deferred finance charges for loan facilities, and for commitment fees payable in respect of other financing committed for vessels which were under construction. Quarterly cash dividends paid were $13 million for 2015.
Capital Expenditures
Drydock
Five
Four of our vessels completed drydock surveys in 2017.2021. The drydocking schedule through December 31, 2025 for our vessels that were in operation as of December 31, 20172021 is as follows:
| | | | | ||||||||||||
| For the years ended December 31 | ||||||||||||||||
| 2018 | 2019 | 2020 | 2021 | |||||||||||||
| Number of vessels in drydock (excluding in-water surveys) | 8 | 9 | 11 | 14 | ||||||||||||
| | | | | | | | |
|
| For the Years Ending December 31, | ||||||
|
| 2022 |
| 2023 |
| 2024 |
| 2025 |
Number of vessels in drydock (excluding in-water surveys) | | 2 | | 7 | | 6 | | 11 |
We will continue to seek to stagger drydockings across the fleet. As our fleet matures and expands, our drydock expenses are likely to increase. Ongoing costs for compliance with environmental regulations and society classification surveys (including ballast water treatment systems) are a component of our vessel operating expenses.
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Ballast Water Treatment System Installation
The ballast water treatment system (“BWTS”) installation schedule for our vessels that were in operation as of December 31, 2021 is as follows:
| | | | | | | | |
|
| For the Years Ending December 31, | ||||||
|
| 2022 |
| 2023 |
| 2024 |
| 2025 |
Number of ballast water treatment system installations | | 2 | | 5 | | 5 | | — |
We endeavor to manage the timing of future ballast water treatment system installation across the fleet in order to minimize the number of vessels that are completing ballast water treatment system installations at any one time.
Newbuildings
We currently have no newbuildings on order. However, our growth strategy contemplates expansion of our fleet through vessel acquisitions and newbuildings.
Upgrades
We intend to continue our investment program for vessel upgrades, primarily following acquisition of second-handsecond- hand vessels, where feasible to maintain operational efficiency, optimum commercial performance and preservation of asset value.
Dividends
We did not pay any dividends during 2017. On February 29, May 31 and August 31, 2016, we paid cash dividends on our common stock of $0.13, $0.16 and $0.11 per share, respectively. We did not pay a dividend for the quarters ended September 30, 2016 and December 31, 2016. On April 2, 2015, we introduced our Dividend Reinvestment Plan. The plan allows existing shareholders to purchase additional common shares by automatically reinvesting all or any portion of the cash dividends paid on common shares held by the plan participant.
On September 8, 2015, we announced a change to our dividend policy to a constant payout ratio policy. Under the new policy we expect to pay out as dividends on a quarterly basis 60% of Earnings from Continuing Operations (which represents our earnings per share reported under U.S. GAAP as adjusted for unrealized and realized gains and losses and extraordinary items).
C. Research and Development, Patent and Licenses, etc.
Not applicable.
D. Trend Information
Our results of operations depend primarily on the charter hire rates that we are able to realize for our vessels, which primarily depend on the demand and supply dynamics characterizing the tanker market at any given time. The oil tanker industry has been highly cyclical in recent years, experiencing volatility in charter hire rates and vessel values resulting from changes in the supply of and demand for crude oil and tanker capacity. For other trends affecting our business, please see the other discussions above in this Item 4 (“Information on the Company — Business Overview — The International Product and Chemical Tanker Industry”) and Item 5 (“Operating and Financial Review and Prospects”).
E. Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital resources.
F. Tabular Disclosure of Contractual Obligations
The following table sets forth our obligations on vessel finance and certain other obligations as at December 31, 2017. As of that date, we had no such obligations or commitments due after the year ending December 31, 2026.
| | | | | ||||||||||||
| FY 2018 | FY 2019 – 2021 | FY 2022 – 2026 | Total | |||||||||||||
| Debt | $ | 39,282,538 | $ | 118,873,134 | $ | 254,511,195 | $ | 412,666,867 | ||||||||
| Capital lease(1) | 6,241,500 | 24,957,400 | 21,663,300 | 52,862,200 | ||||||||||||
| Interest expense(2) | 17,799,582 | 44,897,621 | 8,071,988 | 70,769,191 | ||||||||||||
| Office space | 394,076 | 931,215 | 1,231,033 | 2,556,324 | ||||||||||||
| 63,717,696 | 189,659,370 | 285,477,516 | 538,854,582 | |||||||||||||
Critical Accounting Estimates
In the application of our accounting policies, which are prepared in conformity with U.S. GAAP, we are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities, and revenuesrevenue and expenses that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The significant judgments and estimates are as follows:
Revenue recognition.recognition. Revenue, net is generated from spot charter arrangements, time charter arrangements and pool arrangements. Refer to Note 2 (“Significant Accounting Policies”) to our consolidated financial statements included in Item 18 of this Annual Report for a discussion on time charter and pool arrangements.
Revenues
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Spot charter arrangements
Our spot charter arrangements are for single voyages for the service of the transportation of cargo that are generally short in duration (less than two months) and we are responsible for all costs incurred during the voyage, expenseswhich include bunkers and port/canal costs, as well as general vessel operating costs (e.g. crew, repairs and maintenance and insurance costs; and fees paid to technical managers of our vesselsvessels). Accordingly, under spot charter arrangements, key operating decisions and the economic benefits associated with a vessel’s use during a spot charter reside with us.
As of its adoption on January 1, 2018, we apply revenue recognition guidance in commercial pooling arrangements are pooledFinancial Accounting Standards Board (“FASB”) Accounting Standards Codification 606, Revenue from Contracts with the revenues and voyage expenses of other pool participants. The resulting net pool revenues, calculated on the time charter equivalent basis, are allocatedCustomers (“ASC 606”) to the pool participants according to an agreed upon formula. The formulas used to allocate net pool revenues vary among different pools but generally allocate revenues to pool participants on the basis of the number of days a vessel operates in the pool with weighted adjustments made to reflect the vessels’ differing capacities and performance capabilities. We account for our vessels’ sharespot charter arrangements.
The consideration that we expect to be entitled to receive in exchange for our transportation services is recognized as revenue ratably over the duration of net pool revenue on the allocated time charter equivalenta voyage on a monthly basis. Net pool revenues due from the pool are included in trade receivables.
Revenues from voyage charters on the spot market are recognized ratably on a discharge-to-dischargeload-to-discharge basis (i.e. from when cargo is discharged (unloaded)loaded at the end of one voyageport to when it is discharged after the nextcompletion of the voyage). The consideration that we expect to be entitled to receive includes estimates of revenue associated with the loading or discharging time that exceed the originally estimated duration of the voyage, which is referred to as “demurrage revenue”, provided an agreed irrevocable charter between us andwhen it is determined there will be incremental time required to complete the charterer is in existence, the charter rate is fixed or determinable and collectability is reasonably assured. Revenue under voyage charterscontracted voyage. Demurrage revenue is not recognized untilconsidered a charter has been agreed, even if the vessel has discharged its previous cargo andseparate deliverable in accordance with ASC 606 as it is proceeding to an anticipated port of loading.
If a time charter agreement exists, the rate is fixed or determinable, service is provided and collectionpart of the related revenuesingle performance obligation in a spot charter arrangement, which is reasonably assured, then we recognize revenues overto provide cargo transportation services to the termcompletion of the time charter.a contracted voyage.
Share-based compensation. We do not recognize revenue during days the vessel is off-hire. Where the time charter contains a profit or loss sharing arrangement, the profit or loss is recognized based on amounts earned or incurred as of the reporting date.
Shares-based compensation.Wemay grant share-based payment awards, such as restricted stock units (“RSUs”), stock appreciation rights (“SARs”) and dividend equivalent rights (“DERs”), as incentive-based compensation to certain employees. We granted Stock Appreciation Rights (“SARs”)SARs to certain employees, directors and officers in August 2013, 2014, 2015, 2016, April 2018 (which included DERs), March 2014,2019 (which included DERs), March 2020 (which included DERs) and March 2021 (which included DERs). We granted RSUs which included DERs, to certain directors and officers in January 2019, March and May 2019, March and May 2020 and March and June 2014, March 20152021. We granted stand-alone DERs to certain directors and January 2016.officers in November 2019. We measure the cost of such awards, which are equity-settled transactions, with employees by reference tousing the grant date fair value of the equity instruments ataward and recognizing that cost, net of estimated forfeitures, over the date onrequisite service period, which they are granted,generally equals the vesting period, which we calculate according to the FinancialFASB Accounting Standards Board (“FASB”) Accounting Standards Codification Topic No. 718, Compensation — Stock Compensation (“ASC 718”), see Note 16 (“Share-based compensation”).
Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model, including the expected life of the award, volatility and dividend yield, and making certain other assumptions about the award.
Depreciation. Vessels are depreciated on a straight-line basis over their estimated useful economic life from the date of initial delivery from the shipyard. The useful life of our vessels is estimated at 25 years from the date of initial delivery from the shipyard. Depreciation is based on cost less estimated residual scrap value. Residual scrap value is estimated as the lightweight tonnage of each vessel multiplied by the estimated scrap value of $300 per ton.lightweight tonne. The estimated scrap value is reviewed each year.year and would be adjusted prospectively, if applicable.
Vessel impairment. Vessels and equipment that are “held and used” are assessed for impairment when events or circumstances indicate the carrying amount of the asset may not be recoverable. When such indicators are present, a vessel to be held and used is tested for recoverability by comparing the estimate of future undiscounted net operatingfuture cash flows expected to be generated by the use of the vessel over its remaining useful life and its eventual disposition to its carrying amount. amount, together with the carrying value of deferred drydock expenditures and special survey costs related to the vessel.
Undiscounted future cash flows are determined by applying various assumptions based on historical trends as well as future expectations. In estimating future revenue, we consider charter rates for each vessel class over the estimated remaining lives of the vessels using both historical average rates for us over the last five years, where available, and historical average one-year time charter rates for the industry over the last 10 years.
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Recognizing that rates tend to be cyclical and considering market volatility based on factors beyond our control, management believes it is reasonable to use estimates based on a combination of more recent internally generated rates and the 10-year average historical average industry rates. An impairment charge is recognized if the carrying value is in excess of the estimated future undiscounted net operatingfuture cash flows. The impairment loss is measured based on the excess of the carrying amount over the fair market value of the asset.
Net operating
Undiscounted future cash flows are determined by applying various assumptions regarding future revenuesrevenue net of commissions,voyage expenses, vessel operating expenses, scheduled drydockings, expected off-hire and scrap values. These assumptions are based onvalues, and taking into account historical trendsmarket and Company specific revenue data as well as future expectations. Specifically, in estimatingdiscussed above, and also considering other external market sources, including analysts’ reports and freight forward agreement curves. Projected future charter rates are the most significant and subjective assumption that management takes into consideration rates currently in effectuses for existing time charters and estimated daily time charter equivalent rates for each vessel class for the unfixed days over the estimated remaining lives of each of the vessels. The estimated daily time charter equivalent rates used for unfixed days are based on a combination of internally forecasted rates that are consistent with forecasts provided to senior management and our board of directors, and the trailing 10-year historical average one-year time charter rates, based on average rates published by maritime researchers. Recognizing that rates tend to be cyclical, and subject to significant volatility based on factors beyond our control, and management believes the use of estimates based on the combination of internally forecasted rates and 10-year historical average rates calculated as of the reporting date to be reasonable. Estimated outflows for operating expenses and drydocking requirements are based on historical and budgeted costs and are adjusted for assumed inflation. Utilization is based on historical levels achieved and estimates of a residual value are consistent with scrap rates used in management’s evaluation of scrap value.its impairment analysis.
Although management believes that the assumptions used to evaluate potential impairment are reasonable and appropriate at the time they were made, such assumptions are highly subjective and likely to change, possibly materially, in the future. There can be no assurance as to how long charter rates and vessel values will remain at their current levels or whether they will improve by a significant degree. If charter rates were to be at depressed levels, future assessments of vessel impairment would be adversely affected.
In recent years, the market values of vessels have experienced particular volatility, with substantial declines in many of the charter-free market values, or basic market values, of various vessel classes. As a result, the value of our vessels may have declined below those vessels’ carrying values, even though we did not impair those vessels’ carrying values under our impairment accounting policy. This is due to our beliefprojection that future undiscounted cash flows expected to be earned by such vessels over their operating lives would exceed such vessels’ carrying amounts.
Our estimates of basic market value assume that our vessels are all in good and seaworthy condition without the need for repair and, if inspected, that they would be certified in class without notations of any kind. Our estimates are based on the estimated market values for our vessels that we have received from independent ship brokers, reports by industry analysts and data providers that focus on our industry and related dynamics affecting vessel values, and news and industry reports of similar vessel sales. Vessel values are highly volatile and as such, our estimates may not be indicative of the current or future basic market value of our vessels or prices that we could achieve if we were to sell them.
The table below indicates the carrying value of each of our owned vessels as of December 31, 20172021 and 2016, at which time2020. At December 31, 2021, no vessels were classified as held for sale. At December 31, 2020, we were not holding any of the vessels listed in the table belowArdmore Seamariner vessel as held for sale. We believe that the future undiscounted cash flows expected to be earned by those vessels of our fleet that have experienced a decline in charter-free market value below such vessels’ carrying value over their operating lives would exceed such vessels’ carrying values as of December 31, 2017,2021, and, accordingly, have not recorded an impairment charge.
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Carrying value includes, as applicable, vessel costs, deferred drydock upgrades,expenditures, vessel equipment, advances for ballast water treatment systems, capitalized interest, supervision fees and other newbuilding pre-delivery costs. Deposits paid, or costs incurred, in relation to the acquisition of second-hand vessels are not presented in the table below.
| | | | | ||||||||||||
| Built | DWT | Carrying Value as at | ||||||||||||||
| Dec 31, 2017 | Dec 31, 2016 | |||||||||||||||
| Ardmore Seavaliant | 2013 | 49,998 | $ | 32,923,845 | 34,262,668 | |||||||||||
| Ardmore Seaventure | 2013 | 49,998 | 33,348,321 | 34,966,913 | ||||||||||||
| Ardmore Seavantage | 2014 | 49,997 | 34,601,415 | 36,061,469 | ||||||||||||
| Ardmore Seavanguard | 2014 | 49,998 | 34,831,576 | 36,182,350 | ||||||||||||
| Ardmore Sealion | 2015 | 49,999 | 32,532,554 | 33,830,879 | ||||||||||||
| Ardmore Seafox | 2015 | 49,999 | 32,558,750 | 33,866,043 | ||||||||||||
| Ardmore Seawolf | 2015 | 49,999 | 32,992,041 | 34,312,408 | ||||||||||||
| Ardmore Seahawk | 2015 | 49,999 | 33,411,594 | 34,735,082 | ||||||||||||
| Ardmore Endeavour | 2013 | 49,997 | 31,439,384 | 32,816,175 | ||||||||||||
| Ardmore Enterprise | 2013 | 49,453 | 26,721,641 | 27,779,368 | ||||||||||||
| Ardmore Endurance | 2013 | 49,466 | 26,536,082 | 27,556,773 | ||||||||||||
| Ardmore Explorer | 2014 | 49,494 | 27,965,820 | 29,072,282 | ||||||||||||
| Ardmore Encounter | 2014 | 49,478 | 28,080,154 | 29,215,366 | ||||||||||||
| Ardmore Exporter | 2014 | 49,466 | 28,037,334 | 29,163,447 | ||||||||||||
| Ardmore Engineer | 2014 | 49,420 | 28,046,579 | 29,121,802 | ||||||||||||
| Ardmore Seafarer | 2004 | 45,744 | 17,842,801 | 18,354,589 | ||||||||||||
| Ardmore Seatrader | 2002 | 47,141 | 15,939,134 | 16,885,419 | ||||||||||||
| Ardmore Seamaster | 2004 | 45,840 | 17,942,029 | 18,495,912 | ||||||||||||
| Ardmore Seamariner | 2006 | 45,726 | 18,954,758 | 20,432,294 | ||||||||||||
| Ardmore Sealeader | 2008 | 47,463 | 20,323,757 | 21,906,224 | ||||||||||||
| Ardmore Sealifter | 2008 | 47,472 | 19,728,310 | 21,070,011 | ||||||||||||
| Ardmore Dauntless | 2015 | 37,764 | 33,060,258 | 34,428,995 | ||||||||||||
| Ardmore Defender | 2015 | 37,791 | 33,244,876 | 34,540,079 | ||||||||||||
| Ardmore Cherokee | 2015 | 25,215 | 28,290,727 | 29,481,020 | ||||||||||||
| Ardmore Cheyenne | 2015 | 25,217 | 28,529,108 | 29,719,569 | ||||||||||||
| Ardmore Chinook | 2015 | 25,217 | 28,822,912 | 30,010,758 | ||||||||||||
| Ardmore Chippewa | 2015 | 25,217 | 29,229,248 | 30,425,813 | ||||||||||||
| Total | $ | 755,935,008 | 788,693,708 | |||||||||||||
| | | | | | | | | | |
|
| |
| |
| Carrying Value as at | ||||
|
| Built |
| DWT |
| Dec 31, 2021 |
| Dec 31, 2020 | ||
Ardmore Seavaliant* # | | 2013 | | 49,998 | | $ | 27,200,718 | | $ | 28,555,910 |
Ardmore Seaventure* # | | 2013 | | 49,998 | |
| 27,697,704 | |
| 28,980,859 |
Ardmore Seavantage* # | | 2014 | | 49,997 | |
| 29,191,064 | |
| 30,452,892 |
Ardmore Seavanguard* # | | 2014 | | 49,998 | |
| 29,133,950 | |
| 30,526,505 |
Ardmore Sealion# | | 2015 | | 49,999 | |
| 28,030,224 | |
| 29,739,294 |
Ardmore Seafox# | | 2015 | | 49,999 | |
| 28,200,076 | |
| 29,926,796 |
Ardmore Seawolf# | | 2015 | | 49,999 | |
| 28,440,165 | |
| 30,030,708 |
Ardmore Seahawk# | | 2015 | | 49,999 | |
| 28,865,349 | |
| 30,483,940 |
Ardmore Endeavour* # | | 2013 | | 49,997 | |
| 26,750,543 | |
| 27,633,660 |
Ardmore Enterprise# | | 2013 | | 49,453 | |
| 22,754,719 | |
| 23,824,902 |
Ardmore Endurance | | 2013 | | 49,466 | |
| 22,389,407 | |
| 23,564,640 |
Ardmore Explorer | | 2014 | | 49,494 | |
| 23,795,435 | |
| 24,988,708 |
Ardmore Encounter | | 2014 | | 49,478 | |
| 24,560,509 | |
| 25,341,635 |
Ardmore Exporter | | 2014 | | 49,466 | |
| 23,839,088 | |
| 24,990,880 |
Ardmore Engineer# | | 2014 | | 49,420 | |
| 24,691,398 | |
| 25,982,698 |
Ardmore Sealancer*# | | 2008 | | 47,451 | |
| 15,028,188 | |
| 14,202,204 |
Ardmore Sealeader* # | | 2008 | | 47,463 | |
| 16,623,556 | |
| 17,344,364 |
Ardmore Seafarer# | | 2010 | | 49,999 | | | 15,905,521 | | | 16,852,020 |
Ardmore Sealifter* # | | 2008 | | 47,472 | |
| 16,213,655 | |
| 16,873,658 |
Ardmore Dauntless* # | | 2015 | | 37,764 | |
| 28,208,864 | |
| 29,948,834 |
Ardmore Defender* # | | 2015 | | 37,791 | |
| 28,488,800 | |
| 30,234,072 |
Ardmore Cherokee# | | 2015 | | 25,215 | |
| 23,862,279 | |
| 25,237,297 |
Ardmore Cheyenne# | | 2015 | | 25,217 | |
| 24,178,178 | |
| 25,584,343 |
Ardmore Chinook# | | 2015 | | 25,217 | |
| 24,942,859 | |
| 26,385,088 |
Ardmore Chippewa*# | | 2015 | | 25,217 | |
| 25,146,451 | |
| 26,557,362 |
Total | | | | | | $ | 614,138,700 | | $ | 644,243,269 |
* | Indicates vessels for which we believe, as of December 31, 2021, the basic market value is lower than the vessel’s carrying value. We believe that the carrying values of our vessels as of December 31, 2021 were recoverable as the projected undiscounted future cash flows of these vessels exceeded their carrying value by a significant amount. |
# | Indicates vessels for which we believe, as of December 31, 2020, the basic market value is lower than the vessel’s carrying value. We believe that the carrying values of our vessels as of December 31, 2020 were recoverable as the projected undiscounted future cash flows of these vessels exceeded their carrying value by a significant amount. |
At December 31, 2021, we estimate that the aggregate basic market value of our owned vessels exceeded their aggregate carrying value by approximately $11.4 million. At December 31, 2020, we estimated that the aggregate carrying value of theseour owned vessels exceeded their aggregate basic market value by approximately $56 million as at December 31, 2017, $71.3 million as at December 31, 2016 and $12.2 million as at December 31, 2015.$60.7 million. We believe that 1711 of our vessels’ carrying values exceeded the basic market value as of December 31, 2017,2021 and that 1921 of our vessels’ carrying values exceeded the basic market value as of December 31, 2016 and that eight of our vessels’ carrying values exceeded the basic market value as of December 31, 2015.2020. We did not record an impairment of any vessels due to our impairment accounting policy, as future undiscounted cash flows expected to be earned by such vessels over their operating lives exceeded the vessels’ carrying amounts. In addition to carrying out our impairment analysis, we performed a sensitivity analysis for a 10%5% reduction in forecasted vessel utilization and a 10% reduction in time charter rates for the first year of the analysis and, in each scenario, the future undiscounted cash flows significantly exceeded the carrying value of each of our vessels.
Contingencies. Claims, suits and complaints arise in the ordinary course of our business. We provide for contingent liabilities when (i) it is probable that a liability has been incurred at the date of the financial statements and (ii) the amount of the loss can be reasonably estimated.
Financial instruments. We believe that the carrying values of cash and cash equivalents, trade receivables and trade payables reported in the consolidated balance sheet for those financial instruments are reasonable estimates of their fair values due to their short-term nature. The fair values of long-term debt approximate the recorded values due to the variable interest rates payable.
Recent Accounting Pronouncements
Please see Note 2.4 “Recent accounting pronouncements” to our consolidated financial statements included in Item 18 of this Annual Report for a description of recently issued accounting pronouncements that may apply to us.
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G. Safe Harbor
Forward-looking information discussed in this Item 5 includes assumptions, expectations, projections, intentions and beliefs about future events. These statements are intended as “forward-looking statements”. We caution that assumptions, expectations, projections, intentions and beliefs about future events may and often do vary from actual results and the differences can be material. Please see the section entitled “Forward-Looking Statements” at the beginning of this Annual Report.
Item 6. Directors, Senior Management and Employees
A. Directors and Senior Management
Set forth below are the names, ages and positions of our directors and executive officers. Our board of directors currently consists of sevensix directors. Each director elected holds office for a three-year term or until his or her successor has been duly elected and qualified, except in the event of histhe director’s death, resignation, removal or the earlier termination of histhe director’s term of office. The term of office of each director is as follows: Class I directors serve for a term expiring at the 20202023 annual meeting of shareholders, Class II directors serve for a term expiring at the 20182024 annual meeting of shareholders, and Class III directors serve for a term expiring at the 20192022 annual meeting of the shareholders. Officers are elected from time to time by vote of our board of directors and hold office until a successor is elected. The business address for each director and executive officer is Belvedere Building, 69 Pitts Bay Road, Ground Floor, Pembroke HM08, Bermuda.
| | | | | | |
Name | Age | Class | Position | |||
Mr. Mats Berglund | 59 | I | Director, Member of the Compensation Committee and Nominating and Corporate Governance Committee | |||
| | | | | | |
Mr. Mark Cameron | 55 | N/A | Executive Vice President and Chief Operating Officer | |||
| | | | | | |
Mr. Brian Dunne | 55 | III | Director, | |||
| | | | | | |
Mr. Anthony Gurnee | 62 | II | Chief Executive Officer, President and Director | |||
| | | | | | |
Mr. | 66 | III | Chair of the Board, | |||
| | | | | | |
Ms. Aideen O'Driscoll | | 35 | | N/A | | Vice President and Director of Corporate Services |
| | | | | | |
Mr. Gernot Ruppelt | 40 | N/A | Senior Vice President and Chief Commercial Officer | |||
| | | | | | |
Dr. | 65 | I | Director, Member of the Compensation Committee | |||
| | | | | | |
Mr. Paul Tivnan | 42 | N/A | Senior Vice President, Chief Financial Officer, Secretary and | |||
| | | | | | |
Ms. Helen Tveitan de Jong | 54 | II | Director, Member of the Audit Committee | |||
| | | | | | |
Biographical information with respect to each of our directors and executive officers is set forth below.
Mats Berglund has been a director of Ardmore since September 2018. He was the Chief Executive Officer and Director of Pacific Basin, a Hong Kong-listed owner and operator of drybulk vessels controlling a fleet of over 200 ships from 2012-2021. Mr. Berglund has more than 30 years of shipping experience in Europe, the USA and Asia, including as Chief Financial Officer and Chief Operating Officer of marine fuel trader Chemoil Energy and Head of Crude Transportation for Overseas Shipholding Group. Previously, he served in a variety of leadership roles across the Stena group of companies, culminating as President of Stena Rederi, Stena's parent company for all shipping activities. Mr. Berglund holds an Economist (Civilekonom) degree from the Gothenburg University Business School (1986) and is a graduate of the Advanced Management Program at Harvard.
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Mark Cameron is the Executive Vice President and Chief Operating Officer for Ardmore. Mr. Cameron joined Ardmore as Executive Vice President and Chief Operating Officer and was appointed an alternate director in June 2010. In addition, Mr. Cameron is the current Chairmana past Chair of the International Parcel Tankers Association
(IPTA), is on the Board of the West Of England P&I Club and is alsowas previously an advisory Board Member to the NGO The Carbon War Room. FromPresently, Mr. Cameron serves on the Boards of the West of England (Luxembourg) and (Hamilton) P&I Club as well as the joint ventures ‘e1 Marine LLC’ and ‘Anglo Ardmore Ship Management Limited’. Mr. Cameron is a member of the Lloyds Register Marine Committee and an ABS Council Member. Prior to Ardmore, Mr. Cameron served nine years at Teekay Corporation where, from 2008 to 2010, Mr. Cameronhe served as Vice President, Strategy and Planning for Teekay Marine Services, Teekay Corporation’sTeekay’s internal ship management function. Mr. Cameron has also held a number of senior management roles ashore with Safmarine and AP Moller specializing in integrating acquisitions covering all facets of ship management, including sale and purchase, newbuilding supervision, personnel management, procurement, fleet management and technical supervision. Mr. Cameron spent 11 years at sea rising to the rank of Chief Engineer with Safmarine and later AP Moller, including time served onboard bulk carriers, salvage tugs, tankers, general cargo, reefer and container ships. Mr. Cameron has held a number of senior management roles ashore specializing in integrating acquisitions covering all facets of ship management, as well as sale and purchase, newbuilding supervision, personnel management, procurement, fleet management and technical supervision.Safmarine.
Brian Dunne has been a director of Ardmore since June 2010. He is also a director of ReAssure GroupChorus Aviation Capital (Ireland), AASET 2018-2, AASET 2019-2 and AASET 2021-1. He was previously Chair of Ark Life Assurance Company, (subsidiariesa director of SwissRe in the UK and Ireland),ReAssure, Guardian Assurance, Aergen Aviation Finance, and Chorus Aviation Capital. He was previously the ChairmanChair of Aviva’s health insurance business in Ireland, a director of its Irish life and pensions business and a director of several other private companies. Mr. Dunne was the Chief Financial Officer of ACE Aviation Holdings Inc. (“ACE”) from 2005 until 2012 and was the President of the company in 2011 and 2012. ACE was the parent holding company of the reorganized Air Canada and a number of other entities including Aeroplan LP (now AIMIA Inc.) and Air Canada Jazz (now Chorus Aviation Inc.). Mr. Dunne was also a director of Air Canada from its initial public offering in 2006 until 2008. Prior to joining ACE, Mr. Dunne was Chief Financial Officer and a director of Aer Lingus Group plc. He started his career at Arthur Andersen in 1987 and became a partner in 1998. Mr. Dunne is a Fellow of the Institute of Chartered Accountants in Ireland and holds a Bachelor of Commerce degree and a post graduate diploma in Professional Accounting from the University College Dublin.
Albert Enste
Anthony Gurnee has served as a director of Ardmore since its IPO in August 2013. Mr. Enste currently serves as an active partner and Managing Director of both Enste & American Investors Holding Gmbh and Federnfabrik Schmid AG. He also currently serves on the boards of People Guard USA and Federnfabrik Schmid AG Switzerland. Between 2006 and 2011, Mr. Enste served as the Vice President and General Manager of International Business at Electro-Motive Diesel, Inc. From 2000 to 2001, Mr. Enste headed worldwide locomotive sales as Vice President of Locomotives at DaimlerChrysler Rail Systems ADtranz and continued to hold this position, as well as that of Senior Director until 2006 with Bombardier Transportation after they acquired DaimlerChrysler Rail Systems ADtranz. Mr. Enste holds a Master of Engineering from the Technical University of Munich.
Anthony Gurnee has been our President, Chief Executive Officer, and a director of Ardmore since 2010. Between 20062000 and 2008, he was the Chief Executive Officer of Industrial Shipping Enterprises, Inc., a containership and chemical tanker company, and Chief Operating Officer of MTM Group, an operator of chemical tankers. From 1992 to 1997, he was the Chief Financial Officer of Teekay Corporation, where he led the company’s financial restructuring and initial public offering. Mr. Gurnee began his career as a financier with Citicorp, and he served for six years as a surface line officer in the USU.S. Navy, including a tour with naval intelligence. He is a graduate of the USU.S. Naval Academy and earned an MBA at Columbia Business School, is a CFA charter holder, and a fellow of the Institute of Chartered Shipbrokers.
Reginald Jones He is our Chairman and a director. Mr. Jones has been the Chairman andalso a director of Ardmore since 2010. Mr. Jones is a co-founderSimply Blue Energy, engaged in the development of offshore floating wind, wave energy, and Managing Partner of Greenbriar Equity Group LLC, a private equity firm managing over $3 billion of equity capital. Prior to founding Greenbriar in 1999, Mr. Jones spent 13 years at Goldman, Sachs & Co., where hesustainable aquaculture projects.
Curtis Mc Williams was a Managing Director and Group Head of global transportation investment banking. Prior to Goldman Sachs, he worked as a consultant at Bain & Company. Mr. Jones earned a BA from Williams College and an MBA from the Harvard Business School.
Robert McIlwraith has servedappointed as a director of Ardmore since its IPO in August 2013. Mr. McIlwraith has been the owner of Redwood Management Consultants since April 2011 and has served as Chairman of the Exeter Initiative for Science and Technology (ExIST) since June 2011January 2016 and as a director of Exeter Science Park Ltd. since 2014. HeArdmore’s Chair effective January 1, 2019. Mr. Mc Williams has also served as Chairman of the Trustees of AmSafe Bridport Pension Scheme since 2000 and has been lecturing and teaching Operations Management, Accounting and Finance and Management Studies at INTO University of Exeter since January 2011. He has been a Trustee of Sidmouth Hospiscare since 2011. He previously served as the Interim President of Align Aerospace France from September 2016 to April 2017 and October 2011 to August 2012 and as a Managing Director and Executive
Vice President for the global aerospace and defense business AmSafe Bridport from 1998 to 2011. Mr. McIlwraith earned his Bachelor’s degree in Mechanical Engineering from Cardiff University and is a Chartered Engineer and a Fellow of the Institution of Mechanical Engineers.
Curtis McWilliams was appointed as a director by the board of directors in January 2016. Mr. McWilliams is a real estate industry veteran with over 25 years of experience in finance and real estate. He currently serves as a memberDirector of the Ashford Hospitality Prime,Braemar Hotels & Resorts, Inc. Board, Modiv Inc. and Kalera, Inc. In December 2021, Mr. Mc Williams was appointed as Interim CEO of Directors.Kalera, Inc. He retired from his position as President and Chief Executive Officer of CNL Real Estate Advisors, Inc. in 2010 after serving in the role since 2007. Mr. McWilliamsMc Williams was also the President and Chief Executive Officer of Trustreet Properties Inc. from 1997 to 2007, and a director of the company from 2005 to 2007. He served on the Board of Directors and as the Audit Committee Chairman of CNL Bank from 1999 to 2004 and has over 13 years of investment banking experience at Merrill Lynch & Co. Mr. McWilliamsMc Williams has a Master’s degree in Business with a concentration in Finance from the University of Chicago Graduate School of Business and a Bachelor of Science in Engineering in Chemical Engineering from Princeton University.
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Aideen O’Driscoll was appointed Ardmore’s Vice President and Director of Corporate Services in 2021, with responsibility for human resources, legal, office management and project management. Ms. O’Driscoll joined Ardmore in June 2015 as Legal Associate, before being appointed to the role of Director of Human Resources in 2019. Prior to Ardmore, Ms. O’Driscoll had spent five years practicing as a commercial conveyancing and banking solicitor. Ms. O’Driscoll holds a Bachelor of Civil Law and an LLM Master’s Degree in Law, both from University College Cork.
Ms. O’Driscoll was admitted to the Roll of Solicitors in 2013 and has completed an Executive MBA with Cork University Business School. Ms. O’Driscoll is a member of the steering committee of the Diversity Study Group, promoting greater equality, diversity, and inclusion in the shipping industry.
Gernot Ruppelt is ourArdmore’s Senior Vice President and Chief Commercial Officer and Senior Vice President. Mr. RuppeltOfficer. He has been in charge oflead Ardmore’s commercial activitiesplatform since joining as Chartering Director in 2013 and was promoted to his current positionsenior management in December 2014. Mr. Ruppelt has extensive commercialmanagement and managementcommercial experience in the maritime industry. Prior toBefore joining Ardmore, he had beenwas a Tanker Projects Broker withat Poten & Partners in New York for five years and, for seven years beforeYork. Prior to that, Mr. Ruppelt workedhe held various positions up to Trade Manager for Maersk Brokerin the USA, Europe and A.P. Moller — Maersk in Copenhagen, Singapore and Germany.Asia. Mr. Ruppelt is a directorcurrently Chair of INTERTANKO’s Commercial and Markets Committee and serves on the Board of Anglo Ardmore Ship Management Limited.Ltd. Mr. Ruppelt holds an Executive MBA from INSEAD. He also represents Ardmore at the INTERTANKO Council and as a member of their Worldscale & Markets Committee. Mr. Ruppelt completed the two-year ‘Maersk International Shipping Education’ program and graduated from Hamburg Shipping School. He is also a member ofSchool, the Institute of Chartered Shipbrokers in London.London and Maersk International Shipping Education (MISE).
Peter Swift has served
Kirsi Tikka was appointed as a director by the board of Ardmore since its IPOdirectors in August 2013.September 2019. Dr. Swift has hadTikka currently serves as a distinguished career spanning more than 50 years indirector on the maritime industry,board of Pacific Basin Shipping Limited and is presently serving in international non-profit and charitable directorships, including acting as the Vice Chairman of the Sailors’ Society and Trustee Member for the Maritime Piracy Humanitarian Response Programme (ISWAN), as a Foreign Member of the American BureauU.S. National Academy of Shipping,Engineering. Dr. Tikka is chairing the IMOU.S. National Academies Committee on Oil in the Sea IV: Input, Date and Effects, and is a member of the Royal InstitutionU.S. National Academies Committee on U.S. Coast Guard Oversight of Naval Architects and the Green Award Foundation, and as a Director of the Maritime Industry Foundation. Dr. Swift was previously the Managing Director of INTERTANKO from 2000 to 2010 and a Director of Seascope Shipping Limited from 1999 to 2001. He was employed by Royal Dutch Shell from 1975 to 1999 in a range of commercial and technical roles. Dr. Swift holds a PhD in Transport Economics, an MS in Engineering degree from the University of Michigan, and a BSc in Naval Architecture from the University of Durham. HeRecognized Organizations. She is a Chartered Engineer, a Fellow of the Royal Institution of Naval Architects and Member ofboth the Society of Naval Architects and Marine Engineers.Engineers and the Royal Institution of Naval Architects. Dr. Tikka has over 30 years of shipping experience having recently retired from the American Bureau of Shipping Classification Society (“ABS”) in July 2019 as Executive Vice President, Senior Maritime Advisor. Prior to her time at ABS, Dr. Tikka was a professor of Naval Architecture at the Webb Institute in New York and worked for Chevron Shipping in San Francisco and Wärtsilä Shipyards in Finland. Dr. Tikka holds a Doctorate in Naval Architecture and Offshore Engineering from the University of California, Berkeley and a Master’s degree in Mechanical Engineering and Naval Architecture from the University of Technology in Helsinki.
Paul Tivnan is ourArdmore’s Senior Vice President, Chief Financial Officer, Secretary and Treasurer of Ardmore.Treasurer. Mr. Tivnan joined Ardmore in June 2010 and was appointed Chief Financial Officer in December 2012. He is also a Director of Element 1 Corp, a leading developer of advanced hydrogen generation and a Board Advisor to E1 Marine LLC, a developer of methanol-to-hydrogen generation systems to support fuel cell power generation across the marine industry. From 2002 to 2010, he was employed at Ernst & Young in the Financial Services Advisory department specializing in international tax and corporate structuring. He was a participant in Ernst & Young’s Accelerated Leadership Program from 2008 to 2010. Mr. Tivnan holds a BA in Accounting and Finance and an MBS in Accounting each from Dublin City University. He is a graduate of theINSEAD and London Business School Executive Leadership program,programs, a Fellow of the Institute of Chartered Accountants of Ireland, an Associate of the Irish Taxation Institutea Chartered Tax Advisor, and a member of the Institute of Chartered Shipbrokers.
Helen Tveitan de Jong has been a director of Ardmore since September 2018. She is Chair and Chief Executive Officer of Carisbrooke Shipping Holdings Ltd., a specialist owner operator of mini-bulk and project cargo ships controlling a fleet of 32 ships. Previously, Ms. Tveitan de Jong held a variety of senior ship finance roles, including as a founding partner at shipping finance advisory firm THG Capital from 2001 to 2007, and has held several positions as interim Finance Director for shipping companies, most notably in the dry bulk sector, from 2003 to 2017. Ms. Tveitan de Jong graduated with a DRS in Economics from Rotterdam's Erasmus University in 1992. Since April 2021, Ms. Tveitan de Jong has served as an independent non-executive director of Taylor Maritime Investments Limited, an internally managed investment company listed on the premium segment of the London Stock Exchange.
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B. Compensation of Directors and Senior Management
We paid $2.5$1.9 million in aggregate cash compensation to members of our senior executive officers for 2017.2021. For 2017,2021, each of our non-employee directors annually received cash compensation in the aggregate amount of $65,000,$32,500, plus an additional fee of $20,000$10,000 for each committee for which a director servedserving as Chairman, $10,000Chair of the audit committee, $7,500 for a director serving as Chair of other committees, $5,000 for each member of the audit committee and $5,000$2,500 for each member of other committees, plus reimbursements for actual expenses incurred while acting in their capacity as a director. Our ChairmanChair received an additional $65,000 per year.$21,250. We paid $660,000$0.2 million in aggregate compensation to our directors for
TABLE OF CONTENTS 2021.
2017. Our officers and directors are eligible to receive awards under our equity incentive plan, which is described below under “— Equity Incentive Plan.” We do not have a retirement plan for our officers or directors.
We believe that it is important to align the interests of our directors and management with those of our shareholders. In this regard, we have determined that it generally is beneficial to us and to our shareholders for our directors and management to have a stake in our long-term performance. We expect that a meaningful component of the compensation packages for our directors and management will consist of equity interests in Ardmore in order to promote this alignment of interests.
Equity Incentive Plan
We currently have an equity incentive plan, the 2013 Equity Incentive Plan (the “plan”), under which directors, officers, and employees (including any prospective officer or employee) of us and our subsidiaries and affiliates, and consultants and service providers to (including persons who are employed by or provide services to any entity that is itself a consultant or service provider to) to us and our subsidiaries and affiliates, as well as entities wholly-owned or generally exclusively controlled by such persons, may be eligible to receive incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, unrestricted stock and other equity-based or equity-related awards that the plan administrator determines are consistent with the purposes of the plan and our interests. Subject to adjustment for changes in capitalization, the aggregate number of shares of our common stock with respect to which awards may at any time be granted under the plan will not exceed 8% of the issued and outstanding shares of our common stock at the time of issuance of the award. The plan is administered by the compensation committee of our board of directors.
Under the terms of the plan, stock options and stock appreciation rights granted under the plan will have an exercise price equal to the fair market value of a common share on the date of grant, unless otherwise determined by the plan administrator, but in no event will the exercise price be less than the fair market value of a common share on the date of grant. Options and stock appreciation rights are exercisable at times and under conditions as determined by the plan administrator, but in no event will they be exercisable later than ten years from the date of grant. The plan administrator may grant dividend equivalents with respect to grants of options and stock appreciation rights.
The plan administrator may grant shares of restricted stock and awards of restricted stock units subject to vesting, forfeiture and other terms and conditions as determined by the plan administrator. With respect to restricted stock units, the award recipient will be paid an amount equal to the number of vested restricted stock units multiplied by the fair market value of a common share on the date of vesting, which payment may be paid in the form of cash or common shares or a combination of both, as determined by the plan administrator. The plan administrator may grant dividend equivalents with respect to grants of restricted stock units.
Adjustments may be made to outstanding awards in the event of a corporate transaction or change in capitalization or other extraordinary event. In the event of a “change in control” (as defined in the plan), unless otherwise provided by the plan administrator in an award agreement, awards then outstanding will become fully vested and exercisable in full.
Our board of directors may amend or terminate the plan and the plan administrator may amend outstanding awards, provided that no such amendment or termination may be made that would materially impair any rights, or materially increase any obligations, of a grantee under an outstanding award without the consent of the grantee.
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Shareholder approval of plan amendments may be required under certain circumstances. Unless terminated earlier by our board of directors, the plan will expire ten years from the date the plan is adopted.
Stock Appreciation Rights (“SARs”)
As ofat December 31, 2017,2021, ASC had granted 1,349,1543,710,473 SARs (inclusive of 5,779 forfeited SARs) to certain of its officers and directors under its 2013 Equity Incentive Plan. Under a SAR award, the grantee is entitled to receive the appreciation of a share of ourASC’s common stock following the grant of the award.
Each SAR provides for a payment of an amount equal to the excess, if any, of the fair market value of a share of Ardmore’sASC’s common stock at the time of exercise of the SAR over the per share exercise price of the SAR, multiplied by
the number of shares for which the SAR is then exercised. Payment under the SAR will be made in the form of shares of Ardmore’sASC’s common stock, based on the fair market value of a share of Ardmore’sASC’s common stock at the time of exercise of the SAR.
On March 4, 2021 ASC granted 610,691 SARs.
The weighted average exercise priceSARs vest in three equal annual tranches, have a contractual term of 7 years and provide for certain dividend equivalent rights pursuant to which the holder will be entitled upon vesting of the SARs outstanding asto payment in the form of December 31, 2017 was $13.16 (the same as in 2016).
The SAR awards provide that in no event willadditional shares equal to the appreciation per share forvalue of any cash dividends declared and payable during the applicable vesting period with respect to the shares underlying the portion of the SAR award be deemedSARs that vest.
Restricted Stock Units (“RSUs”)
On March 4, 2021, ASC granted 56,957 RSUs to exceed four times (i.e., 400%) the per share exercise pricecertain of the SAR. In other words, the fair market value of a share of our common stock for purposes of calculating the amount payable under the SARs not deemed to exceed five times (i.e., 500%) the per share exercise price of the SAR. Any appreciationits directors that will vest in excess of four times the per share exercise price of the SAR will be disregarded for purposes of calculating the amount payable under the SAR.
As of December 31, 2017 there had been five issuances of SARs: August 2013 (1,078,125 units), March 2014 (22,118 units), June 2014 (5,595 units), March 2015 (37,797 units), and January 2016 (205,519 units). The first SARs awards vest and become exercisable ratably over five yearstwelve months from the date of grantgrant. On the same day, ASC granted 302,923 RSUs to certain of the SAR award (i.e., 20%its officers that will vest in three equal annual tranches. On June 7, 2021, ASC granted 95,583 RSUs to certain of the shares covered by the SAR awardits directors that will vest on each of the first five anniversaries of the grant date), and the second, third, fourth and fifth SAR awards are scheduled to vest and become exercisable ratably over three yearsin twelve months from the date of grantgrant.
Under an RSU award, the grantee is entitled to receive a share of ASC’s common stock for each RSU at the end of the SARvesting period. Payment under the RSU will be made in the form of shares of ASC’s common stock. The RSU awards include dividend equivalent rights equal in number to the number of shares underlying the award (i.e., 33%of RSUs granted.
Dividend Equivalent Rights (“DERs”)
Under a DER award, in the event that dividends are declared and paid on a share with a record date on or after the grant date, the grantee is entitled to receive a share of ASC’s common stock equal to the amount of the shares covereddividend declared multiplied by the SARnumber of shares per the award, vest on each ofdivided by the first three anniversaries of the grant date), subject to, and conditioned upon, the grantee’s continued service as an employee, officer or director of us or one of our subsidiaries or affiliates.
However, vesting on all SAR awards up to July 31, 2016 was subject to the market condition that the fair market valueFair Market Value of a share of our common stock is equal to more than two timeson the SAR’s per share exercise price and has remained above such amount for 30 consecutive days. On that date the vesting reverted to being solely dependent on time of service. The SARdividends are paid. No DER awards may receive accelerated vesting in cases of termination of service due to death or disability or in connection with a change of control of the Company. The SAR awards have a term of seven years from the date of grant and in no event will the SAR be exercisable to any extent following the seventh anniversary of the grant date. The SAR awards are subject to adjustment in the event of certain changes in capitalization or other significant corporate events, as more fully set forth in the equity incentive plan document. were granted during 2021.
Please see Note 18 “Share based16 “Share-based compensation” to our consolidated financial statements included in this Annual Report for additional information about the SAR awards.awards, RSUs and DERs.
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C. Board Practices
Our board of directors currently consists of sevensix directors, fiveall of whom, Brian Dunne, Peter Swift, Alan Robert McIlwraith, Albert Enste, and Curtis McWilliamsother than our Chief Executive Officer, Anthony Gurnee, have been determined by our board of directors to be independent under the rules of the New York Stock Exchange and the rules and regulations of the SEC. The sizeOur board of directors has instituted a policy of holding executive sessions of non-management directors following each regularly scheduled meeting of the board was reducedfull Board.
Additional executive sessions of non-management directors may be held from eighttime to seven directors upontime as required. The director serving as the resignationpresiding director during executive sessions currently is Curtis Mc Williams, the Chair of former director Niall McComiskey in December 2017 following the disposition by GA Holdings LLC of all of our shares it owned. Board.
Our Audit Committee consists of Brian Dunne, as Chairman, Alan Robert McIlwraith,Chair, Curtis Mc Williams and Curtis McWilliams. Helen Tveitan de Jong. Each member of our Audit Committee is financially literate under the current listing standards of the New York Stock Exchange and the SEC.
Our board of directors has determined that Mr. Dunne qualifies as an “audit committee financial expert” as such term is defined under SEC rules. The Audit Committee, among other things, reviews our external financial reporting, engages our external auditors, and oversees our financial reporting procedures and the adequacy of our internal accounting controls.
The Nominating and Corporate Governance Committee consists of Reginald Jones (a non-independent member of our board of directors)Curtis Mc Williams as Chairman,Chair, Mats Berglund and Brian Dunne and Curtis McWilliams.Dunne. The Nominating and Corporate Governance Committee is responsible for recommending to the board of directors nominees for director and directors for appointment to board committees and advising the board with regard to corporate governance practices. The Compensation Committee consists of Reginald Jones, as Chairman, Peter Swift and Albert Enste. The Compensation Committee oversees our equity incentive plan and recommends director and senior employee compensation. Our shareholders may also nominate directors in accordance with the procedures set forth in our bylaws.
The Compensation Committee consists of Curtis Mc Williams, as Chair, Mats Berglund and Kirsi Tikka. The Compensation Committee oversees our equity incentive plan and recommends director and senior employee compensation.
There are no service contracts between us and any of our directors providing for benefits upon termination of their employment or service. Each of the committees is currently comprised of independent members and operates under a written charter adopted by the board of directors. All of the committee charters are available under “Corporate Governance” in the Investors section of our website at www.ardmoreshipping.com.
D. Employees
As of December 31, 2017,2021, approximately 1,060993 seagoing staff serve on the vessels that we manage and approximately 46 permanent47 full-time staff and seven part-time staff serve on shore. This compares with approximately 1,0271,046 seafarers and
approximately 45 47 full-time staff and eight part-time staff on shore as of December 31, 2016 and reflects the growth in our fleet.2020. Many of our seafarers employed by our ship managers are unionized under various jurisdictions and are employed under various collective bargaining agreements which doesthat expose us to a risk of potential labor unrest at times when those collective bargaining agreements are being re-negotiated.
We have entered into employment agreements with fourfive of our executives: Mark Cameron, our Executive Vice President and Chief Operating Officer; Anthony Gurnee, our President and Chief Executive Officer; Aideen O’Driscoll, our Vice President and Director of Corporate Services; Gernot Ruppelt, our Senior Vice President and Chief Commercial Officer; and Paul Tivnan, our Senior Vice President and Chief Financial Officer. These employment agreements became effective as of August 1, 2013 and terminate in accordance with the terms of such agreements. Pursuant to the terms of their respective employment agreements, our executive officers are prohibited from disclosing or unlawfully using any of our material confidential information. The employment agreements also include one yearone-year non-solicitation and one year non-compete clauses following the cessation of the employee’s employment with us.
The employment agreements require that we maintain director and officer insurance and that we indemnify and hold the employee harmless against all expenses, liability and loss (including reasonable and necessary attorneys’ fees, judgments, fines and amounts paid in settlement) in connection with any threatened or pending action, suit or proceeding, to which the employee is a party or is threatened to be made a party as a result of the employee’s employment with us. The indemnification provisions exclude fraud, willful misconduct or criminal activity on the employee’s behalf.
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E. Share Ownership
The total amount of common stock owned by all of our officers and directors as a group is set forth below in Item 7. (“Major Shareholders and Related Party Transactions — A. Major Shareholders”).
Item 7. Major Common Shareholders and Related Party Transactions
A. Major Common Shareholders
The following table sets forth information regarding beneficial ownership, as of February 28, 201815, 2022 (except as otherwise noted), of our common stock by:
| ● | each person or entity known by us to beneficially own 5% or more of our common stock; and |
| ● | all our current directors and executive officers and senior management as a group. |
The information provided in the table is based on information filed with the SEC and information provided to us.
The number of shares beneficially owned by each person, entity, director, executive officer or other member of senior management is determined under SEC rules and the information is not necessarily indicative of beneficial ownership for any other purpose. Under SEC rules, a person or entity beneficially owns any shares as to which the person or entity has or shares voting or investment power. In addition, a person or entity beneficially owns any shares that the person or entity has the right to acquire as of the date 60 days after February 28, 201815, 2022 through the exercise of any stock option or other right; however, any such shares are not deemed outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, each person or entity has sole voting and investment power (or shares such powers with his or her spouse) with respect to the shares set forth in the following table.
| | | | | |
Identity of person or group |
| Shares Beneficially Owned |
| ||
|
| Number |
| Percentage(1) |
|
Private Management Group, Inc.(2) | | 2,768,578 | | 8.06 | % |
Aristotle Capital Boston, LLC(3) | | 2,593,053 | | 7.54 | % |
Royce & Associates, LP(4) | | 1,853,307 | | 5.39 | % |
All directors and executive officers as a group | | * | | * | |
Beneficial Ownership Table
| | | ||||||
| Identity of person or group | Shares Beneficially Owned | |||||||
| Number | Percentage(1) | |||||||
| Donald Smith & Co., Inc.(2) | 3,063,262 | 9.44 | % | |||||
| FMR LLC(3) | 2,540,670 | 7.83 | % | |||||
| Royce and Associates LP(4) | 2,108,775 | 6.50 | % | |||||
| Aristotle Capital Boston, LLC(5) | 2,058,374 | 6.34 | % | |||||
| Russell Investments Group Ltd(6) | 2,000,505 | 6.17 | % | |||||
| Cross River Capital Management LLC(7) | 1,675,013 | 5.16 | % | |||||
| Boston Partners(8) | 1,669,220 | 5.14 | % | |||||
| All directors and executive officers as a group | * | * | ||||||
| (1) | Based on |
| (2) |
| This information is based on the Amendment No. |
| (3) | This information is based on the Amendment No. 2 to Schedule 13G filed with the SEC on |
| (4) | This information is based on the Amendment No. 5 to Schedule 13G filed with the SEC on |
* |
Less than 1% of outstanding shares of our common stock. |
As of February 28, 2018,15, 2022, we had twothree shareholders of record located in the United States, one of which is CEDE & CO., a nominee of The Depository Trust Company, which held an aggregate of 32,323,09534,216,575 shares of our common stock, representing approximately 99.62%94.0% of our outstanding shares of common stock. We believe that the shares held by CEDE & CO. include shares of common stock beneficially owned by both holders in the United States and non-U.S. beneficial owners.
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Our major shareholders have the same voting rights as our other shareholders. No corporation or foreign government or other natural or legal person owns more than 50% of our outstanding common stock. We are not aware of any arrangements, the operation of which may at a subsequent date result in oura change in control of control.Ardmore.
B. Related Party Transactions
We have a 50%-owned joint venture entity, Anglo Ardmore Ship Management Limited (“AASML”), owned in equal shares by the third-party technical manager Anglo-Eastern and our wholly-owned subsidiary Ardmore Shipping Corporation(Bermuda) Limited. AASML was incorporated underin June 2017 and began providing technical management services exclusively to the lawsArdmore fleet on January 1, 2018. We have entered into standard Baltic and International Maritime Council (BIMCO) ship management agreements with AASML for the provision of the Republic of the Marshall Islands in May 2013. We commenced business operations through our predecessor company, Ardmore Shipping LLC, in April 2010. In August 2013, we completed our IPO of sharestechnical management services to 17 of our common stock. Prior to our IPO, GA Holdings LLC, who was our sole shareholder, exchanged its 100% interest in Ardmore Shipping LLC for 8,049,500 sharesvessels as at December 31, 2021 (2020: 17 vessels). AASML provides the vessels with a wide range of Ardmore Shipping Corporation,shipping services such as repairs and Ardmore Shipping LLC became a wholly owned subsidiary of Ardmore Shipping Corporation. In November 2015, GA Holdings LLC sold 4,000,000 of its shares of our common stock in an underwritten public offering. In June 2016, we completed a public offering of 7,500,000 common shares, of which GA Holdings LLC purchased 1,277,250 shares. In November 2017, GA Holdings LLC disposed the balance of its remaining 5,787,942 common shares, of which 5,579,978 shares were sold in an underwritten public secondary offering, 85,654 shares were repurchased by us in a private transaction,maintenance, provisioning and 122,310 shares were distributed to certain of its members, including Anthony Gurnee, our chief executive officer and a member of our board of directors. In addition to the 85,654 shares we repurchased from GA Holdings LLC in a private transaction, we also purchased from the underwriter 1,350,000 shares of our common stock that were sold by GA Holdings LLC in the secondary offering, with the price of all such repurchases by us being equal to the price per share at which GA Holdings LLC sold shares to the underwriters in the public offering. Prior to the November 2017 secondary offering, two members of our board of directors, Reginald Jones and Niall McComiskey, were affiliated with our largest
TABLE OF CONTENTScrewing.
shareholder, GA Holdings LLC. Following the offering, Niall McComiskey resigned from our board of directors. Reginald Jones remains a member of our board of directors.
Any transaction involving the payment of compensation to a director or officer in connection with their duties to Ardmore are not related party transactions. Please see Item 6.A “Directors, Senior Management and Employees-Directors and Senior Management.”
C. Interest of Experts and Council
Counsel
Not applicable.
Item 8. Financial Information
A. Consolidated Financial Statements and Other Financial Information
See Item 18.
Legal Proceedings
Although we may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business, we are not at present party to any legal proceedings or aware of any proceedings against us, or contemplated to be brought against us, that would reasonably be expected to have a material effect on our business, financial position, results of operations or liquidity. We maintain insurance policies with insurers in amounts and with coverage and deductibles as our board of directors believes are reasonable and prudent. We expect that these claims would be covered by insurance, subject to customary deductibles. Those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.
Dividend
Capital Allocation Policy
Under
On March 9, 2020, we announced a new capital allocation policy which sets out our dividendpriorities among fleet maintenance, financial strength, accretive growth and, once the other priorities are achieved, returning capital to shareholders. We transitioned to the new policy established in September 2015, we expectcommencing with the quarter ended March 31, 2020.
Our ability to pay our shareholders quarterlyany dividends of 60%on shares of our Earnings from Continuing Operations, which representscommon stock in the future and our earnings per share reported under U.S. GAAP as adjusted for unrealizednew capital allocation policy are subject to various risks and realized gains and losses and extraordinary items.restrictions. Our board of directors may review and amend our dividendcapital allocation policy from time to time in light of our plans for future growth and other factors. So long as any share of our Series A Preferred Stock remains outstanding, no cash dividend may be declared or paid on our common stock unless, among other things, all accrued and unpaid dividends have been paid on the Series A Preferred Stock. In addition, our ability to pay dividends on our common stock in the future will be subject to the amount of cash reserves established by our board of directors for the conduct of our business, restrictions in our credit facilities and the provisions of the laws of the Republic of the Marshall Islands, as well as the other limitations set forth in the section of this Annual Report entitled “Risk Factors”. On April 2, 2015, we introduced our Dividend Reinvestment Plan. The plan allows existing shareholders to purchase additional common shares by automatically reinvesting all or any portion of the cash dividends paid on common shares held by the plan participant.
B. Significant Changes
Not Applicable.
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Item 9. The Offer and ListingA. Offer and Listing Details
Shares of our common stock trade on the New York Stock Exchange under the symbol “ASC”. The high and low closing prices of our common shares on the New York Stock Exchange are presented for the periods listed below.
| | | ||||||
| FOR THE YEAR ENDED | HIGH | LOW | ||||||
| December 31, 2013(1) | $ | 15.84 | $ | 11.32 | ||||
| December 31, 2014 | 15.41 | 8.25 | ||||||
| December 31, 2015 | 15.07 | 9.55 | ||||||
| December 31, 2016 | 12.69 | 5.00 | ||||||
| December 31, 2017 | 9.05 | 6.60 | ||||||
| | | ||||||
| FOR THE QUARTER ENDED | HIGH | LOW | ||||||
| March 31, 2016 | $ | 12.69 | $ | 7.11 | ||||
| June 30, 2016 | 9.96 | 6.46 | ||||||
| September 30, 2016 | 8.37 | 6.52 | ||||||
| December 31, 2016 | 7.58 | 5.00 | ||||||
| March 31, 2017 | 8.15 | 6.60 | ||||||
| June 30, 2017 | 8.75 | 6.95 | ||||||
| September 30, 2017 | 8.50 | 6.87 | ||||||
| December 31, 2017 | 9.05 | 7.50 | ||||||
| | | ||||||
| FOR THE MONTHS ENDED | HIGH | LOW | ||||||
| September 30, 2017 | $ | 8.30 | $ | 7.18 | ||||
| October 31, 2017 | 9.05 | 8.15 | ||||||
| November 30, 2017 | 9.00 | 7.95 | ||||||
| December 31, 2017 | 8.35 | 7.50 | ||||||
| January 31, 2018 | 8.32 | 6.90 | ||||||
| February 28, 2018 | 7.95 | 6.40 | ||||||
| March 31, 2018(2) | 8.15 | 7.35 | ||||||
B. Plan of Distribution
Not applicable.
C. Markets
Shares of our common stock trade on the New York Stock Exchange under the symbol “ASC”.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. Additional Information
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
Our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws have been filed as Exhibits 3.1 and 3.2, respectively, to Form F-1/A (Registration Number 333-189714), declared effective by the Securities and Exchange Commission on July 31, 2013.
Our Amended and Restated Articles of Incorporation were modified by the Statement of Designation relating to our Series A Preferred Stock filed as Exhibit 1.1 to our Report on Form 6-K furnished to the Securities and Exchange Commission on June 17, 2021. The information contained in these exhibits is incorporated by reference into this Annual Report.
The rights, preferences and restrictions attaching to our shares of common stock are described in the section entitled “DescriptionExhibit 2.2 (Description of Capital Stock”Stock) of our Registration Statement on Form F-3 (File No. 333-213343), filed with the SEC on August 26, 2016, and hereby incorporated by reference into this Annual Report.Report.
There are no limitations on the rights to own our securities, including the rights of non-resident or foreign shareholders to hold or exercise voting rights on the securities, imposed by the laws of the Republic of The Marshall Islands or by our Articles of Incorporation or Bylaws.
C. Material Contracts
Attached or incorporated by reference as exhibits to this Annual Report are the contracts we consider to be both material and not entered into in the ordinary course of business. Descriptions are included in Note 86 (“Debt”) to our consolidated financial statements included in this Annual Report with respect to our credit facilities.facilities and Note 7 (“Finance Leases”) with respect to our finance leases. Other than these contracts, we have not entered into any other material contracts in the two years immediately preceding the date of this Annual Report, other than contracts entered into in the ordinary course of business.
D. Exchange Controls
Under Marshall Islands law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to non-resident holders of our common shares.
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E. Taxation of Holders
The following is a discussion of the material Marshall Islands and U.S. federal income tax considerations that may be relevant to us and our shareholders. This discussion does not purport to deal with the tax consequences of owning common stock to all categories of investors, some of which, such as dealersfinancial institutions, regulated investment companies, real estate investment trusts, tax-exempt organizations, insurance companies, persons holding our common shares as part of a hedging, integrated, conversion or constructive sale transaction or a straddle, traders in securities or commodities, financial institutions, insurance companies, tax-exempt organizations, U.S. expatriates,that have elected the mark-to-market method of accounting for their securities, persons liable for the alternative minimum tax, persons who hold common stock as part of a straddle, hedge, conversion transactionare investors in partnerships or integrated investment,other pass-through entities for U.S. federal income tax purposes, dealers in securities or currencies, U.S. Holders whose functional currency is not the United StatesU.S. dollar, and investors that own, actually or under applicable constructive ownership rules, 10% or more of the Company’sour common stockshares and investors that are required to recognize income pursuant to an “applicable financial statement”, and persons who own our stock through an “applicable partnership interest”,subject to the “base erosion and anti-avoidance” tax, may be subject to special rules. This discussion deals only with holders who hold the common stock as a capital asset. You are encouraged to consult your own tax advisors concerning the overall tax consequences arising in your own particular situation under U.S. federal, state, local or foreign law of the ownership of common stock.
Marshall Islands Tax Considerations
The following are the material Marshall Islands tax consequences of our activities to us and of our common shares to our shareholders. We are incorporated in the Marshall Islands. Under current Marshall Islands law, we are not subject to tax on income or capital gains, and no Marshall Islands withholding tax will be imposed upon payments of dividends by us to our shareholders.
U.S. Federal Income Tax Considerations
The following are the material U.S. federal income tax consequences to (a) us and (b) U.S. Holders and Non-U.S. Holders, each as defined below, of the common shares. The following discussion of U.S. federal income tax matters is based on the Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the United States Department of the Treasury (“Treasury Regulations”), all of which are subject to change, possibly with retroactive effect. The discussion below is based, in part, on the description of our business as described in this annual reportAnnual Report and assumes that we conduct our business as described herein. References in the following discussion to the “Company”, “we”, “our” and “us” are to Ardmore Shipping Corporation and its subsidiaries on a consolidated basis.
U.S. Federal Income Taxation of Operating Income: In General
We anticipate that we will earn substantially all our income from the hiring or leasing of vessels for use on aspot, time charter basis, from participation in aand pool or from the performance of services directly related to those uses,arrangements, all of which we refer to as “shipping income”.
Unless we qualify from an exemption from U.S. federal income taxation under either an applicable tax treaty or the rules of Section 883 of the Code (“Section 883”), as discussed below, a foreign corporation such as the Companyus will be subject to United States federal income taxation on its “shipping income” that is treated as derived from sources within the United States (“U.S. source shipping income”). For U.S. federal income tax purposes, “U.S. source shipping income” includes 50% of shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States.
Shipping income attributable to transportation exclusively between non-U.S. ports will be considered to be 100% derived from sources entirely outside the United States. Shipping income derived from sources outside the United States will not be subject to any U.S. federal income tax.
Shipping income attributable to transportation exclusively between U.S. ports is considered to be 100% derived from U.S. sources. However, we are not permitted by United States law to engage in the transportation of cargoes that produces 100% U.S. source shipping income.
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Exemption of Operating Income from U.S. Federal Income Taxation
Under Section 883 and the Treasury Regulations promulgated thereunder, a foreign corporation will be exempt from U.S. federal income taxation of its U.S. source shipping income if:
| (1) | it is organized in a “qualified foreign country” which is one that grants an “equivalent exemption” from tax to corporations organized in the United States in respect of each category of shipping income for which exemption is being claimed under Section 883; and |
| (2) | one of the following tests is met: |
| (A) | more than 50% of the value of its shares is beneficially owned, directly or indirectly, by “qualified shareholders”, which as defined includes individuals who are “residents” of a qualified foreign country, to which we refer as the “50% Ownership Test”; or |
| (B) | its shares are “primarily and regularly traded on an established securities market” in a qualified foreign country or in the United States, to which we refer as the “Publicly-Traded Test”. |
The Marshall Islands, the jurisdiction where we and our ship-owning subsidiaries are incorporated, has been officially recognized by the IRS, as a qualified foreign country that grants the requisite “equivalent exemption” from tax in respect of each category of shipping income we earn and currently expect to earn in the future. Therefore, we will be exempt from U.S. federal income taxation with respect to our U.S. source shipping income if we satisfy either the 50% Ownership Test or the Publicly-TradedPublicly Traded Test.
We believe that we satisfy the Publicly-TradedPublicly Traded Test for our 20172021 taxable year and therefore qualify for an exemption from tax under Section 883. We anticipate that we will continue to satisfy the Publicly-TradedPublicly Traded Test but, as discussed below, this is a factual determination made on an annual basis. We do not currently anticipate circumstances under which we would not be able to satisfy the 50% Ownership Test.
Publicly-Traded
Publicly Traded Test
The Treasury Regulations under Section 883 provide, in pertinent part, that shares of a foreign corporation will be considered to be “primarily traded” on an established securities market in a country if the number of shares of each class of stock that are traded during any taxable year on all established securities markets in that country exceeds the number of shares in each such class that are traded during that year on established securities markets in any other single country. The Company’sOur common shares, which constitute itsour sole class of issued and outstanding stock are “primarily traded” on the New York Stock Exchange (“NYSE”).
Under the Treasury Regulations, our common shares will be considered to be “regularly traded” on an established securities market if one or more classes of our shares representing more than 50% of our outstanding stock, by both total combined voting power of all classes of stock entitled to vote and total value, are listed on such market, (the “listing threshold”). Since all our common shares are listed on the NYSE, we satisfy the listing threshold.
The Treasury Regulations also require that with respect to each class of stock relied upon to meet the listing threshold, (i) such class of stock traded on the market, other than in minimal quantities, on at least 60 days during the taxable year or one-sixth of the days in a short taxable year (“trading frequency test”); and (ii) the aggregate number of shares of such class of stock traded on such market during the taxable year must be at least 10% of the average number of shares of such class of stock outstanding during such year or as appropriately adjusted in the case of a short taxable year (the “trading volume test”). We believe that we satisfy the trading frequency and trading volume tests with respect to the 20172021 taxable year. Even if this were not the case, the Treasury Regulations provide that the trading frequency and trading volume tests will be deemed satisfied if, as is the case with our common shares, such class of stock is traded on an established securities market in the United States and such shares are regularly quoted by dealers making a market in such shares.
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Notwithstanding the foregoing, the Treasury Regulations provide, in pertinent part, that a class of shares will not be considered to be “regularly traded” on an established securities market for any taxable year in which 50% or more of the vote and value of the outstanding shares of such class are owned, actually or
constructively under specified share attribution rules, on more than half the days during the taxable year by persons who each own 5% or more of the vote and value of such class of outstanding stock (“5% Override Rule”).
For purposes of being able to determine the persons who actually or constructively own 5% or more of the vote and value of our common shares (“5% Shareholders”) the Treasury Regulations permit us to rely on those persons that are identified on Schedule 13G and Schedule 13D filings with the United States Securities and Exchange Commission, as owning 5% or more of our common shares. The Treasury Regulations further provide that an investment company which is registered under the Investment Company Act of 1940, as amended, will not be treated as a 5% Shareholder for such purposes.
In the event the 5% Override Rule is triggered, the Treasury Regulations provide that the 5% Override Rule will nevertheless not apply if we can establish that within the group of 5% Shareholders, qualified shareholders (as defined for purposes of Section 883) own sufficient number of shares to preclude non-qualified shareholders in such group from owning 50% or more of our common shares for more than half the number of days during the taxable year.
We believe that we satisfy the Publicly-TradedPublicly Traded Test for the 20172021 taxable year and were not subject to the 5% Override Rule, and we intend to take that position on our 20172021 U.S. federal income tax returns.return. However, there are factual circumstances beyond our control that could cause us to lose the benefit of the Section 883 exemption for any future taxable year. For example, there is a risk that we could no longer qualify for Section 883 exemption for a particular taxable year if one or more 5% Shareholders were to own 50% or more of our outstanding common shares on more than half the days of the taxable year.
Under these circumstances, we would be subject to the 5% Override Rule and we would not qualify for the Section 883 exemption unless we could establish that our shareholding during the taxable year was such that non-qualified 5% Shareholders did not own 50% or more of our common shares on more than half the days of the taxable year. Under the Treasury Regulations, we would have to satisfy certain substantiation requirements regarding the identity of our shareholders. These requirements are onerous and there is no assurance that we would be able to satisfy them. Given the factual nature of the issues involved, we can give no assurances in regardsregard to our or our subsidiaries’ qualification for the Section 883 exemption.
Taxation in Absence of Section 883 Exemption
If the benefits of Section 883 are unavailable, our U.S. source shipping income would be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions, or the “4% gross basis tax regime”, to the extent that such income is not considered to be “effectively connected” with the conduct of a United States trade or business, as described below. Since under the sourcing rules described above, no more than 50% of our shipping income would be treated as being U.S. source shipping income, the maximum effective rate of U.S. federal income tax on our shipping income would never exceed 2% under the 4% gross basis tax regime.
To the extent our U.S. source shipping income is considered to be “effectively connected” with the conduct of a U.S. trade or business, as described below, any such “effectively connected” U.S. source shipping income, net of applicable deductions, would be subject to U.S. federal income tax, currently imposed at rates of up to 35% for the 2017 taxable year and a rate of 21% for future taxable years.. In addition, we would generally be subject to the 30% “branch profits” tax on earnings effectively connected with the conduct of such trade or business, as determined after allowance for certain adjustments, and on certain interest paid or deemed paid attributable to the conduct of our U.S. trade or business.
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Our United States source shipping income would be considered “effectively connected” with the conduct of a United States trade or business only if:
| ● | we have, or are considered to have, a fixed place of business in the United States involved in the earning of U.S. source shipping income; and |
| ● | substantially all of our U.S. source shipping income is attributable to regularly scheduled transportation, such as the operation of a vessel that follows a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the United States. |
We do not intend to have, or permit circumstances that would result in having, any vessel sailing to or from the United States on a regularly scheduled basis. Based on the foregoing and on the expected mode of our shipping operations and other activities, it is anticipated that none of our U.S. source shipping income will be “effectively connected” with the conduct of a U.S. trade or business.
United States Taxation of Gain on Sale of Vessels
Regardless of whether we qualify for an exemption under Section 883, we will not be subject to U.S. federal income tax with respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United States under U.S. federal income tax principles. In general, a sale of a vessel will be considered to occur outside of the United States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States. It is expected that any sale of a vessel by us will be considered to occur outside of the United States.
U.S. Federal Income Taxation of United States Holders
As used herein, the term “U.S. Holder” means a holder that for U.S. federal income tax purposes is a beneficial owner of our common shares and is an individual U.S. citizen or resident, a U.S. corporation or other U.S. entity taxable as a corporation, an estate the income of which is subject to U.S. federal income taxation regardless of its source, or a trust if (a) a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust.trust or (b) the trust has a valid election in effect to be treated as a U.S. person.
If a partnership holds the common shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding the common shares, you are encouraged to consult your tax advisor.
Distributions
Subject to the discussion of passive foreign investment companies below, any distributions made by us with respect to our common shares to a U.S. Holder will generally constitute dividends to the extent of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles.
Distributions in excess of such earnings and profits will be treated first as a non-taxable return of capital to the extent of the U.S. Holder’s tax basis in our common shares and thereafter as capital gain. Because we are not a U.S. corporation, U.S. Holders that are corporations will generally not be entitled to claim a dividends received deduction with respect to any distributions they receive from us. Dividends paid with respect to our common shares will generally be treated as foreign source dividend income and will generally constitute “passive category income” for purposes of computing allowable foreign tax credits for U.S. foreign tax credit purposes.
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Subject to applicable limitations, including a holding period requirement, dividends paid on our common shares to certain non-corporate U.S. Holders will generally be treated as “qualified dividend income” that is taxable to such U.S. Holders at preferential tax rates provided that (1) the common shares are readily tradable on an established securities market in the U.S. (such as the NYSE, on which our common shares are traded); and (2) we are not a passive foreign investment company for the taxable year during which the dividend is paid or the immediately preceding taxable year (which, as discussed below, we do not believe that we are or will be for any future taxable years).
There is no assurance that any dividends paid on our common shares will be eligible for these preferential rates in the hands of such non-corporate U.S. Holders, although, as described above, we expect such dividends to be so eligible provided an eligible non-corporate U.S. Holder meets all applicable requirements. Any dividends paid by us which are not eligible for these preferential rates will be taxed as ordinary income to a non-corporate U.S. Holder.
Special rules may apply to any “extraordinary dividend” — generally, a dividend in an amount which is equal to or in excess of 10% of a shareholder’s adjusted tax basis in a common share — paid by us. If we pay an “extraordinary dividend” on our common shares that is treated as “qualified dividend income”, then any loss derived by certain non-corporate U.S. Holders from the sale or exchange of such common shares will be treated as long termlong-term capital loss to the extent of such dividend.
Sale, Exchange or Other Disposition of Common Shares
Assuming we do not constitute a passive foreign investment company for any taxable year, a U.S. Holder generally will recognize taxable gain or loss upon a sale, exchange or other disposition of our common shares in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S. Holder’s tax basis in such shares. Such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder’s holding period is greater than one year at the time of the sale, exchange or other disposition. Such capital gain or loss will generally be treated as U.S. source income or loss, as applicable, for U.S. foreign tax credit purposes.
Long-term capital gains of certain non-corporate U.S. Holders are currently eligible for reduced rates of taxation. A U.S. Holder’s ability to deduct capital losses is subject to certain limitations.
3.8% Tax on Net Investment Income
For taxable years beginning after December 31, 2012, a
A U.S. Holder that is an individual, estate, or, in certain cases, a trust, will generally be subject to a 3.8% tax on the lesser of (1) the U.S. Holder’s net investment income for the taxable year and (2) the excess of the U.S. Holder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals will be between $125,000 and $250,000). A U.S. Holder’s net investment income will generally include distributions we make on the common stock which are treated as dividends for U.S. federal income tax purposes and capital gains from the sale, exchange or other disposition of the common stock. This tax is in addition to any income taxes due on such investment income.
Passive Foreign Investment Company Status and Significant Tax Consequences
Special U.S. federal income tax rules apply to a U.S. Holder that holds shares in a PFIC for U.S. federal income tax purposes. In general, we will be treated as a PFIC with respect to a U.S. Holder if, for any taxable year in which such holder holds our common shares, either:
| ● | at least 75% of our gross income for such taxable year consists of passive income (e.g., dividends, interest, capital gains and rents derived other than in the active conduct of a rental business); or |
| ● | at least 50% of the average value of our assets during such taxable year produce, or are held for the production of, passive income. |
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For purposes of determining whether we are a PFIC, cash held by us will be treated as passive assets. In addition, we will be treated as earning and owning our proportionate share of the income and assets, respectively, of any of our subsidiary corporations in which we own at least 25% of the value of the subsidiary’s stock. Income earned, or deemed earned, by us in connection with the performance of services would not constitute passive income. By contrast, rental income would generally constitute “passive income” unless we were treated under specific rules as deriving our rental income in the active conduct of a trade or business.
Based on our current and anticipated operations, we do not believe that we are currently a PFIC or will be treated as a PFIC for any future taxable year. Our belief is based principally on the position that the gross income we derive from time chartering activities should constitute services income, rather than rental income. Accordingly, such income should not constitute passive income, and the assets that we own and operate in connection with the production of such income, in particular, the vessels, should not constitute passive assets for purposes of determining whether we are a PFIC. There is substantial legal authority supporting this position consisting of case law and IRS pronouncements concerning the characterization of income derived from time charters as services income for other tax purposes. However, there is also authority which characterizes time charter income as rental income rather than services income for other tax purposes. Accordingly, no assurance can be given that the IRS or a court of law will accept this position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. In addition, although we intend to conduct our affairs in a manner to avoid being classified as a PFIC with respect to any taxable year, we cannot assure you that the nature of our operations will not change in the future.
As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a United States Holder would be subject to different taxation rules depending on whether the United States Holder makes an
election to treat us as a “Qualified Electing Fund” (“QEF election”). As an alternative to making a QEF election, a United States Holder should be able to make a “mark-to-market” election with respect to our common shares, as discussed below. A United States holder of shares in a PFIC will be required to file an annual information return on IRS Form 8621 containing information regarding the PFIC as required by applicable Treasury Regulations.
Taxation of United States Holders Making a Timely QEF Election
If a United States Holder makes a timely QEF election, which United States Holder we refer to as an “Electing Holder”, the Electing Holder must report for United States federal income tax purposes its pro rata share of our ordinary earnings and net capital gain, if any, for each of our taxable years during which we are a PFIC that ends with or within the taxable year of the Electing Holder, regardless of whether distributions were received from us by the Electing Holder. No portion of any such inclusions of ordinary earnings will be treated as “qualified dividend income”. Net capital gain inclusions of certain non-corporate United States Holders would be eligible for preferential capital gains tax rates. The Electing Holder’s adjusted tax basis in the common shares will be increased to reflect any income included under the QEF election. Distributions of previously taxed income will not be subject to tax upon distribution but will decrease the Electing Holder’s tax basis in the common shares. An Electing Holder would not, however, be entitled to a deduction for its pro rata share of any losses that we incur with respect to any taxable year. An Electing Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of our common shares. A U.S. Holder would make a timely QEF election for our common shares by filing one copy of IRS Form 8621 with its United States federal income tax return for the first year in which it held such shares when we were a PFIC. If we determine that we are a PFIC for any taxable year, we would provide each United States Holder with all necessary information in order to make the QEF election described above.
Taxation of United States Holders Making a Mark-to-Market Election
Alternatively, if we were to be treated as a PFIC for any taxable year and, as we anticipate will be the case, our shares are treated as “marketable stock”, a United States Holder would be allowed to make a “mark-to-market” election with respect to our common shares, provided the United States Holder completes and files IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. If that election is made, the United States Holder generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of the common shares at the end of the taxable year over such Holder’s adjusted tax basis in the common shares.
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The U.S. Holder would also be permitted an ordinary loss in respect of the excess, if any, of the U.S. Holder’s adjusted tax basis in the common shares over its fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holder’s tax basis in its common shares would be adjusted to reflect any such income or loss amount recognized. In a year when we are a PFIC, any gain realized on the sale, exchange or other disposition of our common shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the common shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included by the U.S. Holder.
Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election
If we were to be treated as a PFIC for any taxable year, a U.S. Holder who does not make either a QEF election or a “mark-to-market” election for that year, whom we refer to as a “Non-Electing Holder”, would be subject to special rules with respect to (i) any excess distribution (i.e., the portion of any distributions received by the Non-Electing Holder on the common shares in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder’s holding period for the common shares), and (ii) any gain realized on the sale, exchange or other disposition of our common shares. Under these special rules:
| ● | the excess distribution or gain would be allocated ratably over the Non-Electing Holder’s aggregate holding period for the common shares; |
| ● | the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, would be taxed as ordinary income and would not be “qualified dividend income”; and |
| ● | the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed tax deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. |
U.S. Federal Income Taxation of Non-U.S. Holders
As used herein, the term “Non-U.S. Holder” means a holder that, for U.S. federal income tax purposes, is a beneficial owner of common shares (other than a partnership) that is not a U.S. Holder.
If a partnership holds our common shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding our common shares, you are encouraged to consult your tax advisor.
Dividends on Common Shares
A Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on dividends received from us with respect to our common shares, unless that income is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States.
Sale, Exchange or Other Disposition of Common Shares
A Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on any gain realized upon the sale, exchange or other disposition of our common shares, unless:
| ● | the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the U.S.; or |
| ● | the Non-U.S. Holder is an individual who is present in the U.S. for 183 days or more during the taxable year of disposition and other conditions are met. |
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Income or Gains Effectively Connected with a U.S. Trade or Business
If the Non-U.S. Holder is engaged in a U.S. trade or business for U.S. federal income tax purposes, dividends on the common shares and gain from the sale, exchange or other disposition of the shares, that is effectively connected with the conduct of that trade or business (and, if required by an applicable income tax treaty, is attributable to a U.S. permanent establishment), will generally be subject to regular U.S. federal income tax in the same manner as discussed in the previous section relating to the taxation of U.S. Holders. In addition, in the case of a corporate Non-U.S. Holder, its earnings and profits that are attributable to the effectively connected income, which are subject to certain adjustments, may be subject to an additional branch profits tax at a rate of 30%, or at a lower rate as may be specified by an applicable U.S. income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, and the payment of the gross proceeds on a sale of our common shares, made within the U.S. to a non-corporate U.S. Holder will be subject to information reporting. Such payments or distributions may also be subject to backup withholding if the non-corporate U.S. Holder:
| ● | fails to provide an accurate taxpayer identification number; |
| ● | is notified by the IRS that it has failed to report all interest or dividends required to be shown on its federal income tax returns; or |
| ● | in certain circumstances, fails to comply with applicable certification requirements. |
Non-U.S. Holders may be required to establish their exemption from information reporting and backup withholding with respect to dividends payments or other taxable distribution on our common shares by certifying their status on an applicable IRS Form W-8. If a Non-U.S. Holder sells our common shares to or through a U.S. office of a broker, the payment of the proceeds is subject to both U.S. backup withholding and information reporting unless the Non-U.S. Holder certifies that it is a non-U.S. person, under penalties of perjury, or it otherwise establishes an exemption. If a Non-U.S. Holder sells our common shares through a non-U.S. office of a non-U.S. broker and the sales proceeds are paid outside the U.S., then information
reporting and backup withholding generally will not apply to that payment.
However, U.S. information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, even if that payment is made outside the U.S., if a Non-U.S. Holder sells our common shares through a non-U.S. office of a broker that is a U.S. person or has some other contacts with the U.S. Such information reporting requirements will not apply, however, if the broker has documentary evidence in its records that the Non-U.S. Holder is not a U.S. person and certain other conditions are met, or the Non-U.S. Holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Rather, a refund may generally be obtained of any amounts withheld under backup withholding rules that exceed the taxpayer’s U.S. federal income tax liability by filing a timely refund claim with the IRS.
Individuals who are U.S. Holders (and to the extent specified in applicable Treasury regulations, Non-U.S. Holders and certain U.S. entities) who hold “specified foreign financial assets” (as defined in Section 6038D of the Code) are required to file IRS Form 8938 with information relating to the asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during the taxable year or $50,000 on the last day of the taxable year (or such higher dollar amount as prescribed by applicable Treasury Regulations). Specified foreign financial assets would include, among other assets, our common shares, unless the common shares are held in an account maintained with a U.S. financial institution.
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Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect. Additionally, in the event an individual U.S. Holder (and to the extent specified in applicable Treasury Regulations, a Non-U.S. Holder or a U.S. entity) that is required to file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection of U.S. federal income taxes of such holder for the related tax year may not close until three years after the date that the required information is filed. U.S. Holders (including U.S. entities) and Non-U.S. Holders are encouraged to consult their own tax advisors regarding their reporting obligations in respect of our common shares.
F. Dividends and Paying Agents
Not applicable.
G. Statements by Experts
Not applicable.
H. Documents on Display
Documents concerning us that are referred to herein may be inspected at our principal executive offices at Belvedere Building, 69 Pitts Bay Road, Ground Floor, Pembroke, HM08, Bermuda. We file reports and other information with the SEC. These materials, including this Annual Report and the accompanying exhibits, may be inspected and copied at the public facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549, or from the SEC’s website atwww.sec.gov. You may obtain information on the operation of the public reference room by calling 1 (800) SEC-0330 and you may obtain copies at prescribed rates.
I. Subsidiary Information
Not applicable.
Item 11. Quantitative and Qualitative Disclosures about Market Risks
Please see Note 11 “Risk management”
Operational risk
We are exposed to our consolidated financial statements included in this Annual Report for a descriptionoperating costs arising from various vessel operations. Key areas of operating risk include drydock, repair costs, insurance, piracy and fuel prices. Our risk management includes various strategies for technical management of drydock and repairs coordinated with a focus on measuring cost and quality. Our relatively young fleet helps to minimize the risk. Given the potential for accidents and other incidents that may applyoccur in vessel operations, the fleet is insured against various types of risk.
We have established a set of countermeasures in order to us.minimize the risk of piracy attacks during voyages, particularly through regions which the Joint War Committee or our insurers consider high risk, or which they recommend monitoring, to make the navigation safer for sea staff and to protect our assets. The price and supply of fuel is unpredictable and can fluctuate from time to time. We periodically consider and monitor the need for fuel hedging to manage this risk.
Foreign exchange risk
The majority of our transactions, assets and liabilities are denominated in U.S. Dollars, our functional currency. We incur certain general and operating expenses in other currencies (primarily the Euro, Singapore Dollar and Pounds Sterling) and as a result there is a transactional risk to us that currency fluctuations will have a negative effect on the value of our cash flows. Such risk may have an adverse effect on our financial condition and results of operations. We believe these adverse effects to be immaterial and has not entered into any derivative contracts for either transaction or translation risk during the year.
Interest rate risk
We are exposed to the impact of interest rate changes primarily through borrowings that require us to make interest payments based on LIBOR.
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Significant increases in interest rates could adversely affect our results of operations and our ability to repay debt. We monitor interest rate exposure and may enter into swap arrangements to hedge exposure where it is considered economically advantageous to do so.
We are exposed to the risk of credit loss in the event of non-performance by the counterparties to interest rate swap arrangements. In order to minimize counterparty risk, we have only entered into derivative transactions with investment grade counterparties at the time of the transactions. In addition, to the extent possible and practical, we enter into interest rate swaps with different counterparties to reduce concentration risk.
During the year ended December 31, 2020, we entered into floating-to-fixed interest rate swap agreements over a three-year term with multiple counterparties. In accordance with these transactions, we will pay an average fixed-rate interest amount of 0.32% and will receive floating rate interest amounts based on LIBOR. These interest rate swaps have a total notional amount of $259.2 million, of which $216.0 million are designated as cash flow hedges.
The disclosure in the immediately following paragraph about the potential effects of changes in interest rates are based on a sensitivity analysis, which models the effects of hypothetical interest rate shifts. A sensitivity analysis is constrained by several factors, including the necessity to conduct the analysis based on a single point in time and by the inability to include the extraordinarily complex market reactions that normally would arise from the market shifts. Although the following results of a sensitivity analysis for changes in interest rates may have some limited use as a benchmark, they should not be viewed as a forecast. This forward-looking disclosure also is selective in nature and addresses only the potential impacts on our borrowings.
Assuming we do not hedge our exposure to interest rate fluctuations, a hypothetical 100 basis-point increase or decrease in our variable interest rates would have increased or decreased our interest expense for the year ended December 31, 2021 by $3.1 million (2020: $3.7 million) using the average long-term debt and finance lease balance and actual interest incurred in each period.
Credit risk
There is a concentration of credit risk with respect to cash and cash equivalents to the extent that substantially all of the amounts are held in short-term funds (with a credit risk rating of at least AA) managed by Blackrock, State Street Global Advisors and JP Morgan Asset Management. While we believe this risk of loss is low, we intend to monitor this arrangement and revise our policy for managing cash and cash equivalents if considered advantageous and prudent to do so.
We limit our credit risk with trade accounts receivable by performing ongoing credit evaluations of our customers’ financial condition. We generally do not require collateral for our trade accounts receivable.
We may have a credit risk in relation to vessel employment and at times may have multiple vessels employed by one charterer. We consider and evaluate concentration of credit risk regularly and perform on-going evaluations of these charterers for credit risk and credit concentration risk. As at December 31, 2021 our 27 vessels in operation were employed with 21 different charterers.
Liquidity risk
Our principal objective in relation to liquidity is to ensure that we have access, at minimum cost, to sufficient liquidity to enable us to meet our obligations as they fall due and to provide adequately for contingencies. Our policy is to manage our liquidity by strict forecasting of cash flows arising from or expenses relating to voyage and time charter revenue, pool revenue, vessel operating expenses, general and administrative overhead and servicing of debt.
Inflation
We do not expect inflation to be a significant risk to direct expenses in the current and foreseeable economic environment.
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Item 12. Description of Securities Other than Equity Securities
Not applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Shareholders and Use of Proceeds
None.
Item 15. Controls and Procedures
A. Disclosure Controls and Procedures
We evaluated pursuant to Rule 13a-15(b) of the Exchange Act the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2017.2021. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective to provide, as of December 31, 2021, reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
B. Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal controls over our financial reporting. Our internal controls were designed to provide reasonable assurance as to the reliability of our financial reporting and the preparation and presentation of the consolidated financial statements for external purposes in accordance with U.S. GAAP.
Our internal controls over financial reporting include those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made in accordance with authorizations of management and our directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Management evaluated the effectiveness of our internal control over financial reporting as of December 31, 20172021, using the framework set forth in the 2013 report of the Treadway Commission’s Committee of Sponsoring Organizations.Organizations in Internal Control Integrated Framework (2013).
Management’s evaluation as of December 31, 20172021 included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements even when determined to be effective and can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. Based on the evaluation, management determined that internal controls over financial reporting were effective as of December 31, 2017.2021.
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C. Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of our
The independent registered public accounting firm, due to a transition period established by rules ofDeloitte & Touche LLP, that audited our consolidated financial statements as at and for the SEC for “emerging growth companies”.year ended December 31, 2021 and included in this Annual Report, has issued an attestation report on our internal control over financial reporting which is provided on page F-2.
D. Changes in Internal Control Over Financial Reporting.Reporting
There were no changes in our internal controls over financial reporting that occurred during or related to the period covered by this Annual Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16. Reserved
Item 16.A. Audit Committee Financial Expert
Our audit committee consists of Mr. Brian Dunne, Mr. Alan Robert McIlwraith, and Mr. Curtis McWilliams. Each member of our audit committee is financially literate under the current listing standards of the New York Stock Exchange and the SEC, and our board of directors has determined that Mr.director and Chair of the Audit Committee, Brian Dunne, qualifies as an “auditaudit committee financial expert”, as such termexpert and is defined by the SEC.independent under applicable NYSE and SEC standards.
Item 16.B. Code of Ethics
We have adopted a code of conduct and ethics applicable to our directors, chief executive officer, chief financial officer, principal accounting officer and other key management personnel. The code is available for review on our website atwww.ardmoreshipping.com.
Item 16.C. Principal Accountant Fees and ServicesAudit Fees
Our principal accountants for the fiscal years 2017ended December 31, 2021 and 20162020 were ErnstDeloitte & Young. Touche LLP (PCAOB ID No. 34).
Audit Fees
The audit fees for the audit of the years ended December 31, 20172021 and 20162020 were $0.4$0.6 million for each such period.and $0.5 million, respectively.
Audit-Related Fees
The audit-related
Audit-related fees billedrelating to work performed by our principal accountants in 2017for the years ended December 31, 2021 and 20162020 were $142,000$56,000 and $60,000,$55,000, respectively.
Tax Fees
There were no tax fees billed by our principal accountants in 20172021 or 2016.2020.
All Other Fees
There were no other fees billed by our principal accountants in 20172021 or 2016.2020.
Audit Committee
The Audit Committee is responsible for the appointment, replacement, compensation, evaluation and oversight of the work of the independent auditors. As part of this responsibility, the audit committee pre-approves the audit and non-audit services performed by the independent auditors in order to assure that they do not impair the auditors’ independence.
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The Audit Committee has adopted a policy which sets forth the procedures and the conditions pursuant to which services proposed to be performed by the independent auditors may be pre-approved.
The Audit Committee separately pre-approved all engagements and fees paid to our principal accountants in 20172021 and 2016.2020.
Item 16.D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16.E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On August 31, 2017, we announced that
In September 2020, our boardBoard of directors had terminated our previous share repurchase plan and approvedDirectors authorized a new share repurchase plan (the “New“Repurchase Plan”), which authorizes usexpanding and replacing our earlier plan. Pursuant to repurchasethe Repurchase Plan, we may purchase up to $25$30 million of shares of our common stockshares through September 30, 2023, at times and prices that are considered by us to August 31, 2020.
be appropriate. We mayexpect to repurchase these shares under the plan in the open market or in privately negotiated transactions, at times and prices that are considered to be appropriate by us, but we are not obligated under the terms of the New Planplan to repurchase any shares, and, at any time, we may suspend, delay or discontinue the NewRepurchase Plan.
During the year ended December 31, 2017,2019, we repurchased 1,435,654no shares of our common stock. During the year ended December 31, 2020, we repurchased 98,652 shares, all under our Repurchase Plan, at a weighted-average price of approximately $7.72$2.91 per share (including fees and commission of $0.02 per share) for a total of approximately $11.1 million from GA Holdings LLC, formerly$286,856. We repurchased all of these shares during November 2020. During the year ended December 31, 2021, we did not repurchase any shares of our largest shareholder. common stock.The total remaining share repurchase authorization under the Repurchase Plan at December 31, 2021, was conducted outside of the New Plan. Please read Item 7 “Major Shareholders and Related Party Transactions — B. Related Party Transactions”.$29.7 million.
Common Shares
| | | | | ||||||||||||
| Period | Total Number of Shares Purchased(1) | Average Price Paid Per Share(2) | Total Number of Shares Purchased as Part of Publicly Announced Program | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Program | ||||||||||||
| November 2017 | 1,435,654 | $ | 7.72 | 0 | $ | 25,000,000 | ||||||||||
Item 16.F. Change in Registrant’s Certifying Accountant
Not applicable.
Item 16.G. Corporate Governance
Pursuant to an exception for foreign private issuers, we,
We, as a foreign private issuer, are not required to comply with certain corporate governance practices followed by U.S. companies under the New York Stock Exchange (“NYSE”) listing standards. We believe that our established practices in the area of corporate governance provide adequate protection to our shareholders. In this respect, we have voluntarily adopted a number of NYSE required practices, such as having a majority of independent directors, and establishing a compensation committee and a nominating and corporate governance committee.committee each composed of independent directors, adopting corporate governance guidelines and holding regular executive meetings of non-management directors.
The following areis the significant waysway in which our corporate governance practices differ from those followed by U.S. domestic companies listed on the NYSE, and which differences aredifference is permitted by NYSE rules for “foreign private issuers” such as Ardmore Shipping Corporation:
| ● | The NYSE requires that U.S. issuers obtain shareholder approval prior to the adoption of equity compensation plans and prior to certain equity issuances, including, among others, issuing 20% or more of our outstanding shares of common stock or voting power in a transaction. Our board of directors approves the adoption of equity compensation plans in lieu of such shareholder approval, and we currently do not intend to seek shareholder approval prior to equity issuances that otherwise would require such approval if we were not a foreign private issuer. |
Item 16.H. Mine Safety Disclosures
Not applicable.
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Item 17. Financial Statements
Not applicable.
Item 18. Financial Statements
See index to Financial Statements on page F-1.F-1.
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Item 19. Exhibits
The following exhibits are filed as part of this Annual Report:
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102 SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this
103 TABLE OF CONTENTS
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F-1 Report of Independent Registered Public Accounting Firm To the
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| ● | We tested the effectiveness of controls over management’s review of the impairment analysis, including the future charter rates used within the undiscounted future cash flows analysis. |
| ● | We evaluated the reasonableness of the Company’s estimate of future charter rates through the performance of the following procedures: |
| o | Evaluated the Company’s methodology for estimating future charter rates, which, for the year ending December 31, 2021, consider the rates currently in effect for the duration of their current charters, third party forward rates and the Company’s recent historical performance, and for periods after December 31, 2021, reflect the Company’s estimates of the future charter rates based on the most recent ten-year historical one-year time charter average for the applicable vessel class. |
| o | Compared the future charter rates utilized in the undiscounted future cash flow analysis to 1) the Company’s historical rates, 2) historical rate information by vessel class published by third parties and 3) other external market sources, including analysts’ reports and freight forward agreement curves. |
| o | Obtained the supporting information related to the assumptions used in the projected charter rates and discussed with the Company’s management and considered the consistency of the assumptions used with evidence obtained in other areas of the audit. This included 1) internal communications by management to the board of directors, and 2) external communications by management to analysts and investors. |
/s/ ErnstDeloitte & Young
Touche LLP
New York, New York
March 11, 2022
We have served as the Company’sCompany's auditor since 2011.Dublin, IrelandMarch 29, 20182019.
F-4
Ardmore Shipping Corporation
Consolidated Balance Sheet
Sheets
(Expressed in U.S. dollars, unlessDollars, except shares and as otherwise stated)indicated)
| | | | | | |
|
| |
| As at December 31 | ||
|
| Notes |
| 2021 |
| 2020 |
ASSETS |
| |
|
|
|
|
Current assets | | | |
|
|
|
Cash and cash equivalents | | | | 55,448,895 |
| 58,365,330 |
Receivables, net of allowance for bad debts of $0.8 million (2020: $0.5 million) | | | | 20,303,507 |
| 17,808,496 |
Prepaid expenses and other assets | | | | 3,511,349 |
| 3,683,910 |
Advances and deposits | | | | 3,550,942 |
| 2,516,646 |
Inventories | | | | 11,095,318 |
| 10,274,062 |
Vessel held for sale | | | | — |
| 9,895,000 |
Current portion of derivative assets | | | | 306,912 |
| — |
Total current assets | | | | 94,216,923 |
| 102,543,444 |
| | | | |
| |
Non-current assets | | | | |
| |
Investments and other assets, net of accumulated depreciation of $1.9 million (2020: $1.7 million) | | 4 | | 11,081,579 |
| 678,632 |
Vessels and vessel equipment, net of accumulated depreciation of $201.7 million (2020: $170.2 million) | | | | 603,227,228 |
| 631,458,305 |
Deferred drydock expenditures, net of accumulated amortization of $18.4 million (2020: $13.3 million) | | | | 8,878,578 |
| 10,216,090 |
Advances for ballast water treatment systems | | | | 2,032,894 |
| 2,568,874 |
Amount receivable in respect of finance leases | | | | 2,880,000 |
| 2,880,000 |
Non-current portion of derivative assets | | | | 981,835 | | — |
Operating lease, right-of-use asset | | 8 | | 1,231,877 |
| 1,662,510 |
Total non-current assets | | | | 630,313,991 |
| 649,464,411 |
| | | | |
| |
TOTAL ASSETS | | | | 724,530,914 |
| 752,007,855 |
| | | | |
| |
LIABILITIES AND EQUITY | | | | |
| |
Current liabilities | | | | |
| |
Accounts payable | | | | 8,577,567 |
| 9,125,321 |
Accrued expenses and other liabilities | | 5 | | 10,741,500 |
| 11,233,767 |
Deferred revenue | | | | 2,069,750 |
| — |
Accrued interest on debt and finance leases | | | | 650,742 |
| 769,304 |
Current portion of long-term debt | | 6 | | 15,103,186 |
| 22,456,396 |
Current portion of finance lease obligations | | 7 | | 21,083,831 |
| 18,454,222 |
Current portion of derivative liabilities | | 9 | | — | | 397,418 |
Current portion of operating lease obligations | | 8 | | 273,141 |
| 463,559 |
Total current liabilities | | | | 58,499,717 |
| 62,899,987 |
| | | | |
| |
Non-current liabilities | | | | |
| |
Non-current portion of long-term debt | | 6 | | 129,998,205 |
| 188,054,568 |
Non-current portion of finance lease obligations | | 7 | | 205,370,846 |
| 179,250,162 |
Non-current portion of derivative liabilities | | 9 | | — | | 433,974 |
Non-current portion of operating lease obligations | | 8 | | 722,085 |
| 1,034,218 |
Other non-current liabilities | | 10 | | 942,508 |
| — |
Total non-current liabilities | | | | 337,033,644 |
| 368,772,922 |
| | | | | | |
TOTAL LIABILITIES | | | | 395,533,361 | | 431,672,909 |
| | | | | | |
Redeemable Preferred Stock | | | | | | |
Cumulative Series A 8.5% redeemable preferred stock | | 10 | | 37,043,138 |
| — |
Total redeemable preferred stock | | | | 37,043,138 | | — |
| | | | |
| |
Stockholders' equity | | | | |
| |
Common stock ($0.01 par value, 225,000,000 shares authorized, 36,383,937 issued and 34,363,884 outstanding as at December 31, 2021 and 35,206,656 issued and 33,186,603 outstanding as at December 31, 2020) | | | | 363,839 | | 352,067 |
Additional paid in capital | | | | 426,102,179 | | 418,180,983 |
Accumulated other comprehensive income / (loss) | | | | 1,044,067 | | (729,135) |
Treasury stock (2,020,053 shares as at December 31, 2021 and December 31, 2020) | | | | (15,635,765) | | (15,635,765) |
Accumulated deficit | | | | (119,919,905) |
| (81,833,204) |
Total stockholders' equity | | | | 291,954,415 |
| 320,334,946 |
| | | | | | |
Total redeemable preferred stock and stockholders’ equity | | | | 328,997,553 | | 320,334,946 |
| | | | |
| |
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND EQUITY | | | | 724,530,914 |
| 752,007,855 |
| | | | |||||||||
| As at | ||||||||||||
| Notes | Dec 31, 2017 | Dec 31, 2016 | ||||||||||
| ASSETS | ||||||||||||
| Current assets | ||||||||||||
| Cash and cash equivalents | 4 | 39,457,407 | 55,952,873 | |||||||||
| Receivables, trade | 5 | 27,264,803 | 23,148,782 | |||||||||
| Working capital advances | 6 | 3,100,000 | 3,300,000 | |||||||||
| Prepayments | 1,412,875 | 803,003 | ||||||||||
| Advances and deposits | 3,015,807 | 3,136,362 | ||||||||||
| Other receivables | — | 82,636 | ||||||||||
| Inventories | 9,632,246 | 7,339,252 | ||||||||||
| Total current assets | 83,883,138 | 93,762,908 | ||||||||||
| Non-current assets | ||||||||||||
| Vessels and equipment, net of accumulated depreciation of $110.2 million (2016: $76.2 million) | 7 | 751,816,840 | 785,461,415 | |||||||||
| Deferred drydock expenditure, net of accumulated amortization of $10.8 million (2016: $7.8 million) | 7 | 4,118,168 | 3,232,293 | |||||||||
| Deposit for vessel acquisition | 7 | 1,635,000 | — | |||||||||
| Leasehold improvements, net of accumulated depreciation of $96k (2016: $42k) | 7 | 446,532 | 488,561 | |||||||||
| Other non-current assets, net of accumulated depreciation of $0.6 million (2016: $0.4 million) | 7 | 3,640,311 | 697,546 | |||||||||
| Total non-current assets | 761,656,851 | 789,879,815 | ||||||||||
| TOTAL ASSETS | 845,539,989 | 883,642,723 | ||||||||||
| LIABILITIES AND EQUITY | ||||||||||||
| Current liabilities | ||||||||||||
| Payables, trade | 16,104,399 | 14,448,043 | ||||||||||
| Charter revenue received in advance | — | 507,780 | ||||||||||
| Other payables | 6,265 | 5,354 | ||||||||||
| Accrued interest on loans | 1,537,976 | 2,067,991 | ||||||||||
| Current portion of long-term debt | 8 | 37,071,548 | 41,827,480 | |||||||||
| Current portion of capital lease obligations | 9 | 3,537,466 | 159,028 | |||||||||
| Total current liabilities | 58,257,654 | 59,015,676 | ||||||||||
| Non-current liabilities | ||||||||||||
| Non-current portion of long-term debt | 8 | 367,352,022 | 411,385,626 | |||||||||
| Non-current portion of capital lease obligations | 9 | 38,956,553 | 8,971,622 | |||||||||
| Total non-current liabilities | 406,308,575 | 420,357,248 | ||||||||||
| Equity | ||||||||||||
| Share capital ($0.01 par value, 250,000,000 shares authorised, 34,061,357 issued and 32,139,956 outstanding at December 31, 2017 and 34,061,357 issued and 33,575,610 outstanding at December 31, 2016) | 340,613 | 340,613 | ||||||||||
| Additional paid in capital | 405,549,985 | 405,279,257 | ||||||||||
| Treasury stock (1,921,401 shares at December 31, 2017 and 485,747 shares at December 31, 2016) | (15,348,909 | ) | (4,272,477 | ) | ||||||||
| Accumulated (deficit)/surplus | (9,567,929 | ) | 2,922,406 | |||||||||
| Total equity | 380,973,760 | 404,269,799 | ||||||||||
| TOTAL LIABILITIES AND EQUITY | 845,539,989 | 883,642,723 | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Ardmore Shipping Corporation
Consolidated StatementStatements of Operations
(Expressed in U.S. dollars, unless otherwise stated)Dollars, except for shares)
| | | | | | | | |
|
| |
| For the years ended December 31 | ||||
|
| Notes |
| 2021 |
| 2020 |
| 2019 |
Revenue, net |
| 3 |
| 192,484,301 |
| 220,057,606 |
| 230,042,240 |
|
| |
| |
| |
| |
Voyage expenses |
| |
| (88,577,719) |
| (81,253,212) |
| (96,056,391) |
Vessel operating expenses |
| |
| (60,833,537) |
| (62,546,733) |
| (62,546,606) |
Charter hire costs | | | | (6,930,193) | | (1,367,528) | | — |
Depreciation |
| |
| (31,703,305) |
| (32,187,324) |
| (32,322,695) |
Amortization of deferred drydock expenditures |
| |
| (5,168,526) |
| (6,198,245) |
| (4,803,069) |
General and administrative expenses |
| |
| |
| |
| |
Corporate |
| |
| (16,071,865) |
| (15,122,906) |
| (14,951,996) |
Commercial and chartering |
| |
| (3,125,574) |
| (2,780,970) |
| (3,194,218) |
Loss on vessel held for sale | | 11 | | — | | (6,447,309) | | — |
Loss on sale of vessels |
| 11 |
| — |
| — |
| (13,162,192) |
Unrealized gains / (losses) on derivatives | | | | 276,268 | | (113,591) | | — |
Interest expense and finance costs |
| 12 |
| (16,771,198) |
| (18,168,155) |
| (26,759,754) |
Interest income |
| |
| 55,088 |
| 281,618 |
| 952,190 |
|
| |
| |
| |
| |
Loss before taxes |
| |
| (36,366,260) |
| (5,846,749) |
| (22,802,491) |
|
| |
| |
| |
| |
Income tax |
| 13 |
| (149,593) |
| (199,446) |
| (58,766) |
Loss from equity method investments | | 4 | | (316,790) |
| — | | — |
|
| |
| |
| |
| |
Net loss |
| |
| (36,832,643) |
| (6,046,195) |
| (22,861,257) |
| | | | | | | | |
Preferred dividend | | | | (1,254,058) |
| — | | |
| | | | | | | | |
Net loss attributable to common stockholders | | | | (38,086,701) |
| (6,046,195) |
| (22,861,257) |
|
| |
| |
| |
| |
Net loss per share, basic and diluted |
| 14 |
| (1.12) | | (0.18) | | (0.69) |
Weighted average number of shares outstanding, basic and diluted |
| 14 |
| 33,882,932 | | 33,241,936 | | 33,097,831 |
| | | | | ||||||||||||
| For the years ended | ||||||||||||||||
| Notes | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | |||||||||||||
| REVENUE | ||||||||||||||||
| Revenue | 195,935,392 | 164,403,938 | 157,882,259 | |||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Commissions and voyage related costs | 72,737,902 | 37,121,398 | 30,137,173 | |||||||||||||
| Vessel operating expenses | 62,890,401 | 56,399,979 | 46,416,510 | |||||||||||||
| Depreciation | 34,271,091 | 30,091,237 | 24,157,022 | |||||||||||||
| Amortization of deferred drydock expenditure | 2,924,031 | 2,715,109 | 2,120,974 | |||||||||||||
| General and administrative expenses | 12 | |||||||||||||||
| Corporate | 11,979,017 | 12,055,725 | 10,418,876 | |||||||||||||
| Commercial and chartering | 2,619,748 | 2,021,487 | 329,746 | |||||||||||||
| Total operating expenses | 187,422,190 | 140,404,935 | 113,580,301 | |||||||||||||
| Profit from operations | 8,513,202 | 23,999,003 | 44,301,958 | |||||||||||||
| Interest expense and finance costs | 13 | (21,380,165 | ) | (17,754,118 | ) | (12,282,704 | ) | |||||||||
| Interest income | 14 | 436,195 | 164,629 | 15,571 | ||||||||||||
| Loss on disposal of vessels | 10 | — | (2,601,148 | ) | — | |||||||||||
| (Loss)/profit before taxes | (12,430,768 | ) | 3,808,366 | 32,034,825 | ||||||||||||
| Income tax | 15 | (59,567 | ) | (60,434 | ) | (79,860 | ) | |||||||||
| Net (loss)/profit | (12,490,335 | ) | 3,747,932 | 31,954,965 | ||||||||||||
| Net (loss)/earnings per share, basic and diluted | 16 | (0.37 | ) | 0.12 | 1.23 | |||||||||||
| Weighted average number of common shares outstanding, basic and diluted | 33,441,879 | 30,141,891 | 26,059,122 | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Ardmore Shipping Corporation
Consolidated StatementStatements of Changes in Equity
Comprehensive Loss
(Expressed in U.S. dollars, unless otherwise stated)Dollars)
| | | | | | |
| | For the years ended December 31 | ||||
|
| 2021 |
| 2020 |
| 2019 |
Net loss | | (36,832,643) | | (6,046,195) | | (22,861,257) |
Other comprehensive income / (loss), net of tax | | | | | | |
Net change in unrealized gains / (losses) on cash flow hedges |
| 1,773,202 | | (729,135) | | — |
Other comprehensive income / (loss), net of tax |
| 1,773,202 | | (729,135) | | — |
| | | | | | |
Comprehensive loss |
| (35,059,441) | | (6,775,330) | | (22,861,257) |
| | | | | | | ||||||||||||||||||
| Number of Shares Outstanding | Share Capital | Additional paid-in capital | Treasury stock | Accumulated (deficit)/surplus | TOTAL | |||||||||||||||||||
| Balance as at January 1, 2015 | 25,980,600 | 261,000 | 339,082,131 | (1,278,546 | ) | (10,864,492 | ) | 327,200,093 | ||||||||||||||||
| Share based compensation | — | — | 1,436,505 | — | — | 1,436,505 | ||||||||||||||||||
| Dividend payments | 229,711 | 2,297 | (2,292,266 | ) | — | (10,690,316 | ) | (12,980,285 | ) | |||||||||||||||
| Income for year | — | — | — | — | 31,954,965 | 31,954,965 | ||||||||||||||||||
| Balance as at December 31, 2015 | 26,210,311 | 263,297 | 338,226,370 | (1,278,546 | ) | 10,400,157 | 347,611,278 | |||||||||||||||||
| Net proceeds from equity offering | 7,500,000 | 75,000 | 63,852,414 | — | — | 63,927,414 | ||||||||||||||||||
| Share based compensation | — | — | 1,304,325 | — | — | 1,304,325 | ||||||||||||||||||
| Repurchase of common stock | (366,347 | ) | — | — | (2,993,931 | ) | — | (2,993,931 | ) | |||||||||||||||
| Dividend payments | 231,646 | 2,316 | 1,896,148 | — | (11,225,683 | ) | (9,327,219 | ) | ||||||||||||||||
| Income for year | — | — | — | — | 3,747,932 | 3,747,932 | ||||||||||||||||||
| Balance as at December 31, 2016 | 33,575,610 | 340,613 | 405,279,257 | (4,272,477 | ) | 2,922,406 | 404,269,799 | |||||||||||||||||
| Share based compensation | — | — | 457,046 | — | — | 457,046 | ||||||||||||||||||
| Repurchase of common stock | (1,435,654 | ) | — | (186,318 | ) | (11,076,432 | ) | — | (11,262,750 | ) | ||||||||||||||
| Loss for year | — | — | — | — | (12,490,335 | ) | (12,490,335 | ) | ||||||||||||||||
| Balance as at December 31, 2017 | 32,139,956 | 340,613 | 405,549,985 | (15,348,909 | ) | (9,567,929 | ) | 380,973,760 | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Ardmore Shipping Corporation
Consolidated StatementStatements of Cash Flows
Changes in Redeemable Preferred Stock and Stockholders’ Equity
(Expressed in U.S. dollars, unless otherwise stated)Dollars, except for shares)
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | Accumulated | |
| | | |
|
| Redeemable Preferred | | | | | | | Additional | | other | | | | | | | ||
| Stock | | | Common Stock | | paid in | | comprehensive | | Treasury | | Accumulated | | | ||||
| Shares | | Amount | | | Shares | | Amount | | capital | | income / (loss) | | stock | | deficit | | TOTAL |
Balance as at January 1, 2019 | — | | — | | | 33,097,831 | | 350,192 | | 414,508,403 | | — | | (15,348,909) | | (52,925,752) | | 346,583,934 |
Share-based compensation | — | | — | | | — | | — | | 2,333,091 | | — | | — | | — | | 2,333,091 |
Loss for the year | — | | — | | | — | | — | | — | | — | | — | | (22,861,257) | | (22,861,257) |
Balance as at December 31, 2019 | — | | — | | | 33,097,831 | | 350,192 | | 416,841,494 | | — | | (15,348,909) | | (75,787,009) | | 326,055,768 |
Issue of common stock | — | | — | | | 187,424 | | 1,875 | | (1,875) | | — | | — | | — | | — |
Share-based compensation | — | | — | | | — | | — | | 3,000,672 | | — | | — | | — | | 3,000,672 |
Payment of dividend | — | | — | | | — | | — | | (1,659,308) | | — | | — | | — | | (1,659,308) |
Repurchase of common stock | — | | — | | | (98,652) | | — | | — | | — | | (286,856) | | — | | (286,856) |
Changes in unrealized loss on cash flow hedges | — | | — | | | — | | — | | — | | (729,135) | | — | | — | | (729,135) |
Loss for the year | — | | — | | | — | | — | | — | | — | | — | | (6,046,195) | | (6,046,195) |
Balance as at December 31, 2020 | — | | — | | | 33,186,603 | | 352,067 | | 418,180,983 | | (729,135) | | (15,635,765) | | (81,833,204) | | 320,334,946 |
Issue of redeemable preferred stock, net of issuance costs | 40,000 | | 37,043,138 | | | — | | — | | — | | — | | — | | — | | — |
Issue of common stock | — | | — | | | 1,177,281 | | 11,772 | | 5,308,228 | | — | | — | | — | | 5,320,000 |
Share-based compensation | — | | — | | | — | | — | | 2,612,968 | | — | | — | | — | | 2,612,968 |
Changes in unrealized gain on cash flow hedges | — | | — | | | — | | — | | — | | 1,773,202 | | — | | — | | 1,773,202 |
Preferred stock dividend | — | | — | | | — | | — | | — | | — | | — | | (1,254,058) | | (1,254,058) |
Net loss | — | | — | | | — | | — | | — | | — | | — | | (36,832,643) | | (36,832,643) |
Balance as at December 31, 2021 | 40,000 | | 37,043,138 | | | 34,363,884 | | 363,839 | | 426,102,179 | | 1,044,067 | | (15,635,765) | | (119,919,905) | | 291,954,415 |
| | | | | ||||||||||||
| Notes | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | |||||||||||||
| OPERATING ACTIVITIES | ||||||||||||||||
| Net (loss)/profit | (12,490,335 | ) | 3,747,932 | 31,954,965 | ||||||||||||
| Non-cash items: | ||||||||||||||||
| Depreciation | 34,271,091 | 30,091,237 | 24,157,022 | |||||||||||||
| Amortization of deferred drydock expenditure | 2,924,031 | 2,715,109 | 2,120,974 | |||||||||||||
| Share based compensation | 457,046 | 1,304,325 | 1,436,505 | |||||||||||||
| Loss on disposal of vessels | — | 2,601,148 | — | |||||||||||||
| Amortization of deferred finance charges | 13 | 3,060,525 | 3,415,452 | 1,711,481 | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Receivables, trade | (4,116,021 | ) | 3,040,535 | (21,203,416 | ) | |||||||||||
| Working capital advances | 200,000 | 175,000 | (2,975,000 | ) | ||||||||||||
| Prepayments | (609,872 | ) | 239,356 | (358,597 | ) | |||||||||||
| Advances and deposits | 120,555 | 375,510 | (458,880 | ) | ||||||||||||
| Other receivables | 82,636 | (58,683 | ) | 612,511 | ||||||||||||
| Inventories | (2,292,994 | ) | (3,369,769 | ) | (1,483,143 | ) | ||||||||||
| Payables, trade | 1,656,356 | 1,965,503 | 5,443,919 | |||||||||||||
| Charter revenue received in advance | (507,780 | ) | (684,537 | ) | (350,546 | ) | ||||||||||
| Other payables | 911 | (139,578 | ) | (503,173 | ) | |||||||||||
| Accrued interest on loans | (530,015 | ) | 315,765 | 869,632 | ||||||||||||
| Deferred drydock expenditure | (3,809,906 | ) | (3,099,805 | ) | (3,314,568 | ) | ||||||||||
| Net cash provided by operating activities | 18,416,228 | 42,634,500 | 37,659,686 | |||||||||||||
| INVESTING ACTIVITIES | ||||||||||||||||
| Payments for acquisition of vessels and equipment | (372,504 | ) | (174,012,168 | ) | (232,497,213 | ) | ||||||||||
| Net proceeds from sale of vessels | — | 52,656,414 | — | |||||||||||||
| Transfer to segregated account in respect of agreement to buy new vessels | (1,635,000 | ) | — | — | ||||||||||||
| Payments for leasehold improvements | (12,279 | ) | (530,717 | ) | — | |||||||||||
| Payments for other non-current assets | (262,468 | ) | (424,760 | ) | (352,521 | ) | ||||||||||
| Net cash used in investing activities | (2,282,251 | ) | (122,311,231 | ) | (232,849,734 | ) | ||||||||||
| FINANCING ACTIVITIES | ||||||||||||||||
| Proceeds from long-term debt | 11,092,157 | 110,010,000 | 216,490,000 | |||||||||||||
| Repayments of long-term debt | (62,691,746 | ) | (42,208,171 | ) | (24,753,641 | ) | ||||||||||
| Proceeds from capital leases | 33,120,000 | 9,245,749 | — | |||||||||||||
| Repayments of capital leases | (2,060,264 | ) | (27,097,348 | ) | (1,702,981 | ) | ||||||||||
| Payments for deferred finance charges | (826,840 | ) | (6,036,243 | ) | (1,633,259 | ) | ||||||||||
| Net proceeds from equity offering | — | 63,927,416 | — | |||||||||||||
| Repurchase of common stock | (11,262,750 | ) | (2,993,931 | ) | — | |||||||||||
| Payment of dividend | — | (9,327,251 | ) | (12,980,285 | ) | |||||||||||
| Net cash (used in)/provided by financing activities | (32,629,443 | ) | 95,520,221 | 175,419,834 | ||||||||||||
| Net (decrease)/increase in cash and cash equivalents | (16,495,466 | ) | 15,843,491 | (19,770,214 | ) | |||||||||||
| Cash and cash equivalents at the beginning of the year | 55,952,873 | 40,109,382 | 59,879,596 | |||||||||||||
| Cash and cash equivalents at the end of the year | 39,457,407 | 55,952,873 | 40,109,382 | |||||||||||||
| Cash paid during the year for: | ||||||||||||||||
| Interest payments, net of capitalised interest | 16,918,637 | 13,382,484 | 11,305,199 | |||||||||||||
| Taxation | 58,736 | 122,624 | 40,050 | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Ardmore Shipping CorporationNotes to
Consolidated Financial Statements
of Cash Flows
(Expressed in U.S. dollars, unless otherwise stated)Dollars)
| | | | | | | | |
| | | | For the years ended December 31 | ||||
|
| Notes |
| 2021 |
| 2020 |
| 2019 |
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
| |
| |
| |
Net loss |
|
|
| (36,832,643) |
| (6,046,195) |
| (22,861,257) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
| |
| |
| |
Depreciation |
|
|
| 31,703,305 |
| 32,187,324 |
| 32,322,695 |
Amortization of deferred drydock expenditures |
| |
| 5,168,526 |
| 6,198,245 |
| 4,803,069 |
Share-based compensation |
| |
| 2,612,968 |
| 3,000,672 |
| 2,333,091 |
Loss on vessel held for sale |
| 11 |
| — |
| 6,447,309 |
| — |
Loss on sale of vessels |
| 11 |
| — |
| — |
| 13,162,192 |
Amortization of deferred finance fees |
| |
| 2,192,177 |
| 1,765,271 |
| 2,560,180 |
Unrealized (gains) / losses on derivatives | | | | (276,268) | | 113,591 | | — |
Foreign exchange |
| |
| (71,917) |
| 108,978 |
| (73,207) |
Loss from equity method investments | | | | 316,790 |
| — | | — |
Deferred drydock payments |
|
|
| (5,882,866) |
| (7,003,305) |
| (5,387,875) |
Changes in operating assets and liabilities: |
|
|
| |
| |
| |
Receivables |
|
|
| (2,495,011) |
| 12,274,862 |
| (2,623,226) |
Prepaid expenses and other assets |
|
|
| 172,561 |
| (1,743,880) |
| 137,453 |
Advances and deposits |
|
|
| (1,034,296) |
| 1,597,419 |
| (1,981,261) |
Inventories |
|
|
| (821,256) |
| (115,327) |
| 2,653,304 |
Accounts payable |
|
|
| 1,151,201 |
| 2,543,080 |
| (3,672,559) |
Accrued expenses and other liabilities |
|
|
| (701,459) |
| (5,098,531) |
| (48,663) |
Deferred revenue |
|
|
| 2,069,750 |
| — |
| — |
Accrued interest on debt and finance leases |
|
|
| (156,966) |
| (135,064) |
| (852,676) |
Net cash (used in) / provided by operating activities |
|
|
| (2,885,404) |
| 46,094,449 |
| 20,471,260 |
|
|
|
| |
| |
| |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
| |
| |
| |
Proceeds from sale of vessels |
|
|
| 9,895,000 |
| — |
| 26,557,707 |
Payments for acquisition of vessels and vessel equipment |
|
|
| (2,475,399) |
| (18,720,337) |
| (2,599,827) |
Advances for ballast water treatment systems |
|
|
| (157,879) |
| (2,184,466) |
| 114,235 |
Payments for other non-current assets |
|
|
| (93,798) |
| (88,630) |
| (177,950) |
Payments for equity investments | | | | (5,541,364) |
| — |
| — |
Net cash provided by / (used in) investing activities |
|
|
| 1,626,560 |
| (20,993,433) |
| 23,894,165 |
|
|
|
| |
| |
| |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
| |
| |
| |
Proceeds from long-term debt |
|
|
| — |
| 20,375,243 |
| 201,462,500 |
Repayments of long-term debt |
|
|
| (66,911,512) |
| (18,017,863) |
| (222,198,713) |
Proceeds from finance leases |
|
|
| 49,000,000 |
| — |
| — |
Repayments of finance leases |
|
|
| (19,959,944) |
| (18,650,009) |
| (26,510,556) |
Payments for deferred finance fees |
|
|
| (980,000) |
| (220,000) |
| (2,298,587) |
Repurchase of common stock | | | | — | | (286,856) | | — |
Payment of dividend | | | | — | | (1,659,308) | | — |
Issuance of preferred stock, net | | | | 37,985,646 | | — | | — |
Payment of preferred dividend | | | | (791,781) | | — | | — |
Net cash used in financing activities | | | | (1,657,591) | | (18,458,793) | | (49,545,356) |
|
|
|
| |
| |
| |
Net (decrease) / increase in cash and cash equivalents |
|
|
| (2,916,435) |
| 6,642,223 |
| (5,179,931) |
|
|
|
| |
| |
| |
Cash and cash equivalents at the beginning of the year |
|
|
| 58,365,330 |
| 51,723,107 |
| 56,903,038 |
|
|
|
| |
| |
| |
Cash and cash equivalents at the end of the period |
|
|
| 55,448,895 |
| 58,365,330 |
| 51,723,107 |
|
|
|
| |
| |
| |
Cash paid during the period for interest in respect of debt |
|
|
| 4,509,904 |
| 6,526,308 |
| 11,544,904 |
Cash paid during the period for interest in respect of finance leases |
|
|
| 9,793,364 |
| 9,902,396 |
| 13,529,033 |
Cash paid during the period for operating lease liabilities | | | | 461,521 | | 501,118 | | 501,848 |
Cash paid during the period for income taxes |
|
|
| 197,937 |
| 138,841 |
| 54,730 |
Non-cash investing activity: Investment in Element 1 by issuing 950,000 shares of common stock | | | | 5,320,000 | | — | | — |
Non-cash financing activity: MP Profits Interest | | 10 | | 942,508 | | — | | — |
Non-cash financing activity: Accrued preferred dividends | | | | 462,277 | | — | | — |
The accompanying notes are an integral part of these consolidated financial statements.
F-9
1. Overview
1.1. Background
Ardmore Shipping Corporation (NYSE: ASC) (“ASC”), together with its subsidiaries (collectively “Ardmore” or “the Company”the “Company”), provides seaborne transportation of petroleum products and chemicals worldwide to oil majors, national oil companies, oil and chemical traders, and chemical companies, with its modern, fuel-efficient fleet of mid-size product and chemical tankers.tankers and the Company operates its business in 1 operating segment, the transportation of refined petroleum products and chemicals. As at December 31, 2017 Ardmore2021, the Company had 2725 owned vessels in operation. The average age of Ardmore’s operatingthe Company’s owned fleet as at December 31, 20172021 was 5.38.3 years.
1.2. Management and organizational structure
ASC was incorporated in the Republic of the Marshall Islands on May 14, 2013. ASC commenced business operations through its predecessor company, Ardmore Shipping LLC, on April 15, 2010. On August 6, 2013, ASC completed its initial public offering (the “IPO”) of 10,000,000 shares of its common stock. Prior to the IPO, GA Holdings LLC, who was then ASC’s sole shareholder, exchanged its 100% interest in Ardmore Shipping LLC (“ASLLC”) for 8,049,500 shares of ASC, and ASLLC became a wholly-owned subsidiary of ASC. Immediately following the IPO, GA Holdings LLC held 44.6% of the outstanding common stock of ASC, with the remaining 55.4% held by public investors. In March 2014, ASC completed a follow-on public offering of 8,050,000 shares of its common stock. In November 2015, GA Holdings LLC sold 4,000,000 shares of ASC common stock in an underwritten public offering. In June 2016, Ardmore completed a public offering of 7,500,000 shares of its common stock In November 2017, GA Holdings LLC disposed the balance of its remaining 5,787,942 common shares, of which 5,579,978 shares were sold in an underwritten public secondary offering, 85,654 shares were repurchased by Ardmore in a private transaction, and 122,310 shares were distributed to certain of its members, including Anthony Gurnee, Ardmore’s chief executive officer and a member of Ardmore’s board of directors. In addition to the 85,654 shares that Ardmore repurchased from GA Holdings LLC directly in a private transaction, Ardmore also purchased from the underwriter 1,350,000 shares of its common stock that were sold by GA Holdings LLC in the underwritten public secondary offering. As of December 31, 2017, to Ardmore’s knowledge, no shareholder owned more than 10% of ASC’s common stock.
As at December 31, 2017,2021, ASC had 50 wholly-owned(a) 79 wholly owned subsidiaries, the majority of which represent single ship-owning companies for ASC’s fleet, and one(b) 1 50%-owned joint venture, entityAnglo Ardmore Ship Management Limited ("AASML"), which provides technical management services to thea majority of the ASC fleet. fleet, (c) 1 33.33%-owned joint venture, e1 Marine LLC, which was formed in 2021 to market and sell Element 1 Corp.’s methanol-to-hydrogen technology to the marine sector, and (d) a 10% equity stake, on a fully diluted basis, in Element 1 Corp. During the three months ended June 30, 2021, the Company paid an aggregate of $5.0 million in cash and $5.3 million through the issuance of ASC common shares for the Company’s equity stake in Element 1 Corp. and its equity interest in e1 Marine which is included in Investments and other assets, net in the consolidated balance sheet as at December 31, 2021.
Ardmore Shipping (Bermuda)Maritime Services (Asia) Pte. Limited, a wholly-ownedwholly owned subsidiary incorporated in Bermuda,Singapore, carries out the Company’s management services and associated functions. Ardmore Shipping Services (Ireland) Limited, a wholly-ownedwholly owned subsidiary incorporated in Ireland, provides the Company’s corporate, accounting, fleet administration and operations services. Each of Ardmore Shipping (Asia) Pte. Limited and Ardmore Shipping (Americas) LLC, wholly-ownedwholly owned subsidiaries incorporated in Singapore and Delaware, respectively, performs commercial management and chartering services for the Company.
F-10
1.3. Vessels
Ardmore’s fleet asAs at December 31, 2017, comprised2021, the following:Company owned and operated a modern fleet of 25 product/chemical vessels, 24 with Marshall Island flags and 1 with a Singapore flag, and with a combined carrying capacity of 1,115,567 deadweight tonnes (“dwt”) and an average age of approximately 8.3 years.
| | | | | | | | | | | | |
Vessel Name |
| Type |
| Dwt |
| IMO |
| Built |
| Country |
| Specification |
Ardmore Seavaliant |
| Product/Chemical |
| 49,998 |
| 2/3 |
| Feb-13 |
| Korea |
| Eco-design |
Ardmore Seaventure |
| Product/Chemical |
| 49,998 |
| 2/3 |
| Jun-13 |
| Korea |
| Eco-design |
Ardmore Seavantage |
| Product/Chemical |
| 49,997 |
| 2/3 |
| Jan-14 |
| Korea |
| Eco-design |
Ardmore Seavanguard |
| Product/Chemical |
| 49,998 |
| 2/3 |
| Feb-14 |
| Korea |
| Eco-design |
Ardmore Sealion |
| Product/Chemical |
| 49,999 |
| 2/3 |
| May-15 |
| Korea |
| Eco-design |
Ardmore Seafox |
| Product/Chemical |
| 49,999 |
| 2/3 |
| Jun-15 |
| Korea |
| Eco-design |
Ardmore Seawolf |
| Product/Chemical |
| 49,999 |
| 2/3 |
| Aug-15 |
| Korea |
| Eco-design |
Ardmore Seahawk |
| Product/Chemical |
| 49,999 |
| 2/3 |
| Nov-15 |
| Korea |
| Eco-design |
Ardmore Endeavour |
| Product/Chemical |
| 49,997 |
| 2/3 |
| Jul-13 |
| Korea |
| Eco-design |
Ardmore Enterprise |
| Product/Chemical |
| 49,453 |
| 2/3 |
| Sep-13 |
| Korea |
| Eco-design |
Ardmore Endurance |
| Product/Chemical |
| 49,466 |
| 2/3 |
| Dec-13 |
| Korea |
| Eco-design |
Ardmore Encounter |
| Product/Chemical |
| 49,478 |
| 2/3 |
| Jan-14 |
| Korea |
| Eco-design |
Ardmore Explorer |
| Product/Chemical |
| 49,494 |
| 2/3 |
| Jan-14 |
| Korea |
| Eco-design |
Ardmore Exporter |
| Product/Chemical |
| 49,466 |
| 2/3 |
| Feb-14 |
| Korea |
| Eco-design |
Ardmore Engineer |
| Product/Chemical |
| 49,420 |
| 2/3 |
| Mar-14 |
| Korea |
| Eco-design |
Ardmore Sealancer |
| Product |
| 47,451 |
| 0 |
| Jun-08 |
| Japan |
| Eco-mod |
Ardmore Sealeader |
| Product |
| 47,463 |
| 0 |
| Aug-08 |
| Japan |
| Eco-mod |
Ardmore Sealifter |
| Product |
| 47,472 |
| 0 |
| Jun-08 |
| Japan |
| Eco-mod |
Ardmore Seafarer | | Product | | 49,999 | | — | | Jun-10 |
| Japan |
| Eco-mod |
Ardmore Dauntless |
| Product/Chemical |
| 37,764 |
| 2 |
| Feb-15 |
| Japan |
| Eco-design |
Ardmore Defender |
| Product/Chemical |
| 37,791 |
| 2 |
| Feb-15 |
| Japan |
| Eco-design |
Ardmore Cherokee |
| Product/Chemical |
| 25,215 |
| 2 |
| Jan-15 |
| Japan |
| Eco-design |
Ardmore Cheyenne |
| Product/Chemical |
| 25,217 |
| 2 |
| Mar-15 |
| Japan |
| Eco-design |
Ardmore Chinook |
| Product/Chemical |
| 25,217 |
| 2 |
| Jul-15 |
| Japan |
| Eco-design |
Ardmore Chippewa |
| Product/Chemical |
| 25,217 |
| 2 |
| Nov-15 |
| Japan |
| Eco-design |
Total |
| 25 |
| 1,115,567 |
|
|
|
|
|
|
|
|
| | | | | | | | |||||||||||||||||||||
| International Maritime Organization (“IMO”) cargo classification | ||||||||||||||||||||||||||||
Ardmore Shipping Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars, unless otherwise stated)
1. Overview – (continued)
| | | | | | | | |||||||||||||||||||||
| Vessel Name | Type | Dwt Tonnes | IMO | Built | Country | Flag | Specification | |||||||||||||||||||||
| Ardmore Seahawk | Product/Chemical | 49,999 | 2/3 | Nov-15 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Endeavour | Product/Chemical | 49,997 | 2/3 | Jul-13 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Enterprise | Product/Chemical | 49,453 | 2/3 | Sep-13 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Endurance | Product/Chemical | 49,466 | 2/3 | Dec-13 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Encounter | Product/Chemical | 49,478 | 2/3 | Jan-14 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Explorer | Product/Chemical | 49,494 | 2/3 | Jan-14 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Exporter | Product/Chemical | 49,466 | 2/3 | Feb-14 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Engineer | Product/Chemical | 49,420 | 2/3 | Mar-14 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Seafarer | Product/Chemical | 45,744 | 3 | Aug-04 | Japan | MI | Eco-mod | |||||||||||||||||||||
| Ardmore Seatrader | Product | 47,141 | — | Dec-02 | Japan | MI | Eco-mod | |||||||||||||||||||||
| Ardmore Seamaster | Product/Chemical | 45,840 | 3 | Sep-04 | Japan | MI | Eco-mod | |||||||||||||||||||||
| Ardmore Seamariner | Product/Chemical | 45,726 | 3 | Oct-06 | Japan | MI | Eco-mod | |||||||||||||||||||||
| Ardmore Sealeader | Product | 47,463 | — | Aug-08 | Japan | MI | Eco-mod | |||||||||||||||||||||
| Ardmore Sealifter | Product | 47,472 | — | Jul-08 | Japan | MI | Eco-mod | |||||||||||||||||||||
| Ardmore Dauntless | Product/Chemical | 37,764 | 2 | Feb-15 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Defender | Product/Chemical | 37,791 | 2 | Feb-15 | Korea | MI | Eco-design | |||||||||||||||||||||
| Ardmore Cherokee | Product/Chemical | 25,215 | 2 | Jan-15 | Japan | MI | Eco-design | |||||||||||||||||||||
| Ardmore Cheyenne | Product/Chemical | 25,217 | 2 | Mar-15 | Japan | MI | Eco-design | |||||||||||||||||||||
| Ardmore Chinook | Product/Chemical | 25,217 | 2 | Jul-15 | Japan | MI | Eco-design | |||||||||||||||||||||
| Ardmore Chippewa | Product/Chemical | 25,217 | 2 | Nov-15 | Japan | MI | Eco-design | |||||||||||||||||||||
| Total | 27 | 1,202,568 | ||||||||||||||||||||||||||
2. Significant accounting policies
2.1. Basis of preparation
The accompanying consolidated financial statements, have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). The consolidated financial statementswhich include the accounts of ASC and its subsidiaries.subsidiaries, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All subsidiaries are 100% directly or indirectly owned by ASC. OneAASML and e1 Marine, which are 50% and 33.33% owned joint venture entity isventures, respectively, are accounted for using the equity method (please refer to 2.20 below for more details).method. The Company’s 10% investment in Element 1 Corp. is also accounted using the equity method. All intercompany balances and transactions have been eliminated on consolidation.
F-11
2.2. Uses of estimates
The preparation of the consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. On an on-going basis, management evaluates the estimates and judgments, including those related to uncompleted voyages, future drydock dates, the selection of useful lives for tangible assets,vessels, vessel valuations, residual value of vessels, expected future cash flows from long-lived assetsvessels to support vessel impairment tests, provisions necessary for accounts receivables from charterers, the selection of inputs used in the valuation model for share-based payment awards, provisions for legal disputes and contingencies. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable. Actual results could differ from those estimates.
2.3. Reporting currency
The consolidated financial statements are stated in U.S. Dollars. The functional currency of Ardmorethe Company is U.S. Dollars because Ardmorethe Company operates in international shipping markets in which typically utilizemost transactions are denominated in the U.S. Dollar as the functional currency.Dollar. Transactions involving other currencies during the year are converted
Ardmore Shipping Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars, unless otherwise stated)
2. Significant accounting policies – (continued)
into U.S. Dollars using the exchange rates in effect at the time of the transactions. At the balance sheet date, monetary assets and liabilities that are denominated in currencies other than U.S. Dollar are translated to reflect the year end exchange rates. Resulting gains and losses are included in the accompanying consolidated statementstatements of operations.
2.4. Recent accounting pronouncements
In May 2014,March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, or ASC 606, a standard that will supersede virtually all2020-04, “Reference Rate Reform (Topic 848): Facilitation of the existingEffects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”)” which provides temporary optional expedients and exceptions to the guidance in U.S. GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848) – Scope (“ASU 2021-01”),” which permits entities to apply optional expedients in Topic 848 to derivative instruments modified because of discounting transition resulting from reference rate reform. ASU 2020-04 became effective upon issuance and may be applied prospectively to contract modification made on or before December 31, 2022. ASU 2021-01 became effective upon issuance and may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or prospectively for contract modifications made on or before December 31, 2022. The Company has adopted ASU 2020-04 and is currently evaluating the impact of the adoption of ASU 2021-01 on its Consolidated Financial Statements and related disclosures.
2.5. Revenue
Revenue is generated from spot charter arrangements, time charter arrangements and pool arrangements.
Spot charter arrangements
The Company’s spot charter arrangements are for single voyages for the service of the transportation of cargo that are generally short in duration (less than two months) and the Company is responsible for all costs incurred during the voyage, which include bunkers and port/canal fees, as well as general vessel operating costs (e.g. crew, repairs and maintenance and insurance costs; and fees paid to technical managers of its vessels). Accordingly, under spot charter arrangements, key operating decisions and the economic benefits associated with a vessel’s use during the charter period reside with the Company.
As at its adoption on January 1, 2018, the Company applies revenue recognition guidance in U.S. GAAP. The main principle of ASC 606 isto account for its spot charter arrangements.
The consideration that a company should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entityCompany expects to be entitled to receive in exchange for those goodsits transportation services is recognized as revenue ratably over the duration of a voyage on a load-to-discharge basis (i.e. from when cargo is loaded at the port to when it is discharged after the completion of the voyage).
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The consideration that the Company expects to be entitled to receive includes estimates of revenue associated with the loading or services. To achieve this principle, an entity should applydischarging time that exceed the following steps: (i) identifyoriginally estimated duration of the contract(s)voyage, which is referred to as “demurrage revenue”, when it is determined there will be incremental time required to complete the contracted voyage. Demurrage revenue is not considered a separate deliverable in accordance with ASC 606 as it is part of the single performance obligation in a customer, (ii) identifyspot charter arrangement, which is to provide cargo transportation services to the performance obligationscompletion of a contracted voyage.
Time charter arrangements
The Company’s time charter arrangements are for a specified period of time and key decisions concerning the use of the vessel during the duration of the time charter period reside with the charterer. In time charter arrangements, the Company is responsible for the crewing, maintenance and insurance of the vessel, and the charterer is generally responsible for voyage specific costs, which typically include bunkers and port/canal costs.
As the charterer holds sufficient latitude in its rights to determine how and when the vessel is used on voyages and the charterer is also responsible for costs incurred during the voyage, the charterer derives the economic benefits from the use of the vessel, as control over the use of the vessel is transferred to the charterer during the specified time charter period. Accordingly, time charters are considered operating leases and the Company applies guidance for lessors in FASB Accounting Standards Codification 842 - Leases (“ASC 842). Revenue for time charters is recognized on a straight-line basis ratably over the term of the charter.
Pooling arrangements
The Company participates in commercial pooling arrangements to charter certain of its vessels from time to time. In these arrangements, the participating members seek to benefit from the more efficient employment of their vessels as the manager of the vessels in the contract(s), (iii) determinepool leverages the transaction price, (iv) allocatesize of the transaction pricefleet commercially and operationally. The manager is responsible for the commercial management on behalf of the members of the pool, including responsibility for voyage expenses such as fuel and port charges. The pool members are responsible for maintaining the vessel operating expenses of their participating vessels, including crewing, repairs and maintenance and insurance of their participating vessels.
The earnings from all vessels are pooled and shared by the members of the arrangement based on the earnings allocation terms of the arrangement, which consider the number of days a vessel operates in the pool with weighted adjustments made to reflect the vessels’ differing capacities and performance capabilities. Therefore, the earnings allocation represents the pool members’ consideration for their different contribution to the performance obligations in the contract(s), and (v) recognizecollaborative arrangement. The Company recognizes its earnings allocation as revenue when, or as, the entity satisfies a performance obligation. The new standard became effective for us on January 1, 2018. The impact of ASC 606 on our consolidated financial statements is described below.
In February 2016, the FASB issued ASC 842, Leases (“ASC 842”), a standard which will replace previous topics on lease accounting. The revised guidance will require lessees to recognize on their balance sheet a right of use asset and corresponding liability in respect of all material lease contracts. Ardmore currently recognizes on its balance sheet those leases classified as capital leases. Those leases that are currently accounted for as operating leases (primarily for office space) will be included on Ardmore’s balance sheet as a right of use asset and related lease liability in accordance with the new guidance for collaborative arrangements.
The Company did not participate in commercial pooling arrangements during the years ended December 31, 2021, 2020 or 2019. The Company did recognize an amountimmaterial revenue runoff in each of approximately $2 million. There will be no significant impact on the statement of operations or cashflows. ASC 842three periods as per the table in Note 3 (“Business and related amendments are effective for fiscal years,segment reporting”).
2.6. Voyage and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted, and requires the modified retrospective method of adoption. We are adopting this standard at the same time as ASC 606.vessel operating expenses
In applying ASC 606 and ASC 842, we have determined that certain of our spot charters should be considered operating leases, under ASC 842, withVoyage expenses
Voyage expenses represent costs the Company is responsible to incur in charter arrangements during a voyage that are directly related to a voyage. Voyage expenses include bunkers and port/canal costs, which are expensed as lessor, whenincurred.
Voyage expenses also include contract fulfillment costs that are incurred by the charterer has the rightCompany prior to obtain substantially all of the benefits and can direct how and for what purposes the vessel will be used and therea voyage. These costs are no substantive substitution rights. We will assess new spot charter contracts to determine whether they should be recognized under ASC 606 or ASC 842. Any future spot charter that does not contain a lease will be accounted for under ASC 606, whereby the period over which we recognize revenue will change. At present revenue is recognized from the later of signing of an agreement, or previouswhen a vessel departed from its prior charter discharge date if there isport and when a previous commitment, until completion of cargo discharge. Under ASC 606 revenue would be recognized from whenvessel entered a new charter to the vessel arrivesarrival at the loadloading port until completion of cargo discharge.
For voyagesfor the new charter are deferred and amortized ratably over the new charter for charters accounted for in progress at December 31, 2017, we have determined these constitute leases under ASC 842 and that the commencement date is the later of signing of an agreement or previous discharge date if there is a previous commitment. Based on this assessment, we have determined that no material adjustment to opening retained earnings at January 1, 2018 will be needed in order to be compliantaccordance with ASC 606 and ASC 842 at adoption.
We do not anticipate a significant impact606. Such costs are typically comprised of ASC 606 or ASC 842 on our consolidated financial statements as regards our pool arrangements. In respect of time charter arrangements, revenue is currently accounted for under ASC 840 and we do not anticipate any significant impact of ASC 606 or ASC 842.
In January 2018, the FASB issued a proposed amendment to ASU 2016-02 that would allow lessors to elect, as a practical expedient, to not separate lease and non-lease components and allow these components to be accounted for as a single lease component if both (i) the timing and pattern of the revenue recognition for thebunkers.
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TABLE OF CONTENTSVessel operating expenses
Ardmore Shipping Corporation
Notes
Vessel operating expenses represent costs the Company incurs to Consolidated Financial Statements(Expressed in U.S. dollars, unless otherwise stated)
2. Significant accounting policies – (continued)
non-lease component and the related lease componentoperate its vessels that are the same and (ii) the combined single lease component would be classified as an operating lease.
If the proposed practical expedient mentioned above is adopted and elected, it is expected that revenue from spot charters will be presented under a single lease component presentation. However, without the proposed practical expedient, it is expected that spot charter revenue will be separated into lease and non-lease components, respectively.
In August 2016, the FASB issued an update to ASC 230, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments based on a consensus of the Emerging Issues Task Force (EITF), to address the classification of certain cash receipts and cash payments on the statement of cash flows. The new guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The standard will be effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. Entities are required to apply the guidance retrospectively. The Company does not anticipate any significant impact of this standard on its consolidated financial statements and related disclosures.
In November 2016, the FASB issued an update to ASC 230, Statement of Cash Flows (Topic 230): Restricted Cash, to address classification of activitydirectly related to restricted casha voyage. Vessel operating expenses include crew, repairs and restricted cash equivalents in the cash flows. The standard eliminates the presentation of transfers between cashmaintenance, insurance, stores, lube oils, communication expenses, and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalentstechnical management fees. Vessel operating expenses are presented in more than one line item on the balance sheet, a reconciliation of the totals in the cash flows to the related captions in the balance sheet are required, either on the face of the cash flow or in the notes to the financial statements. Additional disclosures are required for the nature of the restricted cash and restricted cash equivalents. The standard will be effective for fiscal years and interim periods beginning after December 15, 2017. Early adoption is permitted. The Company does not anticipate any significant impact of this standard on its consolidated financial statements and related disclosures.expensed as incurred.
In February 2017, FASB issued ASC 610, Other Income — Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20). This standard contains final guidance that clarifies the scope and application of ASC 610-20 on the sale or transfer of non-financial assets and in substance non-financial assets to non-customers, including partial sales. This standard applies to non-financial assets, including real estate, ships and intellectual property, and clarifies that the derecognition of all businesses is in the scope of ASC 810. This standard will be effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. The Company does not anticipate any significant impact of this standard on its consolidated financial statements and related disclosures.
In May 2017, the FASB issued ASC 718, Compensation — Stock Compensation (Topic 718) to provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This standard will be effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. The Company does not anticipate any significant impact of this standard on its consolidated financial statements and related disclosures.
2.5.2.7. Cash and cash equivalents
ArdmoreThe Company classifies investments with an original maturity date of three months or less as cash and cash equivalents. The Company is required to maintain a minimum cash balance in accordance with its long-term debt facility agreements (see Note 6) and finance lease facility agreements (see Note 7).
2.6.
2.8. Receivables trade
Receivables trade include amounts due from charterers for hire and other recoverable expenses due to Ardmore. Atthe Company. As at the balance sheet date, all potentially uncollectible accounts are assessed individually for the purposes of determining the appropriate allowance for bad debt.
2.9. Prepaid expenses and other assets
Prepaid expenses and other assets consist of payments made in advance for insurance or other expenses, and insurance claims outstanding and certain assets held by vessel managers. Insurance claims are recorded, net of any deductible amounts, for insured damages which are recognized when recovery is virtually certain under the related insurance policies and where the Company can make an estimate of the amount to be reimbursed following the insurance claim. As at the balance sheet date, all potentially uncollectible accounts are assessed individually for the purposes of determining the appropriate provision for doubtful accounts.
Ardmore Shipping Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars, unless otherwise stated)
2. Significant accounting policies – (continued)
2.7. Working capital advances
Working capital advances relate to capital advanced directly to ship pools in which Ardmore’s vessels operate. All working capital amounts are classified as current assets where it is expected that the amounts advanced will be realized within one year.
2.8. Prepayments
Prepayments consist of payments in advance for insurance or other ad hoc prepaid purchases.
2.9.2.10. Advances and deposits
Advances and deposits primarily include amounts advanced to third-party technical managers and AASML for expenses incurred by them in operating the vessels, together with other necessary deposits paid during the course of business.
2.10. Other receivables
Other receivables primarily relate to insurance claims outstanding, and certain assets held by vessel managers. Insurance claims are recorded, net of any deductible amounts, at the time Ardmore realizes insured damages, where recovery is highly likely under the related insurance policies and where Ardmore can make an estimate of the amount to be reimbursed following the insurance claim. At the balance sheet date, all potentially uncollectible accounts are assessed individually for the purposes of determining the appropriate provision for doubtful accounts.
2.11. Inventories
Inventories consist of bunkers, lubricating oils and other consumables on board the Company’s vessels. Inventories are valued at the lower of cost or marketnet realizable value on a first-in first-out basis. Cost is based on the normal levels of cost and comprises the cost of purchase, being the suppliers’ invoice price with the addition of charges such as freight or duty where appropriate.
2.12. Vessels
Vessels are recorded at their cost less accumulated depreciation. Vessel cost comprises acquisition costs directly attributable to the vessel and the expenditures made to prepare the vessel for its initial voyage. Vessels are depreciated on a straight-line basis over their estimated useful economic life from the date of initial delivery from the shipyard. The useful life of Ardmore’s vessels is estimated at 25 years from the date of initial delivery from the shipyard. Depreciation is based on cost less estimated residual scrap value. Residual scrap value is estimated as the lightweight tonnage of each vessel multiplied by the estimated scrap value per ton. Ardmore capitalizes and depreciates the costs of significant replacements, renewals and upgrades to its vessels over the shorter of the vessel’s remaining useful life or the life of the renewal or upgrade. The amount capitalized is based on management’s judgment as to expenditures that extend a vessel’s useful life or increase the operational efficiency of a vessel. Costs that are not capitalized are recorded as a component of direct vessel operating expenses during the period incurred. Expenses for routine maintenance and repairs Spares are expensed as incurred.
2.13. Impairment
Vessels and equipment that are “held and used” are assessed for impairment when events or circumstances indicate the carrying amount of the asset may not be recoverable. When such indicators are present, a vessel to be held and used is tested for recoverability by comparing the estimate of future undiscounted net operating cash flows expected to be generated by the use of the vessel over its remaining useful life and its eventual disposition to its carrying amount. Net operating cash flows are determined by applying various assumptions
Ardmore Shipping Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars, unless otherwise stated)
2. Significant accounting policies – (continued)
regarding future revenues net of commissions, operating expenses, scheduled drydockings, expected offhire and scrap values, and taking into account historical revenue data and published forecasts on future world economic growth and inflation. An impairment charge is recognized if the carrying value is in excess of the estimated future undiscounted net operating cash flows. The impairment loss is measured based on the excess of the carrying amount over the fair market value of the asset.
2.14. Drydock expenditure
Vessels are typically drydocked every three to five years. Expenditures incurred in drydocking are deferred and amortized until the next scheduled drydocking. Ardmore only includes in deferred drydocking costs those direct costs that are incurred as part of the drydocking to meet regulatory requirements, expenditures that add economic life to the vessel, and expenditures that increase the vessels earnings capacity or improve the vessels operating efficiency. Expenses for routine maintenance and repairs are expensed as incurred.
2.15. Vessels under construction
The carrying value of the vessels under construction represents the accumulated costs to the consolidated balance sheet date which Ardmore has had to pay by way of purchase instalments and other capital expenditures, together with capitalized interest and other pre-delivery costs. The amount of interest expense capitalized in an accounting period is determined by applying an interest rate (“the capitalization rate”) to the average amount of accumulated expenditures for the asset during the period. The capitalization rates used in an accounting period are based on the rates applicable to borrowings outstanding during the period. If Ardmore’s borrowings are directly attributable to the vessels under construction, Ardmore uses the rate on that borrowing as the capitalization rate. If average accumulated expenditures for the asset exceed the amounts of specific borrowings associated with the asset, the capitalization rate applied to such excess is a weighted average of the rates applicable to other borrowings of Ardmore. Ardmore does not capitalize amounts in excess of actual interest expense incurred in the period. No charge for depreciation is made until the vessel is available for use.
2.16. Vessels2.12. Vessel held for sale
Assets are classified as held for sale when management, having the authority to approve the action, commits to a plan to sell the asset, the sale is probable within one year, and the asset is available for immediate sale in its present condition. Consideration is given to whether an active program to locate a buyer has been initiated, whether the asset is marketed actively for sale at a price that is reasonable in relation to its current fair value, and whether actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. When assets are classified as held for sale, they are measured at the lower of their carrying amount or fair value less cost to sell and they are tested for impairment. An impairment charge
A loss is recognized when the carrying value of the asset exceeds the estimated fair value, less transaction costs. Assets classified as held for sale are no longer depreciated.
2.17. Deposit for
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2.13. Vessels and vessel acquisitionequipment
Cash paid as deposit for an acquisition of aVessels and vessel that is considered restricted cash.
2.18. Leasehold improvements
Leasehold improvements relate to fit-out costs for work completed on Ardmore’s offices at One Albert Quay, Cork, Ireland. Theseequipment are recorded at their cost less accumulated depreciationdepreciation.
Vessel cost comprises acquisition costs directly attributable to the vessel and the expenditures made to prepare the vessel for its initial voyage. Vessels are depreciated on a straight-line basis over their estimated useful economic life from the date of initial delivery from the shipyard. The useful life of the Company’s vessels is estimated at 25 years from the date of initial delivery from the shipyard. Depreciation is based on cost less estimated residual scrap value. Residual scrap value is estimated as the lightweight tonnage of each vessel multiplied by the estimated scrap value per ton. The scrap value of the vessels is estimated at $300 (2020: $300) per lightweight ton.
Vessel equipment comprises the costs of significant replacements, renewals and upgrades to the Company’s vessels. Vessel equipment is depreciated over the shorter of the vessel’s remaining useful life or the life of the leaserenewal or upgrade. The amount capitalized is based on management’s judgment as to expenditures that extend a vessel’s useful life or increase the operational efficiency of tena vessel. Costs that are not capitalized are recorded as a component of direct vessel operating expenses during the period incurred. Expenses for routine maintenance and repairs are expensed as incurred.
2.14. Deferred drydock expenditures
The Company follows the deferral method of accounting for drydock expenditures whereby actual expenditures incurred are deferred and are amortized on a straight-line basis through to the date of the next scheduled drydocking, generally 30 to 60 months. Expenditures deferred as part of the drydock include direct costs that are incurred as part of the drydocking to meet regulatory requirements. Direct expenditures that are deferred include the shipyard costs, parts, inspection fees, steel, blasting and painting. Expenditures for normal maintenance and repairs, whether incurred as part of the drydocking or not, are expensed as incurred. Unamortized drydock expenditures of vessels that are sold are written off and included in the calculation of the resulting gain or loss in the year of the vessels’ sale. Unamortized drydock expenditures are written off as drydock expense if the vessels are drydocked before the expiration of the applicable amortization period.
2.15. Advances for ballast water treatment systems
The Company is in the process of installing ballast water treatment systems on each of its vessels that do not currently have the system installed. This is a requirement of the International Maritime Organization. The Company capitalizes and depreciates the costs of ballast water treatment systems, including installation costs, on each vessel from the date of completion of the system over the remaining useful life of the vessel.
2.16. Vessel impairment
Management regularly reviews the carrying amounts of the Company’s vessels that are “held and used” for recoverability. Vessels are assessed for impairment when events or circumstances indicate the carrying amount of the asset may not be recoverable. When such indicators are present, a vessel to be held and used is tested for recoverability by comparing the estimate of undiscounted future cash flows expected to be generated by the use of the vessel over its remaining useful life and its eventual disposition to its carrying amount together with the carrying value of deferred drydock expenditures and special survey costs related to the vessel.
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For purposes of testing for recoverability, undiscounted future cash flows are determined by applying various assumptions based on historical trends as well as future expectations. In estimating future revenue, the Company considers charter rates for each vessel class over the estimated remaining lives of the vessels using both historical average rates for the Company over the last five years, where available, and historical average one-year time charter rates for the industry over the last 10 years.Recognizing that rates tend to be cyclical and considering market volatility based on factors beyond the Company’s control, management believes it is reasonable to use estimates based on a combination of more recent internally generated rates and the 10-year average historical average industry rates. Undiscounted future cash flows are determined by applying various assumptions regarding future revenue net of voyage expenses, vessel operating expenses, scheduled drydockings, expected off-hire and scrap values, and taking into account historical market and Company specific revenue data as discussed above, and also considering other external market sources, including analysts’ reports and freight forward agreement curves.
2.19.
When the estimate of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount, the Company will evaluate the asset for an impairment loss. Measurement of the impairment loss is based on the fair value of the asset as provided by third parties. In this respect, management regularly reviews the carrying amount of the vessels in connection with the estimated recoverable amount for each of the Company's vessels. The Company did not recognize a vessel impairment charge for the years ended December 31, 2021, 2020 and 2019.
2.17. Other non-current assets
Other non-current assets relate to office equipment, fixtures and fittings. Thesefittings and leasehold improvements. Office equipment and fixtures and fittings are recorded at their cost less accumulated depreciation and are depreciated based on an estimated useful life of five years. Leasehold improvements relate to fit-out costs for work completed on the Company’s offices in Ireland and Singapore. Leasehold improvements are recorded at their cost less accumulated depreciation and are depreciated over the life of the respective leases.
2.18. Amount receivable in respect of finance leases
As part of finance lease arrangements, in 2017 the Company provided a lessor with $2.9 million in the aggregate which shall be repaid at the end of the lease period, or upon the exercise of any of the purchase options. The associated finance lease liability is presented gross of the $2.9 million.
2.19. Operating leases
Operating leases relate to long-term commitments for the Company’s offices. The Company recognizes on its consolidated balance sheets the right-of-use assets and lease liabilities for lease contracts greater than 12 months. The discount rate used for calculating the cost of the operating leases is the incremental cost of borrowing since the rate implicit in the lease cannot be determined.
2.20. Finance leases
Finance leases relate to financing arrangements for vessels in operation. Interest costs are expensed to interest expense and finance costs in the consolidated statements of operations using the effective interest method over the life of the lease.
2.21. Accounts payable
Accounts payable include all financial obligations to vendors for goods or services that have been received or will be received in the future.
2.22. Accrued expenses and other liabilities
Accrued expenses and other liabilities include all accrued liabilities in relation to the operating and running of the vessels, along with amounts accrued for general and administrative expenses.
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TABLE OF CONTENTS2.23. Derivatives
Ardmore Shipping Corporation
Notes
As required by FASB Accounting Standards Codification 815 - Derivatives and Hedging (“ASC 815”), the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to Consolidated Financial Statements(Expresseddesignate a derivative in U.S. dollars, unless otherwise stated)
2. Significanta hedging relationship and apply hedge accounting policies – (continued)
2.20.and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply, or the Company elects not to apply hedge accounting.
The Company elected to classify settlement payments as operating activities within the statement of cash flows. The Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
2.24. Equity accountedmethod investments
Ardmore’s investmentThe Company’s investments in Anglo Ardmore Ship Management Limited isAASML, e1 Marine and Element 1 Corp. are accounted for using the equity method of accounting. Under the equity method of accounting, the Company initially recorded the investments are statedin AASML and e1 Marine at initial cost and are adjusted for subsequent additionaladjusts the carrying amounts of the investments and the Company’s proportionateto recognize their respective share of earnings or losses of the investee. The Company’s total investment in Element 1 Corp. of $9.3 million is allocated to the investment in the ordinary shares of $8.8 million and distributions. Ardmorewarrants exercisable for ordinary shares of $0.5 million based upon the relative fair values at the date of the investment. The carrying amount of the investment is adjusted to recognize the share of earnings or losses of the investee. Dividends received from an investee reduce the carrying amount of the equity investments. The Company evaluates its equity accountedmethod investment for impairment when events or circumstances indicate that the carrying value of such investmentinvestments may have experienced an other than temporary decline in value below itstheir carrying value.values. If the estimated fair value is less than the carrying value, the carrying value is written down to its estimated fair value and the resulting impairment is recorded in Ardmore’sthe Company’s consolidated statements of operations.
2.21. Payables, trade
Payables, trade include all accounts payable and accrued liabilities As at December 31, 2021, there are no impairment indicators for the investment in relation toElement 1 Corp. The Company adjusts the operating and runningfair value of the vessels, alongElement 1 Corp. warrants at each reporting period with amounts due for general and administrative expenses.
2.22. Other payables
Other payables primarily consist of amounts due for minor ad hoc payables.
2.23. Capital leases
Capital leases relate to financing arrangements for vessels in operation. Interest costs are expensed to interest expense and finance costschanges in the consolidated statement of operations using the effective interest method over the life of the lease.fair value recorded directly in earnings.
2.24.
2.25. Contingencies
Claims, suits and contingencies arise in the ordinary course of Ardmore’sthe Company’s business. ArdmoreThe Company provides for these contingencies when (i) it is probable that a liability has been incurred at the date of the financial statements and (ii) the amount of the loss can be reasonably estimated. Disclosure in the notes to the financial statements is required for contingencies that do not meet both these conditions if there is a reasonable possibility that a liability may have been incurred as at the balance sheet date. Any such matters that should be disclosed, or for which a provision should be established in the accompanying consolidated financial statements, are discussed in Note 20
2.26. Distributions to shareholders
Subject to the consolidated financial statements.
2.25. DistributionsBoard of Directors’ approval, distributions to shareholder
Distributions tocommon shareholders are applied first to retained earnings.accumulated surplus. When retained earnings areaccumulated surplus is not sufficient, distributions are applied to the additional paid in capital account. Ardmore operates a policy
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2.27. Equity issuance costs
Incremental costs incurred that are directly attributable to a proposed or actual offering of equity securities are deferred and deducted from the related proceeds of the offering, and the net amount is recorded as contributed shareholders’ equity in the period when such shares are issued. Other costs incurred that are not directly attributable, but are related, to a proposed or actual offering are expensed as incurred.
2.27.
2.28. Debt and finance lease issuance costs
Financing charges includingwhich include fees, commissions and legal expenses associated with securing loan facilities and capitalfinance lease agreements are presented in the consolidated balance sheetsheets as a direct deduction from the carrying amount of the debt liability.liability or finance lease obligation. These costs are amortized to interest expense and finance costs in the consolidated statementstatements of operations using the effective interest rate method over the life of the related debt.debt or finance lease.
TABLE OF CONTENTS2.29. Share-based compensation
Ardmore Shipping Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars, unless otherwise stated)
2. Significant accounting policies – (continued)
2.28. Share based compensation
ArdmoreThe Company may grant share-based payment awards, such as restricted stock units (“RSUs”), stock appreciation rights (“SARs”) and dividend equivalent rights (“DERs”), as incentive-based compensation to certain employees. ArdmoreThe Company measures the cost of such awards, which are equity-settled transactions, using the grant date fair value of the award and recognizes that cost, net of estimated forfeitures, over the requisite service period, which generally equals the vesting period. If the award contains a market condition, such conditions are included in the determination of the fair value of the stock unit. Once the fair value has been determined, the associated expense is recognized in the consolidated statementstatements of operations over the requisite service period.
2.29.
The SARs are settled through the delivery of Ardmore shares, not cash. Hence, in accordance with the guidance in ASC 718, the Company have classified the plan as an equity settled share-based payment plan. The cost of each tranche of SARs is being recognized by the Company on a straight-line basis.
Under an RSU award, the grantee is entitled to receive a share of ASC’s common stock for each RSU at the end of the vesting period. Payment under the RSU will be made in the form of shares of ASC’s common stock. The cost of RSUs will be recognized by the Company on a straight-line basis over the vesting period. The Company’s policy for issuing shares upon the vesting of the RSUs is to register and issue new common shares to the grantee.
Under a DER award, in the event that dividends are declared and paid on a share with a record date on or after the applicable grant date, the grantee is entitled to receive a share of ASC’s common stock equal to the amount of the dividend declared multiplied by the number of shares per the award, divided by the Fair Market Value of a share on the date the dividends are paid. The cost of DERs will be recognized by the Company on a straight-line basis over the vesting period. The Company’s policy is to register and issue new common shares to the grantee at the time that dividends are paid.
The DER awards were valued by applying a model based on the Monte Carlo simulation. The model inputs were the grant price, dividend yield based on the initial intended dividend set out by the Company, a risk-free rate of return equal to the zero-coupon U.S. Treasury bill commensurate with the contractual terms of the units and expected volatility based on the average of the most recent historical volatilities in the Company’s peer group.
2.30. Treasury stock
When shares are acquired for a reason other than formal or constructive retirement, the shares are presented separately as a deduction from equity. If the shares are retired or subsequently sold, any gain would be allocated as a reductionan increase in additional paid in capital and any losscumulative losses as a reduction in retained earnings.
2.30. Dividend Reinvestment Plan
In April 2015, Ardmore established a Dividend Reinvestment Plan (“DRIP”) to enable shareholders to reinvest their quarterly dividend in common shares of the Company. The Form F-3D registration statement detailing these shares is available from the SEC website. The DRIP allows for the purchase of additional common shares by either full dividend reinvestment or partial dividend reinvestment.
When a shareholder signs up to the plan there are two options available to Ardmore when sourcing the shares for settlement under the DRIP.
The purchase price for shareholders of common shares under the DRIP depends on which option Ardmore chooses. For OM shares the price is the weighted average of the actual price paid for all shares purchased by the Transfer Agent on behalf of the participants of the DRIP. For OI shares the price is the daily high and the daily low average share price for the five business days immediately preceding the dividend payment date. In instances where Ardmore chooses OM settlement, the accounting treatment is the same as when a regular dividend is paid and not reinvested by shareholders, since Ardmore makes a cash payment equal to the amount of the dividend.
In instances where Ardmore chooses OI settlement, we record an increase in Share Capital for the par value of the shares and record any excess of market value over par within Additional Paid in Capital. The dividend is distributed first from retained earnings but is applied to additional paid in capital if retained earnings are not sufficient.accumulated deficit.
In instances where Ardmore utilizes existing treasury shares (which can only occur under an OI transaction), we reduce Treasury Shares and increase Share Capital for the par value of the shares to be issued. Any excess of market value over cost is recorded in Additional Paid in Capital. If a gain arises on utilizing Treasury Stock for the dividend reinvestment, we recognize the gain within Additional Paid in Capital. If a loss arises, we record the loss within retained earnings.
2.31. Financial instruments
The carrying values of cash and cash equivalents, accounts receivable and accounts payable reported in the consolidated balance sheetsheets are reasonable estimates of their fair values due to their short-term nature. The fair values of long-term debt approximate the recorded values due to the variable interest rates payable.
F-18
Ardmore Shipping Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars, unless otherwise stated)
2. Significant accounting policies – (continued)
2.32. Revenues and expenses
2.32.1. Time charter revenues
If a time charter agreement exists, the rate is fixed or determinable, service is provided and collection of the related revenue is reasonably assured, Ardmore recognizes revenues over the term of the time charter. Ardmore does not recognize revenue during days the vessel is offhire. Where the time charter contains a profit or loss sharing arrangement, the profit or loss is recognized based on amounts earned or incurred as of the reporting date.
2.32.2. Pool revenues
Revenues and voyage expenses of Ardmore’s vessels operating in commercial pooling arrangements are pooled with the revenues and voyage expenses of other pool participants. The resulting net pool revenues, calculated on a time charter equivalent basis, are allocated to the pool participants according to an agreed formula. The formulas used to allocate net pool revenues vary among different pools but generally allocates revenues to pool participants on the basis of the number of days a vessel operates in the pool with weighted adjustments made to reflect the vessels’ differing capacities and performance capabilities. Ardmore accounts for its vessels’ share of net pool revenue on the allocated time charter equivalent on a monthly basis. Net pool revenues due from the pool are included in receivables, trade.
2.32.3. Voyage revenues
Revenues from voyage charters on the spot market are recognized ratably on a discharge-to-discharge basis i.e. from when cargo is discharged (unloaded) at the end of one voyage to when it is discharged after the next voyage, provided an agreed non-cancelable charter between Ardmore and the charterer is in existence, the charter rate is fixed or determinable and collectability is reasonably assured. Revenue under voyage charters will not be recognized until a charter has been agreed even if the vessel has discharged its previous cargo and is proceeding to an anticipated port of loading. Demurrage revenue, which is included in voyage revenues, represents payments by the charterer to Ardmore when the loading or discharging time exceeds the stipulated time in the voyage charter, and is recognized ratably on a discharge-to-discharge basis i.e. from when cargo is discharged (unloaded) at the end of one voyage to when it is discharged after the next voyage, the amount is fixed or determinable and collection is reasonably assured.
2.32.4. Expenses
All voyage expenses are expensed as incurred. Under time charters or pool employment, expenses such as bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls and agency fees are paid by the charterers. Under voyage charters, these expenses are borne by Ardmore and expensed as incurred.
All commissions and administration fees are expensed as incurred which is over the term of the employment of the vessel.
Vessel operating expenses are costs that are directly attributable to the operation of the vessels such as costs of crewing, repairs and maintenance, insurance, stores, lube oils, communication expenses, and technical management fees. Vessel operating expenses are expensed as incurred.
2.32.5. Charter hire costs
Charter hire costs relate to amounts paid for chartering in vessels. Charter hire costs are expensed to the statement of operations as incurred.
2.33. Income taxes
Republic of the Marshall Islands
Ardmore Shipping Corporation, Ardmore Shipping LLC, Ardmore Maritime Services LLC, and all vessel owning subsidiaries are incorporated in the Republic of the Marshall Islands.Islands with the exception of Lahinch Shipco (Pte.) Limited which is incorporated in Singapore. Ardmore Shipping Corporation
Ardmore Shipping Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars, unless otherwise stated)
2. Significant accounting policies – (continued)
believes that neither it, nor its subsidiaries, are subject to taxation under the laws of the Republic of the Marshall Islands and that distributions by its subsidiaries to Ardmore Shipping Corporation will not be subject to any taxes under the laws of the Republic of the Marshall Islands.
Bermuda
Ardmore Shipping (Bermuda) Limited is incorporated in Bermuda. Ardmore Shipping Corporation, Ardmore Shipping LLC and Ardmore Shipping (Bermuda) Limited are tax residents ofmanaged and controlled in Bermuda. Ardmore Shipping Corporation believes that neither it, nor its subsidiaries, areis subject to taxation under the laws of Bermuda and that distributions by its subsidiaries to Ardmore Shipping Corporation will not be subject to any taxes under the laws of Bermuda.
Ireland
Ardmore Shipholding Limited and Ardmore Shipping Services (Ireland) Limited and Ardmore E1 Marine Ventures Limited, which was established to act as the immediate parent company of e1 Marine, the joint venture jointly owned by Ardmore, Element 1 Corp. and Maritime Partners, are incorporated in Ireland. Ardmore Shipholding Limited no longer actively operates as a company and as such is not anticipated to generate trading income subject to corporation tax in Ireland.
Ardmore Shipping Services (Ireland) Limited’s tradingTrading profits are taxable at the standard corporation tax rate which is currently 12.5% based on generally accepted accounting principles in Ireland. Any non-trading/non-trading / passive income is taxed at the higher corporation tax rate which is currently 25%.
United States of America
Ardmore Shipping (Americas) LLC (“ASUS”ASUSA”) and Ardmore Trading (USA) LLC (“ATUSA”) are incorporated in Delaware and treated as corporations for U.S. tax purposes. ASUSASUSA and ATUSATUSA will be subject to U.S. tax on their worldwide net income.
Singapore
Ardmore Shipping (Asia) Pte. Limited, and Ardmore Tanker Trading (Asia) Pte. Limited, Ardmore Maritime Services (Asia) Pte. Limited and Lahinch Shipco (Pte.) Limited are incorporated in Singapore. Ardmore Shipping (Asia) Pte. Limited qualified as an “Approved International Shipping Enterprise” by the Singapore authorities with effect from August 1, 2015. This entitles the company to tax exemption on profits derived from ship operations for any shipsvessels which are owned or chartered in by Ardmore Shipping (Asia) Pte. Limited.
Lahinch Shipco (Pte.) Limited is a ship-owning company and therefore exempt from taxes under the law of Singapore. Ardmore Tanker Trading (Asia) Pte. Limited will beand Ardmore Maritime Services (Asia) Pte. Limited are subject to Singapore tax on itstheir worldwide profits. However, the company had not commenced business as at December 31, 2017 and therefore we do not expect it to be taxed for 2017.
F-19
Deferred taxation
Deferred income tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statements and tax basis of existing assets and liabilities using enacted rates applicable to the periods in which the differences are expected to affect taxable income. Deferred income tax balances included on the consolidated balance sheetsheets reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax basis and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. The recoverability of these future tax deductions is evaluated by assessing the adequacy of future taxable income, including the reversal of temporary differences and forecasted operating earnings. If it is deemed more likely than not that the deferred tax assets will not be realized, Ardmorethe Company provides for a valuation allowance. Income taxes have been provided for all items included in the consolidated statementstatements of operations regardless of when such items were reported for tax purposes or when the taxes were actually paid or refunded. Deferred tax for the year ended December 31, 20172021 amounted to $0 (2016: $0)$NaN (2020: $NaN , 2019: $NaN).
Ardmore Shipping Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars, unless otherwise stated)
2. Significant accounting policies – (continued)
Uncertainties related to income taxes
Companies are to determine whether it is more-likely-than-not that the tax position taken or expected to be taken in a tax return will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. If a tax position meets the more-likely-than-not threshold it is measured to determine the amount of benefit to recognize in the financial statements. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. Uncertainties related to income taxes recognized for the year ended December 31, 20172021 amounted to $0 (2016: $0)$NaN (2020: $NaN, 2019: $NaN).
3. Business and segmentalsegment reporting
ArdmoreThe Company is primarily engaged in the ocean transportation of petroleum and chemical products in international trade through the ownership and operation of a fleet of tankers. Tankers are not bound to specific ports or schedules and therefore can respond to market opportunities by moving between trades and geographical areas. ArdmoreThe Company charters its vessels to commercial shippers through a combination of spot, time-charter, pool and spotpool arrangements. The chief operating decision maker (“CODM”) does not use discrete financial information to evaluate the operating results for each such type of charter. Although revenue can be identified for these types of vessel employment, management cannot and does not identify expenses, profitability or other financial information for these charters or other forms of employment. As a result, the CODM reviews operating results solely by revenue per day and operating results of the fleet. Furthermore, when Ardmorethe Company charters a vessel to a charterer, the charterer is free to trade the vessel worldwide (subject to certain sanctions-related restrictions) and, as a result, the disclosure of geographic information is impracticable. In this respect, Ardmorethe Company has determined that it operates under one1 reportable segment, relating to its operations of its vessels.
The following table presents consolidated revenues for customerscharterers that accounted for more than 10% of Ardmore’sthe Company’s consolidated revenues during the periodsyears presented:
| | | | | | |
| | For the years ended December 31 | ||||
|
| 2021 |
| 2020 |
| 2019 |
Charterer A | | 23,152,151 |
| <10% |
| <10% |
Charterer B | | <10% | | 26,759,247 | | <10% |
| | | | |||||||||
| For the year ended | ||||||||||||
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||||||||||
| Navig8 Group | < 10 | % | 19,158,623 | 17,940,808 | ||||||||
| Vitol | 34,797,654 | 43,960,560 | 20,232,481 | |||||||||
| Trafigura | < 10 | % | 17,498,550 | <10 | % | |||||||
F-20
4. Cash and cash equivalents
| | | ||||||
| As at | ||||||||
| Dec 31, 2017 | Dec 31, 2016 | |||||||
| Cash and cash equivalents | 39,457,407 | 55,952,873 | ||||||
The following table presents the Company’s revenue contributions by nature of vessel employment.
| | | | | | |
| | For the years ended December 31 | ||||
|
| 2021 |
| 2020 |
| 2019 |
Spot charters (1) | | 167,484,975 |
| 206,350,782 |
| 218,969,349 |
Time charters (2) | | 24,254,241 |
| 13,696,635 |
| 10,974,608 |
Pooling arrangements (3) | | 13,511 |
| 10,189 |
| 98,283 |
Other revenue (4) | | 731,574 | | — | | — |
| | 192,484,301 |
| 220,057,606 |
| 230,042,240 |
Ardmore is required to maintain a minimum cash balance(1) Represents revenue recognized by the Company associated with charters that were accounted for in accordance with its long-term debt facility agreement (see Note 8).ASC 606.
TABLE OF CONTENTS(2) Represents revenue recognized by the Company associated with charters that were accounted for in accordance with ASC 842.
Ardmore Shipping Corporation
Notes
(3) Represents revenue recognized by the Company associated with pooling arrangements that were accounted for in accordance with the guidance for collaborative arrangements.
(4) Represents revenue recognized by the Company associated with the management of 4 third party chemical tankers employed under spot that were accounted for in accordance with ASC 606.
4. Equity Investments
Element 1 Corp. - On June 17, 2021, the Company purchased a 10% equity stake in Element 1 Corp. (“E1”), a developer of advanced hydrogen generation systems used to Consolidated Financial Statements(Expressedpower fuel cells, in U.S. dollars, unless otherwise stated)
5. Receivables, trade
There was no provisionexchange for doubtful$4.0 million in cash and $5.3 million through the issuance of the Company’s common shares. The Company’s 10% equity stake consists of 581,795 shares of E1’s common stock and the Company also received warrants to purchase 286,582 additional common shares of Element 1 Corp. common stock, which expire on the third anniversary from the date of the investment. The Company’s total investment in E1 amounted to $9.3 million and is allocated to investment in the ordinary shares and warrants based on their relative fair values as of the date of acquisition. The Company holds one board seat out of five, resulting in 20% voting rights and thus an ability to exercise significant influence in E1. Accordingly, the Company accounts asfor the investment in the common shares of E1 using the equity method in accordance with FASB Accounting Standards Codification 323 - Investments – Equity Method and Joint Ventures (“ASC 323”) and the warrants are being accounted for at December 31, 2017 (2016: $58,430). The maximum amounttheir fair value in accordance with FASB Accounting Standards Codification ASC 321 – Investments – Equity Securities.
e1 Marine LLC - On June 17, 2021, the Company established a joint venture, e1 Marine LLC, with E1. and an affiliate of loss dueMaritime Partners LLC (“MP”), which seeks to deliver E1’s hydrogen delivery system to the credit risk ismarine sector, with each joint venture partner owning 33.33% of e1 Marine. The Company accounts for the full amountinvestment in e1 Marine LLC using the equity method in accordance with ASC 323.
The Company records its share of trade receivables. All trade receivables are current. The carrying valueearnings and losses in these investments on a quarterly basis, with an aggregate loss of receivables approximates their fair value.
6. Working capital advances
At the balance sheet date, all potentially uncollectible working capital advances are assessed individually for purposes of determining the appropriate provision for doubtful accounts. There was no provision for doubtful advances at December 31, 2017 (2016: $0).
7. Non-current assets
The scrap value of the vessels is estimated at $300 (2016: $300) per lightweight ton. Interest capitalized$0.3 million recognized in relation to vessels under construction during the year ended December 31, 2017 was nil (2016: $0). Vessels,2021. The Company recorded an investment of $10.5 million, inclusive of transaction costs (E1 investment of $9.6 million and e1 Marine LLC investment of $0.9 million), which are ownedis included in investments and operated by Ardmore, have been providedother assets, net in the consolidated balance sheet as collateral under certain loan agreements entered into by Ardmore (see Note 8). Sellers credit in relation to the capital leases for theArdmore Sealeaderof December 31, 2021.
F-21
5. Accrued expenses andArdmore Sealifter of $2.9 million are included within non-current assets. (see note 9). Leasehold improvements other liabilities
Accrued expenses and other liabilities consist of fit-out costs in relation to work completed on Ardmore’s offices at One Albert Quay, Cork, Ireland. Other non-current assets consist of office equipment, fixtures and fittings and a deposit of $1.6 million for the acquisition of theArdmore Sealancer. No impairment has been recognizedfollowing as at the balance sheet date.December 31, 2021 and 2020:
8.
| | | | |
| | As at December 31 | ||
|
| 2021 |
| 2020 |
Accrued vessel operating expenses and voyage expenses |
| 7,568,912 |
| 8,320,291 |
Other accrued expenses |
| 3,172,588 |
| 2,913,476 |
Total accrued expenses |
| 10,741,500 |
| 11,233,767 |
6. Debt
As at December 31, 2017, Ardmore2021, the Company had six5 loan facilities, which it has used primarily to finance vessel acquisitions or vessels under construction and also for working capital. ASC’sThe Company’s applicable ship-owning subsidiaries have granted first-priority mortgages against the relevant vessels in favor of the lenders as security for Ardmore’sthe Company’s obligations under the loan facilities, which totaled 2411 vessels as at December 31, 2017.2021. ASC and its subsidiary ASLLCArdmore Shipping LLC have provided guarantees in respect of the loan facilities.facilities and ASC havehas granted a guarantee over its trade receivables in respect of the ABN AMRO Revolving Facility. These guarantees can be called upon following a payment default.
F-22
The outstanding principal balances in the table below approximate the fair value for the Company’s variable-rate debt, which is considered to be a Level 2 item for fair values purposes as the Company considers the estimate of rates it could obtain for similar debt. The fair value of an asset or liability is based on assumptions that market participants would use in pricing the asset or liability. The hierarchies of inputs used when determining fair value are described below:
Level 1: Valuations based on quotes prices in active markets for identical instruments that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree of judgment.
Level 2: Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3: Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The outstanding principal balances on each loan facility as at December 31, 20172021 and 20162020 were as follows:
| | | ||||||
| As at | ||||||||
| Dec 31, 2017 | Dec 31, 2016 | |||||||
| NIBC Bank Facility | 8,885,000 | 10,305,000 | ||||||
| CACIB Bank Facility | 34,100,000 | 36,900,000 | ||||||
| ABN/DVB/NIBC Joint Bank Facility | 162,115,591 | 204,090,550 | ||||||
| Nordea/SEB Joint Bank Facility | 132,272,938 | 142,688,402 | ||||||
| ABN AMRO Facility | 64,201,180 | 70,282,505 | ||||||
| ABN AMRO Revolving Facility | 11,092,158 | — | ||||||
| Total debt | 412,666,867 | 464,266,457 | ||||||
| Deferred finance fees | (8,243,297 | ) | (11,053,351 | ) | ||||
| Net total debt | 404,423,570 | 453,213,106 | ||||||
| Current portion of long-term debt | 39,282,538 | 44,313,149 | ||||||
| Current portion of deferred finance fees | (2,210,990 | ) | (2,485,669 | ) | ||||
| Total current portion of long-term debt | 37,071,548 | 41,827,480 | ||||||
| Non-current portion of long-term debt | 367,352,022 | 411,385,626 | ||||||
| | | | |
|
| As at December 31 | ||
|
| 2021 |
| 2020 |
NIBC Bank Facility | | — |
| 4,625,000 |
Nordea/SEB Joint Bank Facility | | 56,599,042 |
| 88,503,292 |
Nordea/SEB Revolving Facility | | 28,953,901 | | 39,237,241 |
ABN/CACIB Joint Bank Facility | | 51,339,576 | | 57,124,104 |
ABN AMRO Revolving Facility | | 1,679,856 |
| 14,394,250 |
IYO Bank Facility | | 8,400,000 | | 10,000,000 |
Total debt | | 146,972,375 |
| 213,883,887 |
Deferred finance fees | | (1,870,984) |
| (3,372,923) |
Net total debt | | 145,101,391 |
| 210,510,964 |
Current portion of long-term debt | | 15,834,489 |
| 23,506,236 |
Current portion of deferred finance fees | | (731,303) |
| (1,049,840) |
Total current portion of long-term debt | | 15,103,186 |
| 22,456,396 |
Non-current portion of long-term debt | | 129,998,205 |
| 188,054,568 |
Ardmore Shipping Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars, unless otherwise stated)
8. Debt – (continued)
Future minimum scheduled repayments under Ardmore’sthe Company’s loan facilities for each year are as follows:
| | |||
| As at Dec 31, 2017 | ||||
| 2018 | 39,282,538 | |||
| 2019 | 38,856,620 | |||
| 2020 | 38,856,620 | |||
| 2021 | 41,159,894 | |||
| 2022 | 189,430,411 | |||
| 2023 | 65,080,784 | |||
| 412,666,867 | ||||
As at
December 31
2021
2022
15,834,489
2023
17,514,346
2024
110,023,540
2025
3,600,000
146,972,375
As at
December 31
2021
2022
15,834,489
2023
17,514,346
2024
110,023,540
2025
3,600,000
146,972,375
NIBC Bank Facility
On September 12, 2014, one1 of ASC’s subsidiaries entered into a $13.5 million long-term loan facility with NIBC Bank N.V. to finance a secondhand vessel acquisition which delivered to Ardmorethe Company in 2014. The facility was drawn down in September 2014 and bears interest2014. Interest is calculated at a rate of LIBOR plus 2.90%. Principal repayments on the loans are made on a quarterly basis, with a balloon payment payable with the final instalment. The loaninstallment. On January 7, 2021, Ardmore repaid the facility matures in September 2021.full.
CACIB
F-23
Nordea / SEB Joint Bank Facility and Nordea / SEB Revolving Facility
On May 22, 2014, twoDecember 11, 2019, 8 of ASC’s subsidiaries entered into a $39.0$100.0 million long-term loan facility and a $40.0 million revolving credit facility with Credit Agricole CorporateNordea Bank AB (publ) and Investment BankSkandinaviska Enskilda Banken AB (publ) to finance two vessels under construction. On March 10, 2016, thisrefinance existing facilities. The facility was refinanced, the lenders provided an additional $25 million commitment for additional financingfully drawn down in December 2020 and an additional tranche of $2.3 million was drawn down. The $25 million of additional financing was drawn and repaid in full during the three-month period ended September 30, 2016.December 2019. Interest is calculated on each tranche at a rate of LIBOR plus 2.50%2.4%. Principal repayments on the term loans are made on a quarterly basis, with a balloon payment payable with the final instalment. The fullrevolving facility maturesmay be drawn down or repaid with five days’ notice. On June 25, 2021, Ardmore partially repaid the facility in 2022.connection with the refinancing of 2 of the vessels under a new sale and leaseback arrangement. The term loan and revolving credit facility mature in December 2024.
ABN/DVB/NIBCCACIB Joint Bank Facility
On January 13, 2016,December 11, 2019, 4 of ASC’s subsidiaries entered into a $213$61.5 million long-term loan facility with ABN AMRO Bank N.V. (“ABN”) and DVBCredit Agricole Corporate and Investment Bank America N.V. to refinance existing facilities. The loan, was fully drawn down on January 22, 2016. Interest is calculated at a rate of LIBOR plus 2.55%2.4%. The loan matures in 2022. On August 4, 2016, an incremental term loan of $36.6 million was made under the amended facility in order to fund two vessel acquisitions, and NIBC Bank N.V. joined as an additional lender under the facility. The incremental term loan consists of two tranches, and interest is calculated at a rate of LIBOR plus 2.75%. The additional tranches mature in 2023. Principal repayments on the term loans are made on a quarterly basis, with a balloon payment payable with the final instalment. The loan facility matures in December 2024.
Nordea/SEB Joint
ABN AMRO Revolving Facility
On October 24, 2017, the Company entered into a $15.0 million revolving credit facility with ABN AMRO to fund working capital. On October 7, 2021, the Company exercised an option to extend this facility to June 2023. Interest payments are payable on a quarterly basis. Interest under this facility is calculated at a rate of LIBOR plus 3.8%.
IYO Bank Facility
On January 13, 2016, sevenDecember 17, 2020, 1 of ASC’s subsidiaries entered into a $151$10.0 million long-term loan facility with NordeaIYO Bank AB (publ) and Skandinaviska Enskilda Banken AB (publ) to refinance existing facilities.finance a secondhand vessel acquisition which delivered to the Company in 2020. The loanfacility was fully drawn down on January 22, 2016.in December 2020. Interest is calculated at a rate of LIBOR plus 2.50%2.25%. Principal repayments on the loans are made on a quarterly basis, with a balloon payment payable with the final instalment. The loan matures in 2022.
Ardmore Shipping Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars, unless otherwise stated)
8. Debt – (continued)
ABN AMRO Facility
On July 29, 2016, four of ASC’s subsidiaries entered into a $71.3 million long-term loan facility with ABN AMRO for vessel acquisitions. Three of the four tranches under the facility were drawn down during the third quarter of 2016. The fourth tranche was drawn down in the fourth quarter of 2016. Interest is calculated at a rate of LIBOR plus 2.75%. Principal repayments on the loans are made on a quarterly basis, with a balloon payment payable with the final instalment. The loan matures in 2023.
ABN AMRO Revolving Facility
On October 24, 2017, Ardmore entered into a $15 million revolving credit facility with ABN AMRO to fund working capital. Interest is calculated at a rate of LIBOR plus 3.5%. Interest payments are payable on a monthly basis. The facility matures in October 2019.December 2025.
Long-term debt financial covenants
Ardmore’sThe Company’s existing long-term debt facilities described above include certain covenants. The financial covenants require that ASC:
| ● | maintain minimum solvency of not less than 30%; |
| ● | maintain minimum cash and cash equivalents (of which at least 60% of such minimum amount is held in cash and which includes the undrawn portion of the Nordea/SEB Revolving Facility), based on the number of vessels owned and chartered-in and 5% of outstanding debt; the required minimum cash and cash equivalents as at December 31, 2021, was $18.8 million; |
| ● | ensure that the aggregate fair market value of the applicable vessels plus any additional collateral is, depending on the facility, no less than 130% of the debt outstanding for the facility; |
| ● | maintain a corporate net worth of not less than $150 million; and |
| ● | maintain positive working capital, excluding balloon repayments and amounts outstanding under the ABN AMRO Revolving Facility, provided that the facility has a remaining maturity of more than three months. |
The Company was in full compliance with all of its loanlong-term debt financial covenants as ofat December 31, 20172021 and 2016.2020.
9. Capital
F-24
7. Finance lease
As at December 31, 2021, the Company was a party, as the lessee, to 7 finance lease facilities. The Company's applicable ship-owning subsidiaries have granted first-priority mortgages against the relevant vessels in favor of the lenders as security for the Company’s obligations under the finance lease facilities, which totaled 14 vessels as at December 31, 2021 (2020: 12 vessels). ASC has provided guarantees in respect of the finance lease facilities. These guarantees can be called upon following a payment default. The outstanding principal balances on each finance lease facility as at December 31, 2021 and 2020 were as follows:
| | | | |
|
| As at December 31 | ||
|
| 2021 |
| 2020 |
Japanese Leases No.1 and 2 | | 21,676,600 |
| 26,531,100 |
Japanese Lease No.3 | | 10,746,500 |
| 13,119,000 |
CMBFL Leases No.1 to 4 | | 65,187,328 |
| 72,459,942 |
Ocean Yield ASA | | 50,320,320 |
| 55,729,620 |
Japanese Lease No.4 | | 19,941,538 | | 21,949,099 |
China Huarong Leases | | 37,385,213 |
| 41,992,081 |
CMBFL / Shandong | | 65,625,400 | | 0 |
Finance lease obligations | | 270,882,899 |
| 231,780,842 |
Amounts representing interest and deferred finance fees | | (44,428,222) |
| (34,076,458) |
Finance lease obligations, net of interest and deferred finance fees | | 226,454,677 |
| 197,704,384 |
Current portion of finance lease obligations | | 21,783,261 |
| 19,084,775 |
Current portion of deferred finance fees | | (699,430) |
| (630,553) |
Non-current portion of finance lease obligations | | 207,592,243 |
| 181,250,674 |
Non-current portion of deferred finance fees | | (2,221,397) |
| (2,000,512) |
Total finance lease obligations, net of deferred finance fees | | 226,454,677 |
| 197,704,384 |
Maturity analysis of the Company’s finance lease facilities for each year are as follows:
| | |
| | As at |
| | December 31, 2021 |
2022 |
| 32,164,805 |
2023 |
| 43,722,900 |
2024 |
| 29,888,892 |
2025 |
| 81,557,058 |
2026 |
| 12,549,755 |
2027 - 2030 |
| 70,999,489 |
Finance lease obligations |
| 270,882,899 |
Amounts representing interest and deferred finance fees |
| (44,428,222) |
Finance lease obligations, net of interest and deferred finance fees |
| 226,454,677 |
Assets recorded under finance leases consist of the following:
| | | | |
|
| As at December 31 | ||
|
| 2021 |
| 2020 |
Vessels and vessel equipment, net of accumulated depreciation | | 326,599,910 |
| 282,930,184 |
Deferred drydock expenditures, net of accumulated amortization | | 5,353,419 |
| 2,751,781 |
Advances for ballast water systems | | 1,079,755 | | 2,141,135 |
| | 333,033,084 |
| 287,823,100 |
F-25
Japanese Leases No. 1 and 2
On December 22, 2016, oneMay 30, 2017, 2 of ASC’s subsidiaries entered into an agreement for the sale and leaseback (under a capitalfinance lease arrangement) of theArdmore SeatraderSealeader. This transaction and Ardmore Sealifter, with JPV No. 7 and JPV No. 8, respectively. The facility was treated as a financing transaction. As part of this arrangement, the senior debt outstandingdrawn down in May 2017. Repayments on the vessel of $3.0 million was repaid in fullleases are made on December 20, 2016.a monthly basis and include principal and interest. The capital lease is scheduled to expire in 2021 and includes a mandatory purchase obligation for Ardmore to repurchase the vessel, as well as a purchase option exercisable by Ardmore, which Ardmore could elect to exercise at an earlier date.
Ardmore Shipping Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars, unless otherwise stated)
9. Capital leases – (continued)
Effective May 30, 2017, two of ASC’s subsidiaries entered into an agreement for the sale and leaseback (under a capital lease arrangement) of theArdmore Sealeaderand Ardmore Sealifter. This transaction was treated as a financing transaction. As part of this arrangement, the senior debt outstanding on the vessels of $20.1 million was repaid in full on May 30, 2017. The capitalfinance leases are scheduled to expire in 2023 and include an obligation for Ardmore to repurchase the vessels, as well as purchase options exercisable by Ardmore.the Company. As part of the lease arrangement, Ardmorethe Company provided the purchasers with $2.9 million in the aggregate which shall be repaid at the end of the lease period, or upon the exercise of any of the purchase options. This amount is included as a receivable within ‘Other non-current assets, net’ in the consolidated balance sheet,sheets as ‘Amount receivable in respect of finance leases’ with the associated capitalfinance lease liability presented gross of the $2.9 million. On February 16, 2022, the Company gave notice to exercise its purchase options, for both the Ardmore Sealeader and Ardmore Sealifter, with the intention to purchase the vessels on May 30, 2022.
Japanese Lease No. 3
On January 30, 2018, 1 of ASC’s subsidiaries entered into an agreement for the sale and leaseback (under a finance lease arrangement) of the Ardmore Sealancer with Neil Co., Ltd. The facility was drawn down in January 2018. Repayments on the lease are made on a monthly basis and include principal and interest. The finance lease is scheduled to expire in 2024 and includes purchase options exercisable by the Company. As part of the lease arrangement, the Company provided the purchaser with $1.4 million in the aggregate which shall be repaid at the end of the lease period, or upon the exercise of any of the purchase options. This amount has been offset against the finance lease liability in the consolidated balance sheets, with the associated finance lease liability presented net of the $1.4 million.
CMBFL Leases No. 1 to 4
On June 26, 2018, 2 of ASC’s subsidiaries entered into an agreement for the sale and leaseback (under a finance lease arrangement) of the Ardmore Endurance and Ardmore Enterprise, respectively, with CMB Financial Leasing Co., Ltd (“CMBFL”). The facility was drawn down in June 2018. Interest is calculated at a rate of LIBOR plus 3.10%. Principal repayments on the leases are made on a quarterly basis. The finance leases are scheduled to expire in 2025 and include a mandatory purchase obligation for the Company to repurchase the vessels, as well as purchase options exercisable by the Company, which the Company could elect to exercise at an earlier date.
On October 25, 2018, 2 of ASC’s subsidiaries entered into an agreement for the sale and leaseback (under a finance lease arrangement) of the Ardmore Encounter and Ardmore Explorer, respectively, with CMBFL. The facility was drawn down in October 2018. Interest is calculated at a rate of LIBOR plus 3.00%. Principal repayments on the leases are made on a quarterly basis. The finance leases are scheduled to expire in 2025 and include a mandatory purchase obligation for the Company to repurchase the vessels, as well as purchase options exercisable by the Company, which the Company could elect to exercise at an earlier date.
Ocean Yield ASA
On October 25, 2018, 2 of ASC’s subsidiaries entered into an agreement for the sale and leaseback (under a finance lease arrangement) of the Ardmore Dauntless and Ardmore Defender, respectively with Ocean Yield ASA. The facility was drawn down in October 2018. Interest is calculated at a rate of LIBOR plus 4.50%. Principal repayments on the leases are made on a monthly basis. The finance leases are scheduled to expire in 2030 and include a mandatory purchase obligation for the Company to repurchase the vessels, as well as purchase options exercisable by the Company, which the Company could elect to exercise at an earlier date.
Japanese Lease No. 4
On November 30, 2018, 1 of ASC’s subsidiaries entered into an agreement for the sale and leaseback (under a finance lease arrangement), of the Ardmore Engineer with Rich Ocean Shipping. The facility was drawn down in December 2018. Interest is calculated at a rate of LIBOR plus 3.20%. Principal repayments on the lease are made on a monthly basis.
| | | ||||||
| As at | ||||||||
| Dec 31, 2017 | Dec 31, 2016 | |||||||
| Current portion of capital lease obligations | 3,783,044 | 181,047 | ||||||
| Current portion of deferred finance fees | (245,578 | ) | (22,019 | ) | ||||
| Non-current portion of capital lease obligations | 39,402,440 | 9,064,702 | ||||||
| Non-current portion of deferred finance fees | (445,887 | ) | (93,080 | ) | ||||
| Total capital lease obligations | 42,494,019 | 9,130,650 | ||||||
| Amount receivable in respect of capital leases | (2,880,000 | ) | — | |||||
| Net capital lease obligations | 39,614,019 | 9,130,650 | ||||||
F-26
The future minimumfinance lease payments required underis scheduled to expire in 2029 and includes a mandatory purchase obligation for the capitalCompany to repurchase the vessel, as well as purchase options exercisable by the Company, which the Company could elect to exercise at an earlier date.
China Huarong Leases
On November 30, 2018, 2 of ASC’s subsidiaries entered into an agreement for the sale and leaseback (under a finance lease arrangement), of the Ardmore Seavanguard and Ardmore Exporter, respectively, with China Huarong Financial Leasing Co., Ltd (“China Huarong”). The facility was drawn down in December 2018. Interest is calculated at a rate of LIBOR plus 3.50%. Principal repayments on the leases are made on a quarterly basis. The finance leases are scheduled to expire in 2025 and include a mandatory purchase obligation for the Company to repurchase the vessels, as well as purchase options exercisable by the Company, which the Company could elect to exercise at an earlier date.
CMBFL / Shandong
On June 25, 2021, 2 of ASC’s subsidiaries entered into an agreement for the sale and leaseback (under a finance lease arrangement) of the Ardmore Seawolf and Ardmore Seahawk with CMBFL / Shandong, resulting in gross proceeds of $49.0 million less fees of $1.0 million. The facility was drawn down in June 2021. Principal repayments on the leases are made on a monthly basis. The finance leases are scheduled to expire in 2029, subject to options to renew for a maximum period of an additional eight years. Repurchase options, exercisable by the Company, are also included which begin on the third anniversary of the lease term.
Finance leases financial covenants
Some of the Company’s existing finance lease facilities (as described above) include financial covenants which are the same, or no more onerous than, the Company's long-term debt financial covenants described in Note 6. The Company was in full compliance with all of its finance lease related financial covenants as at December 31, 2017,2021 and 2020.
Short-Term Leases
The Company has entered into 2 short-term lease agreements with one agreement effective July 30, 2021 to charter-in a 2010-built vessel for a period of 12 months, and the other agreement effective June 4, 2021 to charter-in a 2009-built vessel for a period of eight months. The Company elected the practical expedient of ASC 842, which allows for time charter-in contracts with an initial lease term of 12 months or less to be excluded from the operating lease right-of-use assets and lease liabilities. The Company will continue to recognize the lease payments for all operating leases as charter hire expenses on the consolidated statements of operations on a straight-line basis over the lease term.
F-27
8. Operating lease
The Company’s consolidated balance sheets include a right-of-use asset and a corresponding liability for operating lease contracts. The discount rate used to measure the lease liability is the incremental cost of borrowing since the rate implicit in the lease cannot be determined.
The liabilities described below are for the Company’s offices in Cork, Ireland, Singapore and Houston, Texas which are denominated in various currencies. The weighted average remaining term of the office leases as at December 31, 2021 was 4.1 years. Under ASC 842, the right-of-use asset is a nonmonetary asset and is remeasured into the Company’s reporting currency of the U.S. Dollar using the exchange rate for the applicable currency as at the adoption date of ASC 842. The operating lease liability is a monetary liability and is remeasured quarterly using the current exchange rates, with changes recognized in a manner consistent with other foreign-currency-denominated liabilities in general and administrative expenses in the consolidated statements of operations.
| | | | |
|
| As at December 31 | ||
|
| 2021 |
| 2020 |
Operating lease, right-of-use asset | | 1,231,877 |
| 1,662,510 |
Total operating lease, right-of-use asset | | 1,231,877 |
| 1,662,510 |
Current portion of operating lease obligations | | 273,141 |
| 463,559 |
Non-current portion of operating lease obligations | | 722,085 |
| 1,034,218 |
Total operating lease obligations | | 995,226 |
| 1,497,777 |
| | | | | | |
|
| For the years ended December 31 | ||||
|
| 2021 |
| 2020 |
| 2019 |
Foreign exchange gain / (loss) on operating leases | | 71,917 |
| (108,978) | | 73,207 |
Total foreign exchange gain / (loss) on operating leases | | 71,917 |
| (108,978) | | 73,207 |
As at December 31, 2021, the Company had the following maturity of operating lease obligations:
| | |
|
| As at |
| | December 31 |
| | 2021 |
2022 |
| 278,426 |
2023 | | 248,031 |
2024 | | 252,249 |
2025 | | 256,547 |
2026 | | 43,465 |
Total lease payments | | 1,078,718 |
Less imputed interest | | (83,492) |
Present value of lease liabilities | | 995,226 |
F-28
9. Interest Rate Swaps
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
During the second quarter of 2020, the Company entered into floating-to-fixed interest rate swap agreements, associated with existing variable-rate debt and financing facilities, over a three-year term with multiple counterparties. In accordance with these transactions, the Company will pay an average fixed-rate interest amount of 0.32% and will receive floating rate interest amounts based on LIBOR. These interest rate swaps have a total notional amount of $259.2 million, of which $216.0 million is designated as cash flow hedges.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income (Loss) and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Reclassification adjustments related to the interest rate swaps amounted to approximately $0.4 million or the year ended December 31, 2021.
Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements and/or the Company has not elected to apply hedge accounting. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings.
The Company records the fair value of the interest rate swaps as an asset or liability on its balance sheet. Interest rate swaps are considered to be a Level 2 item. The following table shows the interest rate swap liabilities as of December 31, 2021 and December 31, 2020:
| | | | | | | |
Derivatives designated as hedging instruments |
| Balance Sheet location |
| December 31, 2021 |
| December 31, 2020 | |
Interest rate swap |
| Current portion of derivative assets / (liabilities) | | $ | 253,938 |
| (349,374) |
Interest rate swap |
| Non - current portion of derivative assets / (liabilities) | | $ | 794,969 |
| (379,762) |
The following table shows the interest rate swap liabilities not designated as hedging instruments as of December 31, 2021 and December 31, 2020:
| | | | | | | |
Derivatives not designated as hedging instruments |
| Balance Sheet location |
| December 31, 2021 |
| December 31, 2020 | |
Interest rate swap |
| Current portion of derivative assets / (liabilities) | | $ | 52,974 |
| (48,044) |
Interest rate swap |
| Non - current portion of derivative assets / (liabilities) | | $ | 186,866 |
| (54,212) |
F-29
10. Preferred Stock
On June 17, 2021 and on December 3, 2021, ASC issued 25,000 shares and 15,000 shares, respectively, of Series A Cumulative Redeemable Perpetual Preferred Shares (“Series A Preferred Stock”) to an affiliate of Maritime Partners LLC. The liquidation preference of the Series A Preferred Stock is $1,000.00 per share. The shares of Series A Preferred Stock accrue cumulative dividends, whether or not declared, at an initial annual rate of 8.5% per $1,000.00 of liquidation preference per share, which rate may change based on certain matters. Dividends are payable on January 30, April 30, July 30 and October 30 of each year, commencing July 30, 2021. So long as any share of the Series A Preferred Stock remains outstanding, 0 cash dividend may be declared or paid on ASC’s common stock unless, among other things, all accrued and unpaid dividends have been paid on the Series A Preferred Stock. The Company may redeem, in whole or in part, the shares of Series A Preferred Stock outstanding, at a cash redemption price equal to (a) 103% of the liquidation preference per share plus any accumulated and unpaid dividends on or after the third anniversary of the original issuance date of the Series A Preferred Stock and prior to the fourth anniversary, (b) 102% of the liquidation preference per share plus any accumulated and unpaid dividends after such fourth anniversary and prior to the fifth anniversary and (c) 100% of the liquidated preference per share plus any accumulated and unpaid dividends after such fifth anniversary.
The Series A Preferred Stock is redeemable, in whole or in part, upon the election of the Company or the Holder of shares of Series A Preferred Stock, upon the occurrence of certain change of control events, including if a person or group becomes the beneficial owner of a majority of ASC’s total voting power. As it is possible, regardless of the probability of such occurrence, that a person or group could acquire beneficial ownership of a majority of the voting power of ASC’s outstanding common stock without Company approval and thereby trigger a “change of control,” the Series A Preferred Stock is classified as temporary equity for accounting purposes. The Company’s obligations to the Holder of shares of Series A Preferred Stock are secured by a pledge of the Company’s stake in E1. The Series A Preferred Stock is presented in the Company’s financial statements net of the related stock issuance costs.
As part of the issuance of the Preferred Stock to MP, the Company agreed that MP shall have the right to a profits interest of 20% of all cash or in-kind distributions and proceeds received in respect of the E1 investment which can only be distributed after the Company receives its return of its initial investment of $9.3 million. As the agreement includes a mandatory redemption date, for the profits interest that is the 10th anniversary of the date of the agreement, it renders the profits interest as a liability which will need to be marked to fair value each period with changes in the fair value recorded directly in earnings. The Company recorded a liability of $0.9 million, which is included in non-current liabilities in the consolidated balance sheet as of December 31, 2021.
11. Loss on sale of vessels
In February 2019, the Company agreed to terms for the sale of the Ardmore Seamaster. Effective February 1, 2019, the Company reclassified the vessel as held for sale and ceased to depreciate the vessel. The Company repaid the outstanding debt facility on the vessel in February 2019. The sales price for the vessel was $9.7 million, resulting in a loss of $6.6 million when the vessel delivered to the buyer in February 2019.
In May 2019, the Company agreed to terms for the sale of the Ardmore Seafarer. Effective May 7, 2019, the Company reclassified the vessel as held for sale and ceased to depreciate the vessel. The Company repaid the outstanding debt facility on the vessel in May 2019. The sales price for the vessel was $9.1 million, resulting in a loss of $6.6 million when the vessel delivered to the buyer in May 2019.
The loss on the sale of vessels for the year ended December 31, 2019 is calculated as follows:
| | | | | | |
|
| Seamaster |
| Seafarer |
| Total |
Sales proceeds (1) |
| 9,700,000 |
| 9,100,000 |
| 18,800,000 |
Net book value of vessels |
| (15,979,901) |
| (15,537,708) |
| (31,517,609) |
Sales related costs |
| (223,178) |
| (99,503) |
| (322,681) |
Debt termination costs and related finance fees | | (66,684) | | (55,218) | | (121,902) |
Loss on sale of vessels |
| (6,569,763) |
| (6,592,429) |
| (13,162,192) |
| | |||
| As at Dec 31, 2017 | ||||
| 2018 | 6,241,500 | |||
| 2019 | 6,241,500 | |||
| 2020 | 6,258,600 | |||
| 2021 | 12,457,300 | |||
| 2022 | 4,854,500 | |||
| 2023 | 16,808,800 | |||
| Total minimum lease payments | 52,862,200 | |||
| Less amounts representing interest and deferred finance fees | (10,368,181 | ) | ||
| Net minimum lease payments | 42,494,019 | |||
| Amount receivable in respect of capital leases | (2,880,000 | ) | ||
| Adjusted net minimum lease payments | 39,614,019 | |||
F-30
TABLE OF CONTENTSTable of Contents
Ardmore Shipping Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars, unless otherwise stated)
9. Capital leases – (continued)
Assets recorded under capital leases consist of the following:
| | | ||||||
| As at | ||||||||
| Dec 31, 2017 | Dec 31, 2016 | |||||||
| Vessels, Equipment & Deferred Drydock Expenditure | 75,712,769 | 26,125,274 | ||||||
| Accumulated Depreciation | (19,721,568 | ) | (9,239,855 | ) | ||||
| 55,991,201 | 16,885,419 | |||||||
10. Sale of Vessels
In October 2015,December 2020, Ardmore agreed to terms for the sale of the Ardmore Calypso and Ardmore Capella.Seamariner. Effective November 2015, Ardmore reclassified these vessels as vessels held for sale and ceased to depreciate the vessels. Ardmore exercised the purchase option for the two vessels during the second quarter of 2016 and repaid all amounts outstanding under the capital leases. The sale prices for the two vessels totalled $38.5 million, resulting in an overall net gain of $0.5 million when Ardmore delivered the vessels to the buyers during April and May of 2016.
In September 2016, Ardmore agreed to terms for the sale of the Ardmore Centurion. Effective September 2016December 2020, Ardmore reclassified the vessel as held for sale and ceased to depreciate the vessel. The Company repaid all amounts outstanding under the related term loan in January 2021. The sale price for the vessel was $15.7$10.0 million, resulting in a net loss of $3.1$6.4 million whenwhich was recognized in the year ended December 31, 2020. The vessel was delivered to the buyer in October.January 2021.
The net loss on disposal of the vesselsvessel held for sale for the year ended December 31, 20162020 is calculated as follows:
| | |
| Seamariner | |
Sales proceeds | 10,000,000 | |
Net book value of vessel | (16,342,309) | |
Sales related costs | | (105,000) |
Loss on vessel held for sale | | (6,447,309) |
| | | | | ||||||||||||
| Centurion | Calypso | Capella | Total | |||||||||||||
| Sales proceeds | 15,700,000 | 19,150,000 | 19,350,000 | 54,200,000 | ||||||||||||
| Net book value of vessels | (18,222,109 | ) | (18,783,238 | ) | (18,253,669 | ) | (55,259,016 | ) | ||||||||
| Sales related costs | (531,001 | ) | (273,458 | ) | (228,210 | ) | (1,032,669 | ) | ||||||||
| Lease termination costs and related finance fees | — | (254,731 | ) | (254,732 | ) | (509,463 | ) | |||||||||
| Net (Loss)/Gain | (3,053,110 | ) | (161,427 | ) | 613,389 | (2,601,148 | ) | |||||||||
In 2017, there were no disposals of vessels.
11. Risk Management
11.1. Operational risk
Ardmore is exposed to operating costs arising from various vessel operations. Key areas of operating risk include drydock, repair costs, insurance, piracy and fuel prices. Ardmore’s risk management includes various strategies for technical management of drydock and repairs coordinated with a focus on measuring cost and quality. Ardmore’s relatively young fleet helps to minimize the risk. Given the potential for accidents and other incidents that may occur in vessel operations, the fleet is insured against various types of risk. Ardmore has established a set of countermeasures in order to minimize the risk of piracy attacks during voyages, particularly through regions which the Joint War Committee or our insurers consider high risk, or which they recommend monitoring including the South China Sea, the Indian Ocean, the Red Sea, the Gulf of Aden, the Gulf of Guinea, Venezuela, and in certain areas of the Middle East, and increasingly the Sulu Archipelago and Indonesia in the South China Sea, to make the navigation safer for sea staff and to protect Ardmore’s assets The price and supply of fuel is unpredictable and can fluctuate from time to time. Ardmore periodically considers and monitors the need for fuel hedging to manage this risk.
11.2. Foreign exchange risk
The majority of Ardmore’s transactions, assets and liabilities are denominated in U.S. Dollars, the functional currency of Ardmore. Ardmore incurs certain general and operating expenses in other currencies (primarily the
Ardmore Shipping Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars, unless otherwise stated)
11. Risk Management – (continued)
Euro, Singapore Dollar and Pounds Sterling) and as a result there is a transactional risk to Ardmore that currency fluctuations will have a negative effect on the value of Ardmore’s cash flows. Such risk may have an adverse effect on Ardmore’s financial condition and results of operations. Ardmore believes these adverse effects to be immaterial and has not entered into any derivative contracts for either transaction or translation risk during the year.
11.3. Interest rate risk
The Company is exposed to the impact of interest rate changes primarily through borrowings that require the Company to make interest payments based on LIBOR. Significant increases in interest rates could adversely affect the Company’s results of operations and its ability to repay debt. The Company monitors interest rate exposure and may enter into swap arrangements to hedge exposure where it is considered economically advantageous to do so.
The disclosure in the immediately following paragraph about the potential effects of changes in interest rates are based on a sensitivity analysis, which models the effects of hypothetical interest rate shifts. A sensitivity analysis is constrained by several factors, including the necessity to conduct the analysis based on a single point in time and by the inability to include the extraordinarily complex market reactions that normally would arise from the market shifts. Although the following results of a sensitivity analysis for changes in interest rates may have some limited use as a benchmark, they should not be viewed as a forecast. This forward-looking disclosure also is selective in nature and addresses only the potential impacts on the Company’s borrowings.
Assuming the Company does not hedge its exposure to interest rate fluctuations, a hypothetical 100 basis-point increase or decrease in the Company’s variable interest rates would have increased or decreased the Company’s interest expense for the year period ended December 31, 2017 by $4.6 million (2016: $4.2 million) using the average long-term debt balance and actual interest incurred in each period.
11.4. Credit risk
There is a concentration of credit risk with respect to cash and cash equivalents to the extent that substantially all of the amounts are held in Nordea Bank, and in short-term funds (with a credit risk rating of at least AA) managed by Blackrock and State Street Global Advisors. While Ardmore believes this risk of loss is low, it will keep this under review and will revise its policy for managing cash and cash equivalents if considered advantageous and prudent to do so.
Ardmore limits its credit risk with trade accounts receivable by performing ongoing credit evaluations of its customers’ financial condition. It generally does not require collateral for its trade accounts receivable.
Ardmore may have a credit risk in relation to vessel employment and at times may have multiple vessels employed by one charterer. Ardmore considers and evaluates concentration of credit risk regularly and performs on-going evaluations of these charterers for credit risk and credit concentration risk. As at December 31, 2017 Ardmore’s 27 vessels in operation were employed with 13 different charterers.
11.5. Income taxes
Ardmore’s principal objective in relation to liquidity is to ensure that it has access, at minimum cost, to sufficient liquidity to enable it to meet its obligations as they fall due and to provide adequately for contingencies. Ardmore’s policy is to manage its liquidity by strict forecasting of cash flows arising from or expense relating to time charter revenue, pool revenue, vessel operating expenses, general and administrative overhead and servicing of debt.
Ardmore Shipping Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars, unless otherwise stated)
12. General and administrative expenses
12.1. Corporate
| | | | |||||||||
| For the year ended | ||||||||||||
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||||||||||
| Staff salaries | 6,851,692 | 5,709,919 | 4,786,078 | |||||||||
| Share based compensation (non-cash) | 457,046 | 1,304,325 | 1,436,505 | |||||||||
| Office administration | 2,538,973 | 2,565,838 | 2,069,969 | |||||||||
| Bank charges and foreign exchange | 219,910 | 140,942 | 151,840 | |||||||||
| Auditors’ remuneration | 558,600 | 513,429 | 481,492 | |||||||||
| Other professional fees | 1,280,163 | 1,810,089 | 1,250,023 | |||||||||
| Other administration costs | 72,633 | 11,183 | 242,969 | |||||||||
| 11,979,017 | 12,055,725 | 10,418,876 | ||||||||||
12.2. Commercial and Chartering
Commercial and chartering expenses are the expenses attributable to our chartering and commercial operations departments in connection with our spot trading activities.
| | | | |||||||||
| For the year ended | ||||||||||||
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||||||||||
| Staff salaries | 1,934,923 | 1,039,169 | 124,410 | |||||||||
| Office administration | 341,219 | 201,685 | 8,658 | |||||||||
| Other professional fees | — | 426,213 | 127,693 | |||||||||
| Other administration costs | 343,606 | 354,420 | 68,985 | |||||||||
| 2,619,748 | 2,021,487 | 329,746 | ||||||||||
13. Interest expense and finance costs
| | | | |||||||||
| For the year ended | ||||||||||||
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||||||||||
| Interest incurred | 18,319,640 | 14,338,666 | 12,994,911 | |||||||||
| Capitalized interest | — | — | (2,423,688 | ) | ||||||||
| Amortization of deferred finance charges | 3,060,525 | 3,415,452 | 1,711,481 | |||||||||
| 21,380,165 | 17,754,118 | 12,282,704 | ||||||||||
14. Interest income
| | | | | | |
|
| For the years ended December 31 | ||||
|
| 2021 |
| 2020 |
| 2019 |
Interest incurred – debt | | 4,404,746 |
| 6,585,889 |
| 10,780,248 |
Interest incurred – finance leases | | 9,766,818 |
| 9,737,294 |
| 13,419,326 |
Amortization of deferred finance fees | | 2,192,177 |
| 1,765,271 |
| 2,560,180 |
Interest rate swaps | | 407,457 | | 79,701 | | — |
| | 16,771,198 |
| 18,168,155 |
| 26,759,754 |
Interest income relates to bank interest received on Ardmore’s cash and cash equivalents balances.
15.
13. Income taxes
(Loss)/profit before taxes was derived from the following sources:
| | | | |||||||||
| For the year ended | ||||||||||||
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||||||||||
| Domestic | (12,430,768 | ) | 3,808,366 | 32,034,825 | ||||||||
| (12,430,768 | ) | 3,808,366 | 32,034,825 | |||||||||
Ardmore Shipping Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars, unless otherwise stated)
15. Income taxes – (continued)
The components of the provision for income taxestax are as follows:
| | | | |||||||||||||||
| For the year ended | ||||||||||||||||||
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||||||||||||||||
| Domestic | ||||||||||||||||||
| | | | | | | ||||||||||||
|
| For the years ended December 31 | ||||||||||||||||
|
| 2021 |
| 2020 |
| 2019 | ||||||||||||
| Current tax expenses | (59,567 | ) | (60,434 | ) | (79,860 | ) | | (149,593) |
| (199,446) |
| (58,766) | ||||||
| Income tax expense for year | (59,567 | ) | (60,434 | ) | (79,860 | ) | | (149,593) |
| (199,446) |
| (58,766) | ||||||
All domestic
The differences between income taxes expected at the Bermuda statutory income tax forrate of zero percent and the years ended December 31, 2017, 2016reported income tax expense are summarized as follows:
| | | | | | | |
| | For the years ended December 31 |
| ||||
|
| 2021 |
| 2020 |
| 2019 |
|
Bermuda statutory income tax rate |
| 0.00 | % | 0.00 | % | 0.00 | % |
Income subject to tax in other jurisdictions |
| 0.41 | % | 3.41 | % | 0.26 | % |
Effective tax rate |
| 0.41 | % | 3.41 | % | 0.26 | % |
F-31
14. Net loss per share and 2015 arose under the Irish and U.S. tax jurisdictions.
16. Net (loss) / earningsdividends per share
Basic and diluted (loss)/earningsnet loss per share is calculated by dividing the net (loss)/earningsloss available to common shareholders by the average number of common shares outstanding during the periods.
Diluted earnings per share is calculated by adjusting the net earnings / (loss)/earnings available to common shareholders and the weighted average number of common shares used for calculating basic earnings / (loss)/earnings per share for the effects of all potentially dilutive shares. Such dilutive common shares are excluded when the effect would be to increase earnings per share or reduce a loss per share.
| | | | |||||||||||||||
| For the year ended | ||||||||||||||||||
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||||||||||||||||
| | | | | | | ||||||||||||
|
| For the years ended December 31 | ||||||||||||||||
| Numerator: |
| 2021 |
| 2020 |
| 2019 | ||||||||||||
| Net (loss)/profit | (12,490,335 | ) | 3,747,932 | 31,954,965 | ||||||||||||||
Net loss attributable to common stockholders | $ | (38,086,701) |
| (6,046,195) |
| (22,861,257) | ||||||||||||
| Denominator: | | |
| |
| | ||||||||||||
| Weighted average number of shares outstanding | 33,441,879 | 30,141,891 | 26,059,122 | | 33,882,932 |
| 33,241,936 |
| 33,097,831 | |||||||||
| Net (Loss)/Earnings per share, basic and diluted | (0.37 | ) | 0.12 | 1.23 | ||||||||||||||
Net loss per share, basic and diluted | $ | (1.12) |
| (0.18) |
| (0.69) | ||||||||||||
For the year ended December 31, 2017,2021, SARs granting the right to acquire 1,343,3753,704,694 shares (2016: 1,343,375, 2015: 1,142,056)(2020: 3,094,003, 2019: 2,544,983) and 546,935 RSUs were outstanding.outstanding (2020: 318,417, 2019: 322,106). The SARs and RSUs have been excluded from the computation of diluted earningsloss per share as they are anti-dilutive.
17. Related party transactions
As mentioned in Note 1 “Overview — 1.2 Management and Organizational Structure”,anti-dilutive as parta result of the GA Holdings LLC secondary public offeringnet loss for all periods.
The Company declared a common share cash dividend of $0.05 per share for the quarter ended December 31, 2019. The common share cash dividend of $1.7 million was paid on February 28, 2020 to all shareholders of record on February 21, 2020. The Company did 0t make any payments of common share dividends for any other quarter in November 2017, Ardmore repurchased 1,435,654 sharesthe year ended December 31, 2019. The Company did not make any payment of its own common stockshare dividends for $11.1the years ended December 31, 2021 or 2020.
The Company paid $0.8 million and accrued $0.5 million in the aggregate and at a price per share equal to the price per share at which GA Holdings LLC sold shares to the underwriters in the public offering.
There were no other related party transactionspreferred stock dividends during the year ended December 31, 2017. There2021. NaN preferred stock dividends were no related party transactions foraccrued or paid during the years ended December 31, 20162020 or 2019.
15. Related party transactions
Anglo Ardmore Ship Management Limited ("AASML")
AASML is a 50% joint venture entity owned in equal share by the third-party technical manager Anglo-Eastern and 2015.Ardmore Shipping (Bermuda) Limited. AASML is accounted for under the equity method of accounting. The carrying value of the investment as at December 31, 2021 and 2020 was not significant. AASML was incorporated in June 2017 and began providing technical management services exclusively to the Ardmore fleet on January 1, 2018.
18. Share based
The Company has entered into standard Baltic and International Maritime Council (“BIMCO”) ship management agreements with AASML for the provision of technical management services to 17 vessels of the Company’s fleet as at December 31, 2021 (2020: 17 vessels). AASML provides the vessels with a wide range of shipping services such as repairs and maintenance, provisioning and crewing.
Total management fees paid to AASML for the year ended December 31, 2021 were $3.0 million (2020: $2.8 million and 2019: $3.0 million), which are included in vessel operating expenses in the consolidated statement of operations. Amounts due from/(to) AASML in respect of management fees were $NaN as at December 31, 2021 (2020: $NaN). Advances to AASML for technical management services as at December 31, 2021 were $2.2 million (2020: $1.9 million) and are included in Advances and deposits in the consolidated balance sheets. Amounts payable to AASML for technical management services as at December 31, 2021 were $1.2 million, with $0.9 million included in Accounts payable and $0.3 million included in Accrued expenses and other liabilities in the consolidated balance sheets.
F-32
16. Share-based compensation
Stock appreciation rights
As at December 31, 2017, ASC2021, the Company had granted 1,349,1543,710,473 SARs (inclusive of 5,779 forfeited SARs), which included DERs, to certain of its officers and directors under its 2013 Equity Incentive Plan. Under a SAR award, the grantee is entitled to receive the appreciation of a share of ASC’s common stock following the grant of the award. Each SAR provides for a payment of an amount equal to the excess, if any, of the fair market value of a share of ASC’s common stock at the time of exercise of the SAR over the per share exercise price of the SAR, multiplied by the number of shares for which the SAR is then exercised. Payment under the SAR will be made in the form of shares of ASC’s common stock, based on the fair market value of a share of ASC’s common stock at the time of exercise of the SAR.
Ardmore Shipping Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars, unless otherwise stated)
18. Share based compensation – (continued)
The SAR awards provide that in no event will the appreciation per share for any portion of the SAR award be deemed to exceed four times (i.e. 400%) the per share exercise price of the SAR. In other words, the fair market value of a share of the Company’s common stock for purposes of calculating the amount payable under the SAR is not deemed to exceed five times (i.e. 500%) the per share exercise price of the SAR. Any appreciation in excess of four times the per share exercise price of the SAR will be disregarded for purposes of calculating the amount payable under the SAR. Vesting on all awards up to July 31, 2016 was subject to certain market conditions being met. On that date the vesting reverted to being solely dependent on time of service. The grant date fair value was calculated by applying a model based on the Monte Carlo simulation. The model inputs were the grant price, dividend yield based on the initial intended dividend set out by the Company, a risk-free rate of return equal to the zero coupon U.S. Treasury bill commensurate with the contractual terms of the units and expected volatility based on the average of the most recent historical volatilities in the Company’s peer group. A summary of awards, simulation inputs, outputs and outputsvaluation methodology is as follows:
| | | | | | | | | | |||||||||||||||||||||||||||
| Date | SARs Awarded | Exercise Price | Vesting Period | Grant Price | Dividend Yield | Risk-free rate of Return | Expected Volatility | Weighted Average Fair Value @ grant date | Average Expected Exercise Life | |||||||||||||||||||||||||||
| 01-Aug-13 | 1,078,125 | $ | 14.00 | 5 yrs | $ | 14.00 | 2.87 | % | 2.15 | % | 54.89 | % | $ | 4.28 | 4.9 – 6.0 yrs | |||||||||||||||||||||
| 12-Mar-14 | 22,118 | $ | 13.66 | 3 yrs | $ | 13.66 | 2.93 | % | 2.06 | % | 56.31 | % | $ | 4.17 | 4.6 – 5.0 yrs | |||||||||||||||||||||
| 01-Sept-14 | 5,595 | $ | 13.91 | 3 yrs | $ | 13.91 | 2.88 | % | 2.20 | % | 53.60 | % | $ | 4.20 | 4.5 – 5.0 yrs | |||||||||||||||||||||
| 06-Mar-15 | 37,797 | $ | 10.25 | 3 yrs | $ | 10.25 | 3.90 | % | 1.90 | % | 61.38 | % | $ | 2.98 | 4.2 – 5.0 yrs | |||||||||||||||||||||
| 15-Jan-16 | 205,519 | $ | 9.20 | 3 yrs | $ | 9.20 | 6.63 | % | 1.79 | % | 58.09 | % | $ | 2.20 | 4.0 – 5.0 yrs | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Model Inputs | | | |||||||||||||||||||||
|
| |
| | |
| |
| | |
| |
| |
| |
| Weighted |
| |
| | |
| | | | | | | | | | | | | | Risk-free | | | | Average Fair | | | | | |
| | SARs | | Exercise | | Vesting | | Grant | | Dividend | | rate of | | Expected | | Value @ | | Average Expected | | Valuation | |||
Grant Date | | Awarded | | Price | | Period | | Price | | Yield | | Return | | Volatility | | grant date | | Exercise Life | | Method | |||
12‑Mar‑14 |
| 22,118 | | $ | 13.66 |
| 3 yrs | | $ | 13.66 |
| 2.93 | % | 2.06 | % | 56.31 | % | $ | 4.17 |
| 4.6 – 5.0 yrs |
| Monte Carlo |
01‑Sept‑14 |
| 5,595 | | $ | 13.91 |
| 3 yrs | | $ | 13.91 |
| 2.88 | % | 2.20 | % | 53.60 | % | $ | 4.20 |
| 4.5 – 5.0 yrs |
| Monte Carlo |
06‑Mar‑15 |
| 37,797 | | $ | 10.25 |
| 3 yrs | | $ | 10.25 |
| 3.90 | % | 1.90 | % | 61.38 | % | $ | 2.98 |
| 4.2 – 5.0 yrs |
| Monte Carlo |
15‑Jan‑16 |
| 205,519 | | $ | 9.20 |
| 3 yrs | | $ | 9.20 |
| 6.63 | % | 1.79 | % | 58.09 | % | $ | 2.20 |
| 4.0 – 5.0 yrs |
| Monte Carlo |
04‑Apr‑18 |
| 1,719,733 | | $ | 7.40 |
| 3 yrs | | $ | 7.40 |
| 0 | % | 2.51 | % | 40.59 | % | $ | 2.67 |
| 4.25 yrs |
| Black-Scholes |
07‑Mar‑19 | | 560,000 | | $ | 5.10 | | 3 yrs | | $ | 5.10 | | 0 | % | 2.43 | % | 43.65 | % | $ | 2.00 | | 4.5 yrs | | Black-Scholes |
04‑Mar‑20 | | 549,020 | | $ | 5.25 | | 3 yrs | | $ | 5.25 | | 0 | % | 0.73 | % | 46.42 | % | $ | 2.04 | | 4.5 yrs | | Black-Scholes |
04‑Mar‑21 | | 610,691 | | $ | 4.28 | | 3 yrs | | $ | 4.28 | | 0 | % | 0.66 | % | 55.39 | % | $ | 1.93 | | 4.5 yrs | | Black-Scholes |
The cost of each tranche is being recognized by the Company on a straight-line basis. The recognition of share-based compensation costs related to the tranches that vested before July 31, 2016 would have been accelerated if the market condition had been met and the requisite service period had been completed. The Company’s policy for issuing shares upon the exercise, if any, of the SARs is to register and issue new common shares to the beneficiary.
Changes in the SARs for the periodyear ended December 31, 2017 is2021 are set forth below:
| | | | | |
|
| |
|
| |
| |
| | Weighted average | |
|
| No. of SARs |
| exercise price | |
Balance as at January 1, 2021 |
| 3,094,003 | | $ | 6.80 |
SARs granted during the year ended December 31, 2021 | | 610,691 | | $ | 4.28 |
SARs forfeited during the year ended December 31, 2021 | | 0 | | | 0 |
Balance as at December 31, 2021 |
| 3,704,694 | | $ | 6.40 |
| | | ||||||
| No. of Units | Weighted average exercise price | |||||||
| Balance as at January 1, 2017 | 1,343,375 | $ | 13.16 | |||||
| SARs granted during the year ended December 31, 2017 | — | — | ||||||
| SARs exercised/converted/expired during the year ended December 31, 2017 | — | — | ||||||
| SARs forfeited during the year ended December 31, 2017 | — | — | ||||||
| Balance as at December 31, 2017 (none of which are exercisable or convertible) | 1,343,375 | $ | 13.16 | |||||
The total cost related to non-vested awards expected to be recognized through 20182024 is set forth below:
| | |
Period |
| TOTAL |
2022 | | 828,434 |
2023 |
| 455,100 |
2024 |
| 65,480 |
|
| 1,349,014 |
| | |||
| Period | TOTAL | |||
| 2018 | 155,219 | |||
| 155,219 | ||||
F-33
Restricted stock units
As at December 31, 2021, the Company had granted 950,184 RSUs, which included DERs, to certain of its officers and directors under its 2013 Equity Incentive Plan.
A summary of awards is as follows:
| | | | | | | |
Grant Date |
| RSUs Awarded |
| Service Period |
| Grant Price | |
02-Jan-19 |
| 176,659 |
| 2 years | | $ | 4.64 |
07-Mar-19 |
| 86,210 |
| 3 years | | $ | 5.10 |
28-May-19 | | 59,237 |
| 1 year | | $ | 7.47 |
04-Mar-20 | | 94,105 |
| 3 years | | $ | 5.25 |
29-May-20 |
| 78,510 |
| 1 year | | $ | 5.84 |
04-Mar-21 | | 56,957 | | 1 year | | $ | 4.28 |
04-Mar-21 | | 302,923 | | 3 years | | $ | 4.28 |
07-Jun-21 | | 95,583 | | 1 year | | $ | 4.31 |
Changes in the RSUs for the year ended December 31, 2021 is set forth below:
| | | | | |
|
| |
| Weighted average | |
| | | | fair value at grant | |
| | No. of RSUs | | date | |
Balance as at January 1, 2021 |
| 318,417 |
| $ | 5.19 |
RSUs granted during the year ended December 31, 2021 | | 455,463 | | $ | 4.29 |
RSUs vested during the year ended December 31, 2021 | | (226,945) | | $ | (5.20) |
RSUs forfeited during the year ended December 31, 2021 | | — | | | — |
Balance as at December 31, 2021 (none of which are vested) |
| 546,935 | | $ | 4.44 |
The total cost related to non-vested awards expected to be recognized through 2024 is set forth below:
| | |
Period |
| TOTAL |
2022 |
| 833,561 |
2023 |
| 459,617 |
2024 |
| 72,028 |
|
| 1,365,206 |
Dividend equivalent rights
As at December 31, 2021, the Company had granted 1,146,517 DERs to certain of its officers and directors under its 2013 Equity Incentive Plan.
A summary of awards, simulation inputs, outputs and valuation methodology is as follows:
| | | | | | | | | | | | | | |
Model Inputs | ||||||||||||||
|
| DERs |
| Service |
| Fair |
| Dividend |
| Risk-free rate |
| Expected |
| Valuation |
Grant Date | | Awarded | | Period | | Value | | Yield | | of Return | | Volatility | | Method |
04-Nov-19 | | 1,146,517 | | 2 | yrs | $0.49 | | 2.93 | % | 2.06 | % | 30.22 | % | Monte Carlo |
Changes in the DERs for the year ended December 31, 2021 is set forth below:
| | | | | |
|
| |
| Weighted average fair | |
| | No. of DERs | | value at grant date | |
Balance as at January 1, 2021 |
| 1,146,517 |
| | 0.49 |
DERs granted during the year ended December 31, 2021 | | — | | | — |
DERs forfeited during the year ended December 31, 2021 | | — | | | — |
Balance as at December 31, 2021 |
| 1,146,517 | | $ | 0.49 |
F-34
TABLE OF CONTENTSTable of Contents
Ardmore Shipping Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars, unless otherwise stated)
19.
17. Repurchase of common stock
On August 31, 2017, we announced that our boardIn September 2020, the Company's Board of directors had terminated our previous share repurchase plan and approvedDirectors authorized a new share repurchase plan, (the “New Plan”), which authorizes usexpanding and replacing the Company's earlier plan. Pursuant to the new share repurchase plan, the Company may purchase up to $25$30 million of its common shares of our common stock through September 30, 2023, at times and prices that are considered to August 31, 2020. We maybe appropriate by the Company. The Company expects to repurchase these shares in the open market or in privately negotiated transactions, at times and prices that are considered to be appropriate by us, but we areis not obligated under the terms of the New Planplan to repurchase any shares, and at any time, wethe Company may suspend, delay or discontinue the New Plan.plan.
During the year ended December 31, 2017, we2020, the Company repurchased 1,435,65498,652 common shares at a weighted-average price of approximately $7.72$2.91 (including fees and commission of $0.02 per share) per share for a total of approximately $11.1 million from GA Holdings LLC, formerly our largest shareholder. The repurchase was conducted outside of$0.3 million.
During the New Plan.
20. Commitments and contingencies
As atyears ended December 31, 2017, Ardmore has the following commitments due:2021 and 2019, 0 shares were repurchased.
| | | | | ||||||||||||
| 2018 | 2019 | 2020 | 2021 – 2026 | |||||||||||||
| Office space | 394,076 | 337,328 | 298,439 | 1,526,481 | ||||||||||||
| 394,076 | 337,328 | 298,439 | 1,526,481 | |||||||||||||
Debt commitments are disclosed above in Note 8.
21. Subsequent events
Ardmore took delivery of theArdmore Sealancer on January 23, 2018 for a purchase price of $16.4 million. This vessel is a high-quality 47,500 DWT MR product tanker constructed at Onomichi Dockyard Co. Ltd. in Japan in 2008. A deposit of $1.6 million was paid in December 2017.
In connection with the repurchase of its own common shares in November 2017, Ardmore granted the underwriter an option to purchase additional shares of its common stock, which option the underwriter exercised in January 2018, for a total of 305,459 shares, resulting in proceeds to the Company of $2.4 million.
22. Subsidiaries
The following is a list of ASC’s direct and indirect wholly owned subsidiaries as of December 31, 2017:
| | | | |||||||||
F-35
Ardmore Shipping Corporation
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars, unless otherwise stated)
22. Subsidiaries – (continued)
| | | | |||||||||
F-28