Ardmore Shipping Corp. — FY2014 Form 20-F
Reporting period: Fiscal year ended December 31, 2014. This is an annual filing, not a quarterly report; the supplied filing text does not provide standalone fourth-quarter financial results. Financial statements are audited and prepared under U.S. GAAP. Amounts are U.S. dollars.
Business context
Ardmore transports petroleum products and chemicals using mid-size product and chemical tankers. At year-end it operated 14 vessels and had 10 under construction; by March 16, 2015, three additional vessels had been delivered, leaving 17 operating and seven on order. Its employment mix includes time charters, commercial pools and spot voyages, with spot-market exposure increasing revenue variability.
Financial and operating performance
| Metric | FY2014 | FY2013 |
|---|---|---|
| Revenue | $67.3 million | $35.9 million |
| Operating profit (loss) | $5.8 million | ($0.35 million) |
| Net profit (loss) | $1.66 million | ($3.84 million) |
| Basic and diluted EPS | $0.07 | ($0.31) |
| Operating cash flow | $12.4 million | $8.1 million |
| Investing cash flow | ($209.7 million) | ($144.6 million) |
| Financing cash flow | $200.3 million | $178.0 million |
| Cash at year-end | $59.9 million | $56.9 million |
- Revenue rose 87.7%, primarily reflecting six vessel deliveries during 2014 and more revenue days. Revenue days increased to 4,280 from 2,649.
- Fleet-weighted time-charter equivalent (TCE) increased to $14,393 per day from $12,850. Total fleet operating costs, including technical management, were $6,556 per day versus $6,531; on-hire utilization was 99.90%.
- Operating margin was approximately 8.6% and net margin approximately 2.5% in 2014, compared with an operating loss and net loss in 2013.
- Year-end assets were $570.8 million, including net vessels and drydock assets of about $489.8 million. Total current assets were $72.2 million and current liabilities $31.2 million.
- Debt consisted of $204.7 million of long-term borrowings plus $28.8 million of capital lease obligations, or $233.5 million combined. Cash less these obligations was approximately $173.6 million of net debt. Combined debt and lease obligations rose from $119.2 million in 2013.
- Operating cash flow improved, but substantial vessel purchases and construction payments drove investing outflows. Financing included $128.6 million of debt drawdowns and $102.7 million of net equity-offering proceeds.
Material changes and unusual items
- Fleet expansion materially increased revenue and costs: operating expenses rose 69.8%, including higher vessel operating costs, depreciation and voyage-related costs. G&A increased to $8.2 million, including $1.4 million of non-cash share-based compensation.
- FY2014 drydock expenditure was $4.9 million, versus $0.2 million in 2013. Interest expense and finance costs were $4.1 million; $3.9 million of interest was capitalized for vessels under construction.
- No vessel impairment was recorded. Management estimated that the aggregate carrying value of the owned vessels exceeded aggregate basic market value by about $16.4 million; three vessels were individually above estimated basic market value. Management said forecast undiscounted cash flows still exceeded carrying values, including under stated sensitivity tests.
- Ardmore paid $9.6 million in dividends in 2014 and repurchased 119,400 shares for $1.3 million at an average $10.71 per share. It stated an intention to continue quarterly dividends of $0.10 per share, subject to board decisions, cash generation, law and debt restrictions.
- At December 31, 2014, remaining vessel-construction commitments were $216.4 million, principally due in 2015. The company said financing was committed for vessels on order, subject to conditions. Its debt facilities were secured by vessels and included financial and liquidity covenants; Ardmore reported compliance at year-end.
Outlook, commentary and risks
Management viewed the product and chemical tanker markets as recovering from cyclical lows, citing demand growth and restrained ordering, while acknowledging volatile freight rates. Clean product tanker spot earnings averaged $21,200 per day in January 2015, compared with a 10-year high of $42,099. The filing also reported a product-tanker orderbook equal to about 32% of the existing world tanker fleet in February 2015, presenting a supply risk. No quantified company earnings or rate guidance is provided.
- As of December 31, 2014, nine vessels had time charters; minimum contracted time-charter revenue disclosed for 2015 was $4.1 million, before profit-share effects and assuming no off-hire. Most listed minimum charter expiries fell in January or February 2015, increasing subsequent market exposure.
- Key risks include tanker-cycle and spot-rate volatility, charterer default or renegotiation, vessel-value declines and possible loan-to-value covenant pressure, variable LIBOR borrowing costs, and the funding and timely delivery of newbuildings.
- Other material exposures include pollution and other vessel casualties, piracy, fuel costs, environmental and emissions rules, drydock costs, and counterparty and financing availability risks. The company maintained $1 billion of pollution-liability coverage per vessel but warned that insurance may not cover every loss.
- Management reported effective disclosure controls and internal control over financial reporting as of year-end. The auditor gave an unqualified opinion on the financial statements; it did not express an opinion on internal-control effectiveness.
Most important facts for investors to verify
- Actual 2015 delivery timing, final cost and financing drawdowns for the seven vessels then remaining on order, against the $216.4 million year-end commitment.
- Post-expiry employment, achieved TCE rates and spot/pool exposure, given the short remaining charter cover disclosed at year-end.
- Debt amortization, balloon repayments, covenant headroom and vessel collateral values, including the reported $16.4 million carrying-value premium to estimated basic market value.
- Whether operating cash generation can support vessel investment, debt service, the stated dividend intention and any further repurchases.
- The assumptions behind vessel impairment testing and the potential effect of weaker rates, utilization, asset values or higher operating and regulatory costs.