Ardmore Shipping Corporation — FY 2016 Form 20-F
Reporting period: Fiscal year ended December 31, 2016. This is an annual report, not a standalone Q4 filing; quarterly Q4 results are not clearly provided. Financial statements are audited and prepared under U.S. GAAP.
Business context
Ardmore transports petroleum products and chemicals worldwide with a fleet of 27 mid-size tankers. Six vessels were added in 2016; all six began trading in the spot market. The fleet comprised 21 Eco-design and six Eco-mod vessels. The company’s business mixes spot voyages, commercial pools and time charters.
Financial and operating metrics
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $164.4 million | $157.9 million |
| Operating profit | $24.0 million | $44.3 million |
| Net income | $3.7 million | $32.0 million |
| Basic and diluted EPS | $0.12 | $1.23 |
| Fleet weighted-average TCE per day | $14,785 | $18,309 |
| Operating cash flow | $42.6 million | $37.7 million |
| Capital expenditures for vessels and equipment | $174.0 million | $232.5 million |
- Operating margin was approximately 14.6%, versus 28.1% in 2015; net margin was approximately 2.3%, versus 20.2%.
- Cash and equivalents were $56.0 million at year-end, up from $40.1 million. Total assets were $883.6 million and equity was $404.3 million.
- Debt note disclosures report $464.3 million of gross long-term debt and $9.1 million of capital lease obligations at year-end. Debt is primarily variable-rate; all vessels were pledged as collateral under financing arrangements.
- Cash flows: investing activities used $122.3 million, while financing activities provided $95.5 million. Vessel-sale proceeds were $52.7 million.
- Fleet operating costs, including technical management, averaged $6,405 per vessel per day; on-hire utilization was 99.52%.
Material changes versus 2015
- Revenue grew 4%, mainly because the average owned fleet expanded to 24.1 vessels from 19.8 and spot revenue days increased. Softer spot markets reduced spot revenue by $41.0 million; lower rates also reduced revenue from time-charter and pool employment by $3.1 million.
- Fleet TCE fell 19% to $14,785 per day. Operating expenses rose 24% to $140.4 million, reflecting fleet growth and higher voyage costs, depreciation, drydock amortization and overhead.
- Operating profit declined 46%; net income fell 88%. Higher interest and finance costs ($17.8 million versus $12.3 million) and a $2.6 million net loss on vessel disposals further weighed on earnings.
- Ardmore sold the Ardmore Calypso, Ardmore Capella and Ardmore Centurion. The Centurion disposal produced a $3.1 million loss; the two other sales together produced a small net gain.
- The company issued 7.5 million shares in June 2016, raising $63.9 million net, and repurchased 366,347 shares for approximately $3.0 million.
Outlook, risks and unusual items
- Management described the mid-size product and chemical tanker market as recovering, citing demand growth and a reduced supply overhang. This is management’s view, not formal earnings guidance; no specific numerical forecast is provided.
- The filing also reports weak 2016 market conditions: average MR spot rates fell to $11,125 per day from $18,422 in 2015, and chemical tanker time-charter rates declined. A 4.7% MR product-tanker orderbook and substantial scheduled deliveries pose further supply risk.
- Spot-market exposure is significant: at December 31, 2016, two vessels were on time charter, seven in pools and 18 directly in the spot market. As of February 28, 2017, the filing reports one on time charter, eight in pools and 18 in spot.
- Management recorded no vessel impairment, although estimated aggregate carrying value exceeded basic market value by approximately $71.3 million and 19 vessels had carrying values above basic market values. Management relied on estimated future cash flows; results are sensitive to charter-rate and utilization assumptions.
- Debt covenants were met at year-end. Required minimum cash was $23.7 million; the company reported $56.0 million. Contractual debt repayments include $194.9 million scheduled for 2022. A hypothetical 100-basis-point interest-rate increase would have added about $4.2 million to 2016 interest expense, absent hedging.
- Dividends paid in 2016 were $0.13, $0.16 and $0.11 per share for the first three declared payments; no dividend was paid for the quarters ended September 30 or December 31. The stated policy targets quarterly distributions of 60% of adjusted “Earnings from Continuing Operations,” subject to board discretion, cash needs and financing restrictions.
- Key risks include volatile tanker rates and vessel values, customer concentration, counterparty defaults, refinancing and covenant risk, environmental regulation and liability, and dependence on spot earnings. Vitol, Navig8 and Trafigura each generated more than 10% of 2016 revenue.
Important facts for investors to verify
- Confirm current spot and pool rates, charter coverage and whether weak 2016 TCE levels persisted after year-end.
- Review vessel valuations, impairment assumptions and the company’s capacity to meet large future debt maturities, especially the 2022 balloon payment.
- Assess customer concentration and credit exposure, including revenue dependence on Vitol, Navig8 and Trafigura.
- Reconcile the dividend policy with actual cash distributions, liquidity requirements and debt covenants; verify subsequent dividend decisions.
- Review the complete debt, capital-lease and covenant disclosures: the filing presents differing summary debt figures, so the exact comparable total obligations should be confirmed from the audited notes.
- Note that management concluded internal controls were effective, but the filing contains no auditor attestation on internal control because Ardmore qualified as an emerging growth company.