Ardmore Shipping(ASC) - 2023 Q4 - Annual Report

Part I Item 1. Identity of Directors, Senior Management and Advisors Information regarding the identity of directors, senior management, and advisors is not applicable for this report - Information regarding the identity of directors, senior management, and advisors is not applicable for this report[14] Item 2. Offer Statistics and Expected Timetable Information on offer statistics and expected timetable is not applicable - Information on offer statistics and expected timetable is not applicable[15] Item 3. Key Information This section provides an overview of the Company's identity, financial reporting standards, and a comprehensive summary of risk factors that could significantly impact its business, financial condition, operating results, and stock price - The Company, Ardmore Shipping Corporation, and its consolidated subsidiaries are referred to as 'Ardmore', 'Ardmore Shipping', 'the Company', 'we', 'our', and 'us'[16] - Financial statements are prepared in accordance with U.S. GAAP, and vessel sizes are described in deadweight tons (dwt)[16] A. Reserved This subsection is reserved and not applicable for the report - This subsection is reserved and not applicable[17] B. Capitalization and Indebtedness This subsection is reserved and not applicable for the report - This subsection is reserved and not applicable[17] C. Reasons for the Offer and Use of Proceeds This subsection is reserved and not applicable for the report - This subsection is reserved and not applicable[17] D. Risk Factors This section outlines various risks that could significantly and negatively affect the Company's business, financial condition, operating results, and ability to pay dividends - The occurrence of any described events could significantly and negatively affect the Company's business, financial condition, operating results, ability to pay dividends, or the trading price of common stock[17] RISKS RELATED TO OUR INDUSTRY Risks in the tanker industry include its cyclical and volatile nature, affecting charter rates and profitability, alongside geopolitical events, cyber-attacks, and potential vessel damage - The tanker industry is cyclical and volatile, with charter rates and profitability influenced by supply and demand for tanker capacity, oil, oil products, and chemicals[23][24][25] - Geopolitical conflicts (e.g., Russia-Ukraine, Hamas-Israel, Red Sea attacks) have reordered global oil trading patterns, increasing tanker demand and rates, but also introduce risks of further escalation, economic instability, and increased insurance premiums[27][29][30] - Operational risks include cyber-attacks, counterparty defaults on contracts, global financial market volatility impacting financing, and potential inadequate insurance coverage for losses[32][34][36][39] - Market conditions such as declining spot charter rates, falling oil prices, and an oversupply of tanker capacity can adversely affect profitability, growth prospects, and lead to impairment charges or liquidity issues[42][45][46][49][55] - Vessel-specific risks include damage from operational hazards, unexpected drydocking costs, total loss, and the impact of technological innovation (e.g., scrubbers, new vessel designs) on charter income and asset values[60][62][75][77] RISKS RELATED TO OUR BUSINESS Business-specific risks include substantial capital expenditures, challenges in asset acquisition, adverse dividend policy effects, increased operating costs, intense competition, and limitations from debt covenants - Substantial capital expenditures are required for fleet expansion, maintenance, and upgrades (e.g., drydocking, Eco-Mod standards), which depend on the ability to obtain additional financing[82][83][84] - Growth through acquisitions carries risks such as undisclosed liabilities, integration difficulties, and the need for additional personnel and improved systems[86][87][88] - The variable quarterly dividend policy (one-third of prior quarter's Adjusted Earnings) may limit cash available for reinvestment and growth[89] - Operational challenges include potential delays in vessel deliveries or equipment installation, failure to realize anticipated benefits from scrubber investments, and increased operating/voyage expenses due to inflation[91][94][95][100][102] - Market competition is intense, and the loss of key customers or charter defaults could significantly impact revenues and cash flow[104][106][107][108][110] - High debt levels and lease obligations limit financial flexibility, require substantial cash flow for servicing, and contain restrictive covenants that could hinder business opportunities or lead to foreclosure if breached[113][114][115][118][119][120] - Dependence on subsidiaries for fund distribution, potential for additional insurance premium payments, and high risks associated with investments in Element 1 Corp. and e1 Marine are also significant concerns[117][124][125] LEGAL AND REGULATORY RISKS The Company faces extensive legal and regulatory risks, including compliance with complex environmental laws and safety regulations, with non-compliance leading to significant costs and operational disruptions - Operations are subject to numerous international, national, state, and local laws and regulations, including environmental laws (e.g., MARPOL, OPA, CERCLA) and safety regulations (ISM Code), which can significantly increase compliance costs and affect vessel values[127][128][129] - Climate change regulations and increasing ESG scrutiny may lead to higher compliance costs, capital expenditures for emissions reduction, reduced demand for petroleum products, and reputational damage[130][132][133][134] - Regulations regarding ballast water discharge (BWM Convention, VIDA) require costly system installations and operational changes, potentially affecting financial results[135][136][137] - Failure to comply with international safety regulations (ISM Code) can result in increased liability, invalidated insurance, and denial of port access[139][140][141] - Non-compliance with data privacy laws (GDPR, PIPL) could harm customer relationships and lead to fines[141] - Exposure to credit risk from cash and cash equivalents held in financial institutions and potential impacts from economic substance requirements in offshore jurisdictions (Marshall Islands, Bermuda) are also significant concerns[142][143][144][147] RISKS RELATED TO AN INVESTMENT IN OUR SECURITIES Investment-related risks include fewer shareholder rights under Marshall Islands law, difficulties in enforcing U.S. judgments, variable quarterly dividends, anti-takeover provisions, and potential preferred stock redemption obligations - Shareholders may have fewer rights and protections under Marshall Islands law due to less developed corporate case law and bankruptcy law compared to U.S. jurisdictions[148][149] - Enforcing U.S. judgments against the Company, its officers, and directors may be difficult as they are incorporated and reside outside the U.S[150] - The amount of quarterly dividends is variable (one-third of prior quarter's Adjusted Earnings) and subject to board discretion, with no guarantee of payment, and depends on various operational and financial factors[151][152][154] - Anti-takeover provisions in the articles of incorporation and bylaws could make it difficult for shareholders to change the board or discourage mergers/acquisitions, potentially affecting common share market price[156][157] - The Company may be required to redeem Series A Preferred Stock or pay increased dividends on it upon certain change of control events, with an aggregate liquidation preference of $40.0 million as of December 31, 2023[158][159] TAX RISKS Tax risks include potential classification as a 'passive foreign investment company' (PFIC), loss of U.S. source shipping income tax exemption, and increased tax burdens from global tax law changes - U.S. tax authorities could treat the Company as a 'passive foreign investment company' (PFIC) if 75% of gross income is passive or 50% of assets produce passive income, leading to adverse U.S. federal income tax consequences for U.S. holders[160][161][165] - The Company may have to pay a 4% U.S. federal income tax on 50% of U.S. source shipping income if it loses the Section 883 exemption, which depends on factual circumstances beyond its control[166][167][168] - Changes in tax laws, such as the OECD's two-pillar base erosion and profit shifting project (global minimum tax of 15%), could materially and adversely affect the Company's taxes, results of operations, and financial results[169][171] GENERAL RISKS General risks include reliance on key senior management, potential market price decline from future share sales, dilution from additional securities issuance, and exposure to currency exchange rate fluctuations - The Company's future success depends significantly on key members of its senior management team, and the inability to recruit equivalent talent if they leave could harm the business[172] - Future sales of large numbers of common shares by existing shareholders or the perception of such sales could cause the market price of common shares to decline[173] - Issuance of additional securities without shareholder approval could dilute existing shareholders' ownership, decrease available cash for dividends, diminish voting strength, and depress market price[173][174] - Exposure to currency exchange rate fluctuations, particularly between the U.S. Dollar and other currencies like Euro, Singapore Dollar, and British Pound Sterling, could result in fluctuations in operating results[174][175] Item 4. Information on the Company This section details Ardmore Shipping's history, business operations, fleet composition, strategic objectives, and the competitive landscape of the international product and chemical tanker industry - Ardmore Shipping's primary objective is to be a market leader in modern, fuel-efficient, mid-size product and chemical tankers, emphasizing disciplined capital allocation, service excellence, innovation, and operational efficiency[181][192] - The Company is at the forefront of fuel efficiency and emissions reduction, with a fleet of Eco-design and Eco-mod vessels, and views the global energy transition as an opportunity, outlined in its Energy Transition Plan (ETP)[182][183][196] - Ardmore operates an integrated shipping model with in-house chartering and commercial teams, and a 50% owned joint venture (AASML) for technical management, serving a broad range of customers including oil majors and chemical traders[184][185][186] - The tanker industry is significantly impacted by geopolitical conflicts (Russia-Ukraine, Hamas-Israel, Red Sea attacks) which have altered trading patterns, increased tonne-mile demand, and affected rates and expenses[187][205] A. History and Development of the Company Ardmore Shipping Corporation, incorporated in 2013, operates a global fleet of 22 owned and four chartered-in vessels, with subsidiaries and equity investments in technical management and hydrogen generation technology - Ardmore Shipping Corporation was incorporated in the Republic of the Marshall Islands on May 14, 2013, commencing business operations through its predecessor company on April 15, 2010[177] - As of March 14, 2024, the fleet consists of 22 owned vessels and four chartered-in vessels, all in operation, providing seaborne transportation of petroleum products and chemicals worldwide[177] - The Company has 78 wholly owned subsidiaries, a 50%-owned joint venture (AASML) for technical management, a 33.33%-owned joint venture (e1 Marine LLC), and a 10% equity stake in Element 1 Corp. (hydrogen generation systems developer)[178] B. Business Overview Ardmore Shipping focuses on modern, fuel-efficient, mid-size product and chemical tankers, aiming for disciplined capital allocation, service excellence, and operational efficiency, while navigating geopolitical disruptions and evolving environmental regulations Fleet List As of March 14, 2024, Ardmore's fleet comprises 22 owned and four chartered-in operational vessels, with the owned fleet averaging 9.8 years and consisting primarily of Eco-design tankers - As of March 14, 2024, the fleet consists of 22 owned vessels (21 Eco-design, 1 Eco-mod) and four chartered-in vessels, all in operation[190] - The average age of owned vessels was 9.8 years as of March 14, 2024[190] Ardmore Shipping Fleet (as of March 14, 2024) | Vessel Name | Type | Dwt Tonnes | IMO (1) | 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 | 49,999 | — | Jun-10 | Japan | SG | 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 | Business Strategy Ardmore's strategy aims to be a market leader in modern, fuel-efficient, mid-size product and chemical tankers through disciplined capital allocation, fleet expansion, operational excellence, and an integrated Energy Transition Plan - Primary objective: solidify position as a market leader in modern, fuel-efficient, mid-size product and chemical tankers through well-timed growth and operational expertise[192] - Key elements: disciplined capital allocation, focus on modern high-quality vessels (Eco-design/Eco-mod), optimizing fuel efficiency, commercial independence, strong customer service, and a low-cost structure[192][193][195] - Energy Transition Plan (ETP): consistent with business strategy, aims to migrate towards non-fossil fuel cargoes and promote sustainability, with 12.5% of 2023 business involving non-fossil fuel cargo[196] Corporate Officers, Staff and Seafarers As of December 31, 2023, Ardmore employed 56 onshore staff and approximately 778 seafarers through its joint venture, with commercial management handled by an in-house team - As of December 31, 2023, the Company employed 56 full-time staff onshore[198] - Approximately 778 seafarers (412 officers and cadets, 366 crew) serve the fleet through AASML, the 50%-owned joint venture ship manager[198] - Commercial management is provided directly by the in-house chartering and commercial team[198] Customers Ardmore's customer base includes national, regional, and international companies, with vessels primarily employed in the tanker spot market, emphasizing strong relationships and creditworthiness evaluations - Customers include national, regional, and international companies, with the fleet primarily employed in the tanker spot market[199] - The Company emphasizes strong customer relationships and evaluates prospective charterers' financial condition, creditworthiness, and reliability[199] Competition The Company operates in a highly competitive and fragmented international tanker market, competing on factors such as price, vessel characteristics, and reputation against major oil companies and independent owners - The international tanker market is highly competitive and fragmented, with competition based on price, vessel location, size, age, condition, and operator reputation[200] - Competitors include major oil companies, state-controlled owners, and private ship-owners[200] The International Product and Chemical Tanker Industry The international product and chemical tanker industry is characterized by distinct vessel types, significant geopolitical impacts on trade patterns, and evolving environmental regulations driving decarbonization efforts and fleet renewal - The world tanker fleet is divided into crude oil, refined petroleum products, chemicals, and specialist products, with 'swing' vessels capable of carrying both products and chemicals[202][204][205] - Geopolitical conflicts (Russia-Ukraine, Red Sea attacks) have significantly altered trade patterns, increasing tonne-mile demand and supporting tanker rates[205][208] Global Seaborne Tanker Trade Volumes (Million Tons) | Year | Crude Million tons | Oil % y-o-y | Oil Million tons | Products % y-o-y | Chemicals Million tons | % y-o-y | Total Million tons | % y-o-y | GDP (IMF) % y-o-y | |:---|:---|:---|:---|:---|:---|:---|:---|:---|:---| | 2013 | 1,920 | -3.4% | 904 | 5.3% | 252 | 5.1% | 3,077 | -0.3% | 3.5% | | 2014 | 1,904 | -0.9% | 914 | 1.1% | 252 | -0.1% | 3,070 | -0.2% | 3.6% | | 2015 | 1,974 | 3.7% | 963 | 5.3% | 266 | 5.4% | 3,202 | 4.3% | 3.5% | | 2016 | 2,060 | 4.4% | 999 | 3.8% | 267 | 0.6% | 3,327 | 3.9% | 3.4% | | 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 | 1,858 | -1.4% | 999 | 7.3% | 311 | 7.5% | 3,168 | 2.0% | 5.9% | | 2022 | 1,955 | 5.2% | 1,015 | 1.6% | 301 | -4.0% | 3,271 | 3.2% | 3.4% | | 2023* | 2,033 | 4.0% | 1,025 | 1.0% | 319 | 6.2% | 3,377 | 3.2% | 3.0% | | 2024F | 2,047 | 0.7% | 1,043 | 1.7% | 307 | -3.8% | 3,397 | 0.6% | 2.9% | - Global seaborne tanker trade grew 3.2% annually in 2022 and 2023, driven by robust oil demand and increased chemical trade, with a provisional estimate of 0.6% growth in 2024[206][210][211] - Refinery capacity is shifting towards Asia and the Middle East, leading to increased long-haul shipments of refined products to consuming regions[220][227][230] - Product tanker tonne-mile demand grew 5% YoY in 2022 and continued to benefit in 2023 from higher oil demand and trade pattern changes[233] - The global product tanker fleet (3,238 vessels, 188.4 million dwt as of Dec 31, 2023) has a moderate orderbook (7.4% of existing MR fleet), with new environmental regulations (EEXI, CII) expected to squeeze tonnage availability and increase scrapping[236][237][240] - IMO 2020 low sulfur fuel regulations, EU ETS, FuelEU Maritime, and IMO GHG Strategy are driving decarbonization efforts, requiring significant investments in energy efficiency and alternative fuels[243][247][248][251] MR Product Tankers: Freight Rate and Asset Value Summary (Period Averages) | Period Averages | Spot TCE (US$/day) | Time charter 1 Year (U.S.$/day) | Asset Prices Newbuild (U.S.$ million) | 5 Year Old (U.S.$ million) | |:---|:---|:---|:---|:---| | 2013 | 9,550 | 14,346 | 33.8 | 26.2 | | 2014 | 9,833 | 14,438 | 36.9 | 27.1 | | 2015 | 18,375 | 17,271 | 36.1 | 25.8 | | 2016 | 9,767 | 15,125 | 33.1 | 24.8 | | 2017 | 9,158 | 13,188 | 32.7 | 23.4 | | 2018 | 9,299 | 13,175 | 35.3 | 26.5 | | 2019 | 14,592 | 14,667 | 36.0 | 28.8 | | 2020 | 18,551 | 14,879 | 34.8 | 28.0 | | 2021 | 6,398 | 12,442 | 37.3 | 27.8 | | 2022 | 35,635 | 20,275 | 42.4 | 34.4 | | 2023 | 30,217 | 26,833 | 46.0 | 41.5 | | Dec-23 | 50,400 | 26,200 | 47.5 | 43.5 | - Chemical tanker demand is correlated with global GDP, with organic chemicals, inorganic chemicals, and vegetable oils/fats being the main cargoes[279][280][281][282][284] - The U.S. shale gas development has increased its competitiveness in petrochemical exports[284] Chemical Tankers: Freight Rate and Asset Value Summary (Period Averages) | Year | TCE U.S.$/Day 35-37,000 | Newbuilding 22-24,000 Price (U.S.$ million) | 35-37,000 Price (U.S.$ million) | Secondhand 22-24,000 (1) Price (U.S.$ million) | 35-37,000 (1) Price (U.S.$ million) | |:---|:---|:---|:---|:---|:---| | 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 | 35.5 | 12.9 | 14.8 | | 2022 | 22,400 | 30.6 | 40.6 | 15.1 | 19.3 | | 2023* | 23,500 | 31.5 | 41.5 | 17.5 | 24.0 | Environmental and Other Regulations in the Shipping Industry The shipping industry is heavily regulated by international conventions and national laws imposing strict standards on emissions, ballast water, and safety, requiring significant compliance expenditures and risking penalties for non-compliance - The Company's operations are subject to extensive international (IMO conventions like MARPOL, SOLAS, BWM) and national (U.S. OPA, CERCLA, CAA, CWA, EU regulations) laws and regulations[298][303][335][345][346][349] - Regulations impose strict standards on air emissions (sulfur, nitrogen oxides, greenhouse gases), ballast water management, anti-fouling systems, safety management (ISM Code), and vessel security (ISPS Code)[304][305][309][310][313][322][333][355][357][364] - Compliance with these regulations entails significant expenses for vessel modifications, equipment installation (e.g., scrubbers, ballast water treatment systems), operational changes, and insurance coverage[298][300][305][308][324][348][359][367][368] - Non-compliance can result in administrative and civil penalties, criminal sanctions, increased liability (e.g., strict liability for oil spills under OPA), denial of port access, or detention of vessels[129][334][337][338][340][343] - The IMO's revised GHG strategy aims for net-zero emissions from international shipping by 2050, with interim targets for 2030 and 2040, driving further regulatory and technological changes[251][359] Risk of Loss and Liability Insurance Vessel operations carry inherent risks like mechanical failure and environmental mishaps, managed through hull and machinery, P&I, and war risk insurance, though not all risks are insurable or guaranteed adequate coverage - Vessel operations involve inherent risks including mechanical failure, physical damage, collisions, cargo loss, business interruption, and environmental mishaps like oil spills[372] - The Company procures hull and machinery, protection and indemnity (P&I), war risk, and freight, demurrage, and defense insurance[373] - P&I insurance covers third-party liabilities, including pollution risks, with current coverage of $1 billion per vessel per incident[374] - As a member of P&I Associations, the Company is subject to calls based on claim records[374] - Not all risks can be insured, specific claims may be rejected, and obtaining adequate insurance coverage at reasonable rates in the future is not guaranteed[372] Exchange Controls Under Marshall Islands law, there are no restrictions on capital export or import, foreign exchange controls, or dividend remittances to non-resident common shareholders - Marshall Islands law imposes no restrictions on capital export/import, foreign exchange controls, or dividend remittances to non-resident common shareholders[375] C. Organizational Structure Ardmore Shipping Corporation is a holding company with 78 wholly-owned subsidiaries, a 50%-owned technical management joint venture, and a 33.33%-owned hydrogen generation technology joint venture - The Company has 78 wholly owned subsidiaries, one 50%-owned joint venture (AASML), one 33.33%-owned joint venture, and one 10% equity stake in another entity[376] D. Property, Plant and Equipment The Company's primary material property consists of its 22 owned vessels, with 21 subject to mortgages or finance leases, and it leases office spaces in Cork, Singapore, and Houston - The Company's material property consists of its 22 owned vessels[378] - Office spaces are leased in Cork, Ireland, Singapore, and Houston, Texas, with average aggregate payments of approximately $0.6 million per annum[378] - As of March 14, 2024, 21 of the 22 owned vessels are subject to mortgages related to credit facilities or finance leases[378] Item 4.A. Unresolved Staff Comments This section states that there are no unresolved staff comments - There are no unresolved staff comments[379] Item 5. Operating and Financial Review and Prospects This section provides a detailed discussion and analysis of Ardmore Shipping's operating results, liquidity, and capital resources, covering revenue generation, key financial terms, corporate developments, and critical accounting estimates - Ardmore Shipping Corporation provides seaborne transportation of petroleum products and chemicals worldwide with a modern, fuel-efficient fleet of mid-size product and chemical tankers[381] - Revenue is generated from spot charter arrangements, time charter arrangements, and commercial pooling arrangements, with the Company marketing its services directly to customers and pool operators[382][383] - Recent developments include a variable quarterly dividend policy, formation of a Sustainability Committee, amendment of a term loan to a revolving credit facility, and installation of carbon capture-ready scrubbers on vessels[386][388][390][391] - Geopolitical conflicts in Ukraine and the Middle East (Red Sea attacks) have disrupted supply chains, increased volatility, and significantly contributed to higher spot tanker rates due to trade pattern changes[392][393] A. Operating Results Operating results are influenced by revenue from various charter types, voyage and vessel operating expenses, drydocking, and depreciation, with the average TCE rate decreasing in 2023 due to lower spot rates - Revenue is generated from spot charter, time charter, and pool arrangements, with spot market earnings being more volatile[395] - Key financial terms include Revenue, Voyage Expenses, Vessel Operating Expenses, Drydocking, Depreciation, Amortization of Deferred Drydock Expenditures, TCE Rate, and Revenue Days[395][396][397][398][399][400] Consolidated Statements of Operations (2023 vs. 2022) | In thousands of U.S. Dollars | Year Ended 2023 | December 31, 2022 | Variance | Variance (%) | |:---|:---|:---|:---|:---| | Revenue, net | $395,978 | $445,741 | $(49,763) | (11%) | | Voyage expenses | $(131,904) | $(153,729) | $21,825 | 14% | | Vessel operating expenses | $(59,770) | $(60,020) | $250 | 0% | | Time charter-in Operating expense component | $(10,194) | $(7,809) | $(2,385) | (31%) | | Vessel lease expense component | $(9,380) | $(7,185) | $(2,195) | (31%) | | Depreciation | $(27,817) | $(29,276) | $1,459 | 5% | | Amortization of deferred drydock expenditures | $(3,542) | $(4,161) | $619 | 15% | | General and administrative expenses: Corporate | $(20,565) | $(19,936) | $(629) | (3%) | | General and administrative expenses: Commercial | $(4,676) | $(4,171) | $(505) | (12%) | | Loss on vessels sold | — | $(6,917) | $6,917 | 100% | | Unrealized (losses) / gains on derivatives | $(262) | $2,961 | $(3,223) | (109%) | | Interest expense and finance costs | $(11,408) | $(15,537) | $4,129 | 27% | | Loss on extinguishment | — | $(1,576) | $1,576 | 100% | | Interest income | $1,818 | $471 | $1,347 | 286% | | Income before taxes | $118,278 | $138,856 | $(20,578) | (15%) | | Income tax | $(435) | $(207) | $(228) | (110%) | | Loss from equity method investments | $(1,035) | $(195) | $(840) | (431%) | | Net Income | $116,808 | $138,454 | $(21,646) | (16%) | | Preferred dividend | $(3,400) | $(3,400) | — | 0% | | Net Income attributable to common stockholders | $113,408 | $135,054 | $(21,646) | (16%) | - Average TCE rate for the fleet decreased to $29,262 per day in 2023 from $30,618 per day in 2022, primarily due to lower spot rates[414] - Depreciation expense decreased by $1.5 million in 2023 due to an increase in the estimated scrap value of vessels from $300 to $400 per lightweight ton[416] - Interest expense and finance costs decreased by $4.1 million in 2023, mainly due to lower aggregate outstanding obligations following refinancing in H2 2022, minimizing the impact of rising interest rates[420] B. Liquidity and Capital Resources Ardmore's liquidity as of December 31, 2023, was $268.0 million, with short-term needs met by existing liquidity and long-term needs relying on internal and external financing, while maintaining compliance with debt covenants - As of December 31, 2023, liquidity available was $268.0 million, including $46.8 million in cash and cash equivalents and $221.2 million in undrawn revolving credit facilities[423] - Short-term liquidity requirements for 2024 include $6.7 million for scheduled debt repayments, $6.3 million for committed capital expenditures (ballast water treatment and scrubbers), $6.1 million for drydocking, and $5.7 million for finance lease obligations[425][427] - Long-term capital needs beyond 2024 include $40.1 million for debt repayments, $26.2 million for forecasted drydock expenditures, and $21.2 million for finance lease obligations[428] - The Company was in full compliance with all long-term debt financial covenants as of December 31, 2023 and 2022[430] - Interest rate swaps are used to hedge exposure to variable interest rates, minimizing financial risk[431] Cash Flow Data (2023 vs. 2022) | In thousands of U.S. Dollars | For the Years Ending 2023 | December 31, 2022 | |:---|:---|:---| | Net cash provided by operating activities | $159,609 | $124,207 | | Net cash (used in) / provided by investing activities | $(26,836) | $35,410 | | Net cash (used in) financing activities | $(136,537) | $(164,497) | - Net cash provided by operating activities increased to $159.6 million in 2023 from $124.2 million in 2022, primarily due to net income and a decrease in receivables[433][434] - Net cash used in investing activities was $26.8 million in 2023, mainly for vessel acquisitions, equipment, and advances for ballast water treatment and scrubber systems[435] - Net cash used in financing activities was $136.5 million in 2023, primarily for debt repayment ($84.0 million) and common stock dividends ($47.2 million)[436] Drydocking Schedule (Number of Vessels) | For the Years Ending December 31, | 2024 | 2025 | 2026 | 2027 | |:---|:---|:---|:---|:---| | Number of vessels in drydock | 5 | 8 | 2 | — | Ballast Water Treatment System Installation Schedule (Number of Installations) | For the Years Ending December 31, | 2024 | 2025 | 2026 | 2027 | |:---|:---|:---|:---|:---| | Number of installations | 4 | — | — | — | Scrubber System Installation Schedule (Number of Installations) | For the Years Ending December 31, | 2024 | 2025 | 2026 | 2027 | |:---|:---|:---|:---|:---| | Number of installations | 5 | — | — | — | - The Company currently has no newbuildings on order but plans fleet expansion through vessel acquisitions and newbuildings[444] Quarterly Cash Dividends Declared (Per Common Share) | Fiscal Quarter | Dividend Amount (Per Common Share) | Date of Payment | |:---|:---|:---| | Fourth Quarter of 2022 | $0.45 | March 15, 2023 | | First Quarter of 2023 | $0.35 | June 15, 2023 | | Second Quarter of 2023 | $0.19 | September 15, 2023 | | Third Quarter of 2023 | $0.16 | December 15, 2023 | | Fourth Quarter of 2023 | $0.21 | March 15, 2024 | C. Research and Development, Patent and Licenses, etc. This section states that information on research and development, patents, and licenses is not applicable - Information on research and development, patents, and licenses is not applicable[449] D. Trend Information Operating results are primarily driven by charter hire rates, which are highly cyclical and volatile due to tanker market supply/demand dynamics and recent geopolitical disruptions - Operating results depend primarily on cyclical and volatile charter hire rates, influenced by tanker market supply and demand[450] - Recent disruptions from Russia's invasion of Ukraine and conflicts in the Arabian Gulf (Hamas-Israel War, Red Sea attacks) have caused significant volatility and changes in trading patterns, impacting spot tanker rates[450] E. Critical Accounting Estimates The Company's financial statements rely on critical accounting estimates for revenue recognition, share-based compensation, depreciation, and vessel impairment, which are highly subjective and can materially change actual results - Critical accounting estimates include revenue recognition for spot charters (load-to-discharge basis, including demurrage), share-based compensation (fair value, forfeitures), depreciation (25-year useful life, $400/lwt scrap value), and vessel impairment (undiscounted future cash flows)[452][453][454][455][458][459][460][461] - Effective January 1, 2023, the estimated scrap value of vessels increased from $300 to $400 per lightweight ton, decreasing depreciation expense by approximately $1.1 million in 2023[398][681] - As of December 31, 2023, the aggregate fair market value of owned vessels ($772.4 million) exceeded their aggregate net book value ($545.7 million), with no impairment indicators identified[461] Item 6. Directors, Senior Management and Employees This section provides details on Ardmore's board of directors and senior management, including their biographical information, compensation, board practices, employee numbers, and the Company's equity incentive plan - The board of directors consists of six directors, with five deemed independent[466][492] - Directors serve staggered three-year terms[492] - Key executive officers include Anthony Gurnee (CEO), Mark Cameron (EVP & COO), Bart Kelleher (CFO), Aideen O'Driscoll (SVP & Director of Corporate Services), and Gernot Ruppelt (SVP & CCO)[467][469][472][473][474][476][479] - Total cash compensation for senior executive officers was $4.4 million in 2023[482] - Non-employee directors received $65,000 annually, with additional fees for committee chairs and members, totaling $0.5 million in 2023[482] - The Company has an Equity Incentive Plan (2013) for directors, officers, and employees, granting awards like stock options, SARs, and RSUs, with a maximum of 8% of outstanding common stock[485] - As of December 31, 2023, 176,360 SARs and 716,452 RSUs were outstanding under the plan[778][782] - Board committees include Audit, Nominating and Corporate Governance, Talent and Compensation, and Sustainability, all composed of independent directors[493][494] - As of December 31, 2023, the Company had 56 full-time onshore staff and approximately 778 seagoing staff (down from 935 in 2022) employed through its ship manager, with many seafarers unionized[497] Item 7. Major Common Shareholders and Related Party Transactions This section identifies major common shareholders, including institutional investors, and details related party transactions, specifically the joint venture for technical management services A. Major Common Shareholders As of March 14, 2024, major common shareholders include Dimensional Fund Advisors LP (6.6%), BlackRock Inc. (6.3%), and Scorpio Holding Limited (5.5%), with directors and executive officers collectively owning 1.5% of outstanding common stock Major Common Shareholders (as of March 14, 2024) | Identity of person or group | Shares Number | Beneficially Owned (1) Percentage | |:---|:---|:---| | Dimensional Fund Advisors LP | 2,758,657 | 6.6 % | | BlackRock Inc | 2,622,955 | 6.3 % | | Scorpio Holding Limited | 2,304,112 | 5.5 % | | All directors and executive officers as a group | 616,632 | 1.5 % | - As of March 14, 2024, 41,534,470 shares of common stock were outstanding[504] - CEDE & CO., a nominee of The Depository Trust Company, held approximately 99.96% of outstanding common stock, representing both U.S. and non-U.S. beneficial owners[505] B. Related Party Transactions Ardmore has a 50%-owned joint venture, Anglo Ardmore Ship Management Limited (AASML), which provides technical management services exclusively to 22 of Ardmore's vessels, with total management fees of $3.2 million in 2023 - Anglo Ardmore Ship Management Limited (AASML) is a 50%-owned joint venture providing technical management services exclusively to Ardmore's fleet[506][775] - As of December 31, 2023, AASML provided technical management services to 22 of the Company's vessels[506][775] - Total management fees paid to AASML for the year ended December 31, 2023, were $3.2 million (2022: $2.7 million, 2021: $3.0 million)[776] C. Interest of Experts and Counsel This section states that information on the interest of experts and counsel is not applicable - Information on the interest of experts and counsel is not applicable[507] Item 8. Financial Information This section refers to Item 18 for consolidated financial statements, outlines the Company's capital allocation and dividend policies, and confirms no material legal proceedings or significant changes A. Consolidated Financial Statements and Other Financial Information This subsection directs to Item 18 for consolidated financial statements, notes no material legal proceedings, and details the capital allocation policy prioritizing fleet maintenance, financial strength, growth, and variable quarterly dividends - Consolidated financial statements and other financial information are provided in Item 18[508] - The Company is not currently party to any legal proceedings or aware of any contemplated proceedings that would reasonably be expected to have a material effect on its business, financial position, results of operations, or liquidity[509] - The capital allocation policy prioritizes fleet maintenance, financial strength, accretive growth, and then returning capital to shareholders[510] - The dividend policy is to pay a variable quarterly cash dividend equal to one-third of the prior quarter's Adjusted Earnings (a non-GAAP measure)[510] B. Significant Changes This section states that there are no significant changes to report - There are no significant changes to report[512] Item 9. The Offer and Listing Shares of Ardmore Shipping Corporation's common stock are traded on the New York Stock Exchange (NYSE) under the ticker symbol "ASC" - Shares of common stock trade on the New York Stock Exchange (NYSE) under the symbol "ASC"[513] Item 10. Additional Information This section provides additional corporate information, including details on share capital, corporate documents, material contracts, exchange controls, and significant U.S. federal income tax considerations for the Company and its shareholders A. Share Capital This section states that information on share capital is not applicable - Information on share capital is not applicable[515] B. Memorandum and Articles of Association The Company's Amended and Restated Articles of Incorporation and Bylaws are filed as exhibits, with no limitations on non-resident or foreign shareholders' rights to own or vote securities under Marshall Islands law - The Company's Amended and Restated Articles of Incorporation and Bylaws, and the Statement of Designation for Series A Preferred Stock, are filed as exhibits[516] - There are no limitations on the rights of non-resident or foreign shareholders to hold or exercise voting rights on the Company's securities under Marshall Islands law or corporate documents[517] C. Material Contracts Material contracts, including credit facilities and finance leases, are attached as exhibits, with no other material contracts outside the ordinary course of business entered into in the two years preceding this report - Material contracts, including credit facilities and finance leases, are filed as exhibits[518] - No other material contracts, outside the ordinary course of business, were entered into in the two years preceding this Annual Report[518] D. Exchange Controls Marshall Islands law imposes no restrictions on capital export or import, foreign exchange controls, or dividend, interest, or other payments to non-resident holders of common shares - Marshall Islands law imposes no restrictions on capital export/import, foreign exchange controls, or dividend/interest remittances to non-resident common shareholders[519] E. Taxation of Holders This section discusses Marshall Islands and U.S. federal income tax considerations, including the Company's exemption from Marshall Islands tax, its aim for U.S. Section 883 exemption, and specific rules for U.S. and Non-U.S. Holders regarding distributions and PFIC status - The Company is incorporated in the Marshall Islands and is not subject to tax on income or capital gains under current Marshall Islands law; no withholding tax on dividends to shareholders[522] - The Company anticipates earning substantially all income from 'shipping income' (spot, time charter, pool arrangements)[524] - The Company believes it qualifies for exemption from U.S. federal income taxation on U.S. source shipping income under Section 883 (Publicly Traded Test) for 2023 and intends to qualify for future years[527][528][536] - If Section 883 exemption is unavailable, U.S. source shipping income would be subject to a 4% gross basis tax, or regular U.S. federal income tax (21%) and 30% branch profits tax if 'effectively connected' with a U.S. trade or business[537][538] - U.S. Holders' distributions are generally dividends (taxable at preferential rates if 'qualified dividend income' and not a PFIC) or capital gains[543][544][547] - Sale of common shares results in capital gain/loss[547] - U.S. Holders may be subject to a 3.8% tax on net investment income[548] - If classified as a PFIC, U.S. Holders face adverse tax consequences unless a QEF or mark-to-market election is made[549][553][554][555][556] - Non-U.S. Holders are generally not subject to U.S. federal income or withholding tax on dividends or gains from common shares, unless income is effectively connected with a U.S. trade or business[559][560] F. Dividends and Paying Agents This section states that information on dividends and paying agents is not applicable - Information on dividends and paying agents is not applicable[565] G. Statements by Experts This section states that information on statements by experts is not applicable - Information on statements by experts is not applicable[566] H. Documents on Display Documents referred to in this report can be inspected at the Company's principal executive offices in Bermuda - Documents referred to in this report can be inspected at the Company's principal executive offices in Bermuda[566] I. Subsidiary Information This section states that information on subsidiary information is not applicable - Information on subsidiary information is not applicable[566] J. Annual Report to Security Holders This section states that information on the annual report to security holders is not applicable - Information on the annual report to security holders is not applicable[566] Item 11. Quantitative and Qualitative Disclosures about Market Risks This section outlines Ardmore's exposure to various market risks, including operational, foreign exchange, interest rate, credit, liquidity, inflation, and geopolitical factors, and the strategies employed to mitigate them - The Company is exposed to operational risks (drydock, repair costs, insurance, piracy, fuel prices), managed through technical management, insurance, and countermeasures against piracy[568] - Foreign exchange risk is minimal as most transactions are in U.S. Dollars, but some expenses are in Euro, Singapore Dollar, and British Pound Sterling; no derivative contracts were used for this risk in 2023[569] - Interest rate risk arises from variable-rate borrowings (SOFR-based); interest rate swaps are used to hedge this exposure[570][571] - A hypothetical 100 basis-point increase/decrease would have impacted 2023 interest expense by $1.2 million[574] - Credit risk exists with cash and cash equivalents held in a few financial institutions and with trade accounts receivable; ongoing credit evaluations are performed, and concentration risk is regularly monitored[575][576] - Liquidity risk is managed through strict cash flow forecasting to meet obligations and contingencies[577] - Inflation has increased operating, voyage, and general and administrative costs since 2022, potentially affecting operating results if spot charter rates do not cover increased bunker costs[578] - Geopolitical factors, including the Ukraine conflict and Middle East tensions (Red Sea attacks), continue to disrupt supply chains, cause volatility, and impact spot tanker rates and expenses[579] Item 12. Description of Securities Other than Equity Securities This section states that information on the description of securities other than equity securities is not applicable - Information on the description of securities other than equity securities is not applicable[580] Part II Item 13. Defaults, Dividend Arrearages and Delinquencies There are no defaults, dividend arrearages, or delinquencies to report - There are no defaults, dividend arrearages, or delinquencies[582] Item 14. Material Modifications to the Rights of Shareholders and Use of Proceeds There are no material modifications to the rights of shareholders or use of proceeds to report - There are no material modifications to the rights of shareholders or use of proceeds[582] Item 15. Controls and Procedures This section details the Company's disclosure controls and procedures, management's report on internal control over financial reporting, and the attestation report from the independent registered public accounting firm - As of December 31, 2023, the Principal Executive Officer and Principal Financial Officer concluded that disclosure controls and procedures were effective[582] - Management evaluated and determined that internal controls over financial reporting were effective as of December 31, 2023, based on the COSO framework[585][586] - Deloitte & Touche LLP, the independent registered public accounting firm, issued an attestation report on the effectiveness of internal control over financial reporting[587] - There were no changes in internal controls over financial reporting that materially affected or are reasonably likely to materially affect internal control over financial reporting during the period[589] Item 16. Reserved This section is reserved - This section is reserved[590] Item 16.A. Audit Committee Financial Expert Helen Tveitan de Jong, a director and Chair of the Audit Committee, is qualified as an Audit Committee financial expert and is independent under NYSE and SEC standards - Helen Tveitan de Jong, director and Chair of the Audit Committee, qualifies as an Audit Committee financial expert and is independent under NYSE and SEC standards[590] Item 16.B. Code of Ethics The Company has adopted a code of conduct and ethics applicable to its directors, CEO, CFO, principal accounting officer, and other key management personnel, available on its website - A code of conduct and ethics applicable to directors, CEO, CFO, principal accounting officer, and other key management personnel has been adopted and is available on the Company's website[591] Item 16.C. Principal Accountant Fees and Services Deloitte & Touche LLP served as the principal accountants for 2023 and 2022, with audit fees of $0.6 million in 2023 and $0.8 million in 2022, and all engagements pre-approved by the Audit Committee - Deloitte & Touche LLP was the principal accountant for 2023 and 2022[591] Principal Accountant Fees | Fee Type | 2023 (Millions USD) | 2022 (Millions USD) | |:---|:---|:---| | Audit Fees | $0.6 | $0.8 | | Audit-Related Fees | $0.0 | $0.0 | | Tax Fees | $0.0 | $0.0 | | All Other Fees | $0.0 | $0.0 | - All engagements and fees paid to the principal accountants were pre-approved by the Audit Committee[595][597] Item 16.D. Exemptions from the Listing Standards for Audit Committees This section states that there are no exemptions from the listing standards for audit committees - There are no exemptions from the listing standards for audit committees[597] Item 16.E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers In September 2023, the Board authorized a new share repurchase plan for up to $50 million of common shares, replacing the previous plan, with no shares repurchased during 2023 - A new share repurchase plan (2023 Repurchase Plan) was authorized in September 2023, allowing for the purchase of up to $50 million of common shares, replacing the $30 million 2020 Repurchase Plan[597] - No shares of common stock were repurchased during the year ended December 31, 2023[597] Item 16.F. Change in Registrant's Certifying Accountant This section states that there is no change in the registrant's certifying accountant to report - There is no change in the registrant's certifying accountant[598] Item 16.G. Corporate Governance As a foreign private issuer, Ardmore is exempt from certain NYSE corporate governance practices but voluntarily adopts many, with a key difference being board approval of equity compensation plans without shareholder approval - As a foreign private issuer, the Company is not required to comply with certain NYSE corporate governance practices but voluntarily adopts many, including a majority of independent directors and independent committees[598] - A key difference is that the board of directors approves equity compensation plans and certain equity issuances without shareholder approval, which would be required for U.S. issuers[599] Item 16.H. Mine Safety Disclosures This section states that information on mine safety disclosures is not applicable - Information on mine safety disclosures is not applicable[600] Item 16.I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This section states that information on foreign jurisdictions that prevent inspections is not applicable - Information on foreign jurisdictions that prevent inspections is not applicable[600] Item 16.J. Insider Trading Policies This section states that information on insider trading policies is not applicable - Information on insider trading policies is not applicable[602] Item 16.K. Cybersecurity Ardmore has a robust cybersecurity framework, including a third-party managed SIEM and SOC solution for real-time monitoring and threat mitigation, with risk management overseen by senior management and the Audit Committee - The Company has a cybersecurity framework including a third-party managed SIEM and SOC solution for real-time monitoring and threat mitigation[603] - Cybersecurity defenses are enhanced th