Ardmore Shipping (ASC) 6-K2022 Q2 Current report (foreign)

INFORMATION CONTAINED IN THIS FORM 6-K REPORT

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Attached to this Report on Form 6-K are (1) Management’s Discussion and Analysis of Financial Condition and Results of Operations and (2) the unaudited interim condensed consolidated financial statements and related notes of Ardmore Shipping Corporation (the “Company”), as at June 30, 2022 and for the three and six months ended June 30, 2022 and 2021.

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This Report is hereby incorporated by reference into the following registration statements of the Company:

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FORWARD-LOOKING STATEMENTS

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Matters discussed in this report may constitute 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. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts. The Company desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection with this safe harbor legislation. The words “believe”, “anticipate”, “intend”, “estimate”, “forecast”, “plan”, “potential”, “should”, “may”, “will”, “expect” and similar expressions are among those that identify forward-looking statements.

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Forward-looking statements in this report include, among others, statements regarding: future operating results; the employment of the Company’s vessels; the outcome of the Company’s strategies and implementation of the Company’s Energy Transition Plan; the effect of the COVID-19 pandemic and Russia’s invasion of Ukraine on, among others things, oil demand, the Company’s business, financial condition and results of operations including liquidity; the sale and purchase of certain vessels; future drydocking days;  sufficiency of liquidity and capital resources; the Company’s expectations regarding the risk and potential effects of inflation; and the anticipated timing and benefits of the Company’s new loan facilities. The forward-looking statements in this report are based upon various assumptions, including, among others, the Company’s examination of historical operating trends, data contained in the Company’s records and other data available from third parties. Although the Company believes that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond the Company’s control, the Company cannot assure you that it will achieve or accomplish these expectations, beliefs or projections.

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In addition to these important factors, other important factors that, in the Company’s view, could cause actual results to differ materially from those discussed in the forward-looking statements include: general market conditions, including fluctuations in charter rates and vessel values; changes in demand for and the supply of tanker vessel capacity; changes in the Company’s operating expenses, including bunker prices, drydocking and insurance costs; changes in the projections of spot and time charter or pool trading of the Company’s vessels; fluctuations in oil prices; the market for the Company’s vessels; competition in the tanker industry; availability of financing and refinancing, including completion of and financing under the Company’s new loan facilities; charter counterparty performance; ability to obtain financing and comply with covenants in the Company’s financing arrangements; the strength of world economies and currencies; changes in governmental rules and regulations or actions taken by regulatory authorities; new or revised accounting pronouncements; general domestic and international political conditions; potential disruption of shipping routes due to accidents, piracy or political events; vessel breakdowns and instances of off-hires; the Company’s financial condition and liquidity; the duration and scope of the COVID-19 pandemic; the effect of the conflict between Russia and Ukraine on, among other things, oil demand, the Company’s business, financial condition and results of operations including liquidity; and other factors. Please see the Company’s filings with the U.S. Securities and Exchange Commission, including the Company’s Form 20-F for the year ended December 31, 2021, for a more complete discussion of these and other risks and uncertainties. The Company cautions readers of this report not to place undue reliance on these forward-looking statements, which speak only as of their dates. The Company undertakes no obligation to update or revise any forward-looking statements. These forward-looking statements are not guarantees of the Company’s future performance, and actual results and future developments may vary materially from those projected in the forward-looking statements.

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SIGNATURES

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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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ARDMORE SHIPPING CORPORATION

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited interim condensed consolidated financial statements and accompanying notes contained in this Report on Form 6-K and with our audited consolidated financial statements contained in “Item 18. Financial Statements” and “Item 5. Operating and Financial Review and Prospects” of our Annual Report on Form 20-F for the year ended December 31, 2021. The unaudited interim condensed consolidated financial statements included in this report have been prepared in accordance with U.S. generally accepted accounting principles for interim financial statements (“U.S. GAAP”) and are presented in U.S. dollars as at June 30, 2022 and for the three and six months ended June 30, 2022 and 2021. Unless the context otherwise requires, the terms “Ardmore,” the “Company”, “we,” “our” and “us” refer to Ardmore Shipping Corporation (NYSE: ASC) and its consolidated subsidiaries.

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GENERAL

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Ardmore owns and operates a fleet of Medium Range (“MR”) product and chemical tankers ranging from 25,000 to 50,000 deadweight tonnes (“Dwt”). We provide through our modern, fuel-efficient fleet of mid-size tankers, seaborne transportation of petroleum products and chemicals worldwide to oil majors, national oil companies, oil and chemical traders, and chemical companies. As at June 30, 2022, we had in operation 27 vessels (including three chartered-in vessels), including 21 MR tankers ranging from 45,000 Dwt to 49,999 Dwt (15 Eco-Design and six Eco-Mod) and six Eco-Design IMO 2 product / chemical tankers ranging from 25,000 Dwt to 37,800 Dwt. Since March 1, 2021, we are commercially managing three of Carl Büttner's 24,000 Dwt chemical tankers.

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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.

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Our fuel-efficient operations are designed to enhance our operating 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 includes to continue to build our fleet with Eco-design newbuilds or Eco-design second-hand vessels and with modern second-hand vessels that can be upgraded to Eco-mod.

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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. 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 plan in June 2021.

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We are an integrated shipping company. The majority of our fleet is technically managed by a combination of Ardmore Shipping Services (Ireland) Limited and Anglo Ardmore Ship Management Limited, a joint venture entity that is 50% owned by us, and we also retain a third-party technical manager for some 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.

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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 how to best utilize our vessels and may change our chartering strategy to take advantage of changing market conditions.

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As of June 30, 2022, our fleet consisted of the following 24 owned vessels:

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SIGNIFICANT DEVELOPMENTS

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Vessel Sale and Time-charter Back

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The Company completed the previously announced sale of two of three 2008-built Eco-mod MR tankers to Leonhardt & Blumberg.  On June 2, 2022, the Ardmore Sealeader was delivered to the buyer and on July 14, 2022, the Ardmore Sealifter was delivered to the buyer.  Both vessels were subsequently time-chartered back by the Company for a period of 24 months at attractive hire rates, plus a one-year extension option. The third vessel, the Ardmore Sealancer, is due to be delivered to the buyer on July 29, 2022 with the vessel to be subsequently time-chartered back for a period of 24 months, plus a one-year extension option. Following completion of all three sales and the repayment of financing associated with the vessels, the transactions are expected to generate net cash proceeds of approximately $15 million to the Company.

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Financing

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In June and July 2022, the Company finalized terms for three new sustainability-linked loan facilities for $308 million in the aggregate, with an additional $110 million accordion option subject to final approval. The first facility is a $185.0 million sustainability-linked revolving credit facility with Nordea Bank and Skandinaviska Enskilda Banken, the proceeds of which will be used to refinance 12 vessels, including six vessels currently financed under lease arrangements.

The second facility is a $108 million sustainability-linked term loan with ABN AMRO Bank and Credit Agricole Corporate and Investment Bank, the proceeds of which will be used to finance seven vessels, including three vessels currently financed under lease arrangements. Both facilities are priced at Adjusted SOFR (LIBOR equivalent) plus a margin of 2.25% and mature in 2027. The new facilities will replace the current loans with the respective banks priced at LIBOR plus a margin of 2.4% which were scheduled to mature in December 2025. These refinancings are subject to final documentation which is expected to be completed, along with drawdown of all tranches by October 31, 2022.

The third facility is a new $15 million sustainability-linked receivables facility with ABN AMRO Bank, which is scheduled to mature in 2025 plus extension options. This facility replaces Ardmore’s existing receivables facility scheduled to mature in July 2023 and is priced in line with the expiring facility.

The covenants and other conditions of the three new facilities are expected to be consistent with those of the Company’s existing debt facilities. In addition, all three facilities contain a pricing adjustment feature linked to Ardmore’s performance on carbon emission reduction and other environmental and social initiatives. The facility’s targets for carbon emission reduction align with the International Maritime Organization’s targets for green house gas emissions reduction. The facilities reflect the Company’s current strong performance on Environmental Social Governance (“ESG”) initiatives, including (a) carbon emission levels which are significantly below the targets set out under the Poseidon Principles, (a global framework for responsible ship finance to help incentivize decarbonization in the shipping industry) and (b) having a very diverse workforce and being actively involved in the education and development of future seafarers. The pricing structure in the new facilities is expected to reward the Company for maintaining its carbon emission reduction trajectory and overall performance on ESG.

The Company issued 2,829,707 shares of its common stock, raising $20.5 million in net proceeds under its “at-the-market” program in the period from May to July 15, 2022, the proceeds of which were used for general corporate purposes including debt reduction.

CFO Transition

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As announced separately on July 27, 2022, our current Chief Financial Officer, Paul Tivnan, has decided to leave the company to broaden his experience and pursue further ambitions. Paul has been instrumental as a senior management team member in Ardmore’s start-up, initial public offering and subsequent growth. In connection with Paul’s planned departure Bart Kelleher will serve as Ardmore’s new Chief Financial Officer, effective September 28, 2022.  Paul and Bart will overlap and work closely together from September 1, 2022 to achieve an orderly and well-planned transition, including a thorough handover of all internal and external relationships.

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Conflict in Ukraine

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Russia’s invasion of Ukraine in February 2022 has disrupted supply chains and caused instability and significant volatility in the global economy. Much uncertainty remains regarding the global impact of the conflict in Ukraine, and it is possible that such instability, uncertainty and resulting volatility could significantly increase our costs and adversely affect our business, including our ability to secure charters and financing on attractive terms.

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As a result of Russia’s invasion of Ukraine, the United States, several European Union nations, the United Kingdom and other countries have announced unprecedented sanctions and other measures against Russia, Belarus and certain Russian and Belarussian entities and nationals.

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The sanctions announced by the U.S. and other countries against Russia and, in some instances, Belarus include, among others, restrictions on selling or importing goods, services or technology in or from affected regions, travel bans and asset freezes impacting connected individuals and political, military, business and financial organizations in Russia, severing large Russian banks from U.S. and/or other financial systems, and barring some Russian enterprises from raising money in the U.S. market. The U.S. also banned the import of certain Russian energy products into the U.S., including crude oil, petroleum, petroleum fuels, oils, liquefied natural gas and coal.

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The U.S., EU nations and other countries could impose wider sanctions and take other actions. While it is difficult to anticipate the impact the sanctions announced to date may have on our business and us, these and any further sanctions imposed or actions taken by the U.S., EU nations or other countries, and any retaliatory measures by Russia in response, could lead to increased volatility in global oil demand which, could have a material impact on our business, results of operations and financial condition. In addition, it is possible that third parties with which we do business may be impacted by events in Russia and Ukraine, which could adversely affect us.

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COVID-19

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, depends on future developments, which are highly uncertain and cannot be predicted, including, among others, new information which may emerge concerning the virus and 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.

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RESULTS OF OPERATIONS

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Factors You Should Consider When Evaluating Our Results

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There are a number of factors that should be considered when evaluating our historical financial performance and assessing our future prospects and we use a variety of financial and operational terms and concepts when analyzing our results of operations. Please read “Item 5. Operating and Financial Review and Prospects” in our Annual Report on Form 20-F for the year ended December 31, 2021 for additional information.

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In accordance with U.S. GAAP, we report gross revenues in our condensed statements of operations and report voyage expenses separately. Ship-owners base economic decisions regarding the deployment of their vessels upon actual and anticipated time charter equivalent, or TCE rates (which represent net revenues divided by revenue days) 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 as TCE provides meaningful information in conjunction with shipping revenues, the most directly comparable GAAP measure, because it allows the Company to evaluate its revenue on a consistent basis, regardless over whether the Company chooses to employ its vessels on voyage charters or time charters. The Company’s calculation of TCE may not be comparable to that reported by other companies. Net revenues, a non-U.S. GAAP financial measure, represents revenues less voyage expenses. Voyage expenses are all expenses related to a particular voyage, which include, among other things, bunkers and port/canal costs. Net revenue utilized to 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 discharge of cargo from the prior voyage to the anticipated discharge of cargo in the current voyage, and voyage expenses are recognized as incurred.

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Statement of Operations for the Three Months Ended June 30, 2022 and June 30, 2021

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The following table presents our operating results for the three months ended June 30, 2022 and June 30, 2021.

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Revenue. Revenue for the three months ended June 30, 2022, was $107.1 million, an increase of $59.8 million from $47.3 million for the three months ended June 30, 2021.

Our average number of operating vessels increased to 27.0 for the three months ended June 30, 2022, from 26.2 for the three months ended June 30, 2021.  

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We had one product tanker employed under time charter as at  June 30, 2022 as compared with four as at June 30, 2021. Revenue days derived from time charters were 90 for the three months ended June 30, 2022, as compared to 361 for the three months ended June 30, 2021. The decrease in revenue days for time-chartered vessels resulted in a decrease in revenue of $3.6 million.

We had 2,348 spot revenue days for the three months ended June 30, 2022, as compared to 2,004 for the three months ended June 30, 2021. We had 26 and 23 vessels employed directly in the spot market as at June 30, 2022 and 2021, respectively. The increase in spot revenue days resulted in an increase in revenue of $7.1 million, while changes in spot rates resulted in an increase in revenue of $56.5 million for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. We managed three third-party chemical tankers employed under spot trading as at June 30, 2022, compared with four as at June 30, 2021. This resulted in a decrease in revenue of $0.2 million.

Voyage Expenses. Voyage expenses were $41.2 million for the three months ended June 30, 2022, an increase of $20.7 million from $20.5 million for the three months ended June 30, 2021. An increase in bunker prices resulted in an increase of $16.2 million and an increase in spot revenue days resulted in an increase in associated costs of $4.5 million for the three months ended June 30, 2022.

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TCE Rate. The average TCE rate for our fleet was $27,806 per day for the three months ended June 30, 2022, an increase of $16,010 per day from $11,796 per day for the three months ended June 30, 2021. The increase in average TCE rate was the result of higher spot rates for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. TCE rates represent net revenues (or revenue less voyage expenses) divided by revenue days. Net revenue utilized to calculate TCE is determined on a discharge to discharge basis, which is different from how we record revenue under U.S. GAAP.

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Vessel Operating Expenses. Vessel operating expenses were $15.9 million for the three months ended June 30, 2022, an increase of $0.8 million from $15.1 million for the three months ended June 30, 2021. This increase is due to the timing of vessel operating expenses between quarters. Vessel operating expenses, by their nature, are prone to fluctuations between periods. Average fleet operating expenses per day, including technical management fees, were $7,036 per vessel for the three months ended June 30, 2022, as compared to $6,398 per vessel for the three months ended June 30, 2021. This is a result of higher costs due to additional crew changes in the current year as well as an overall increase in costs due to inflation, for the three months ended June 30, 2022 compared with the three months ended June 30, 2021.

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Charter Hire Costs. Total charter hire expenses were $2.3 million for the three months ended June 30, 2022 an increase of $0.9 million from $1.4 million for the three months ended June 30, 2021. This increase is the result of the Company having three vessels chartered-in for the three months ended June 30, 2022 compared to one vessel for the three months ended June 30, 2021. Total charter hire expenses in the second quarter of 2022 comprises of an operating expense component of $1.2 million and a vessel lease expense component of $1.1 million.

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Depreciation. Depreciation expense for the three months ended June 30, 2022, was $7.0 million, a decrease of $0.9 million from $7.9 million for the three months ended June 30, 2021. This decrease is a result of three vessels classified as held for sale in the second quarter of 2022, when we ceased depreciating them.

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Amortization of Deferred Drydock Expenditures. Amortization of deferred drydock expenditures for the three months ended June 30, 2022 was $1.0 million, a decrease of $0.3 million from $1.3 million for the three months ended June 30, 2021. The deferred costs of drydockings for a given vessel are amortized on a straight-line basis to the next scheduled drydocking of the vessel.

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General and Administrative Expenses: Corporate. Corporate-related general and administrative expenses for the three months ended June 30, 2022 were $4.3 million, consistent with $4.3 million for the three months ended June 30, 2021.

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General and Administrative Expenses: 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. Commercial and chartering expenses for the three months ended June 30, 2022 were $1.1 million, an increase of $0.4 million from $0.7 million for the three months ended June 30, 2021. The increase in costs was primarily due to an increase in travel related costs during the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

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Interest Expense and Finance Costs. Interest expense and finance costs for the three months ended June 30, 2022 were $4.9 million, an increase of $0.6 million from $4.3 million for the three months ended June 30, 2021 due to prepayment charges upon exercising the vessel purchase options for and prepayment of the related debt of the Ardmore Sealeader and Ardmore Sealifter. Cash interest expense increased by $1.2 million to $4.5 million for the three months ended June 30, 2022, from $3.3 million for the three months ended June 30, 2021, primarily due to increased average LIBOR during the three months ended June 30, 2022, as compared to the three months ended June 30, 2021. Amortization of deferred finance fees for the three months ended June 30, 2022 was $0.4 million, a decrease of $0.6 million from $1.0 million for the three months ended June 30, 2021.

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Statement of Operations for the Six Months Ended June 30, 2022 and June 30, 2021

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The following table presents our operating results for the six months ended June 30, 2022 and June 30, 2021.

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Revenue. Revenue for the six months ended June 30, 2022 was $170.5 million, an increase of $77.7 million from $92.8 million for the six months ended June 30, 2021.

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Our average number of operating vessels increased to 27.0 for the six months ended June 30, 2022, from 26.2 for the six months ended June 30, 2021.

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We had one product tanker employed under time charter as at June 30, 2022 compared with four as at June 30, 2021. Revenue days derived from time charters were 353 for the six months ended June 30, 2022, as compared to 549 for the six months ended June 30, 2021. The decrease in revenue days for time-chartered vessels resulted in a decrease in revenue of $1.9 million.

We had 4,472 spot revenue days for the six months ended June 30, 2022, as compared to 4,102 for the six months ended June 30, 2021. We had 26 and 23 vessels employed directly in the spot market as at June 30, 2022 and June 30, 2021, respectively. Changes in spot rates resulted in an increase in revenue of $72.0 million and the increase in spot revenue days resulted in an increase in revenue of $7.7 million for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. The Company managed three third-party chemical tankers employed under spot trading as at June 30, 2022, compared with four as at June 30, 2021. This resulted in a decrease in revenue of $0.1 million.

Voyage Expenses. Voyage expenses were $68.3 million for the six months ended June 30, 2022, an increase of $27.4 million from $40.9 million for the six months ended June 30, 2021. An increase in bunker prices resulted in an increase of $22.7 million and an increase in spot revenue days resulted in an increase in associated cost of $4.7 million for the six months ended June 30, 2022.

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TCE Rate. The average TCE rate for our fleet was $21,546 per day for the six months ended June 30, 2022, an increase of $9,970 per day from $11,576 per day for the six months ended June 30, 2021. The increase in average TCE rate was the result of higher spot rates for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. TCE rates represent net revenues (or revenue less voyage expenses) divided by revenue days. Net revenue utilized to calculate TCE is determined on a discharge to discharge basis, which is different from how we record revenue under U.S. GAAP.

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Vessel Operating Expenses. Vessel operating expenses were $32.5 million for the six months ended June 30, 2022, an increase of $2.9 million from $29.6 million for the six months ended June 30, 2021. This increase is due to the timing of vessel operating expenses between quarters. Vessel operating expenses, by their nature, are prone to fluctuations between periods. Average fleet operating expenses per day, including technical management fees, were $6,979 per vessel for the six months ended June 30, 2022, as compared to $6,369 per vessel for the six months ended June 30, 2021. This is a result of higher costs due to additional crew changes in the current year as well as an overall increase in costs due to inflation for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

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Charter Hire Costs. Total charter hire expenses were $4.5 million for the six months ended June 30, 2022 , an increase of $1.9 million from $2.6 million for the six months ended June 30, 2021. This increase is as a result of the Company currently having three vessels chartered in as at June 30, 2022 compared with one vessel chartered-in as at June 30, 2021. Total charter-hire expenses comprised of an operating expense component of $2.3 million and a vessel lease expense component of $2.2 million for the six months ended June 30, 2022.

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Depreciation. Depreciation expense for the six months ended June 30, 2022 was $14.8 million, a decrease of $0.9 million from $15.7 million for the six months ended June 30, 2021. This decrease is a result of three vessels classified as held for sale in the second quarter of 2022, when we ceased depreciating them.

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Amortization of Deferred Drydock Expenditures. Amortization of deferred drydock expenditures for the six months ended June 30, 2022 was $2.2 million, a decrease of $0.6 million from $2.8 million for the six months ended June 30, 2021. The deferred costs of drydockings for a given vessel are amortized on a straight-line basis to the next scheduled drydocking of the vessel.

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General and Administrative Expenses: Corporate. Corporate-related general and administrative expenses for the six months ended June 30, 2022 were $8.8 million, an increase of $0.4 million from $8.4 million for the six months ended June 30, 2021. The increase in costs was primarily due to an increase in travel related costs during the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

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General and Administrative Expenses: Commercial and Chartering. Commercial and chartering expenses for the six months ended June 30, 2022 were $1.9 million, an increase of $0.5 million from $1.4 million for the six months ended June 30, 2021. The increase in costs was primarily due to an increase in travel related costs during the six months ended June 30, 2022, compared to the six months ended June 30, 2021.

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Interest Expense and Finance Costs. Interest expense and finance costs for the six months ended June 30, 2022  were $9.0 million, an increase of $0.9 million from $8.1 million for the six months ended June 30, 2021. Cash interest expense increased by $1.5 million to $8.2 million for the six months ended June 30, 2022, from $6.7 million for the six months ended June 30, 2021, primarily due to an increased average LIBOR and due to prepayment charges upon exercising the vessel purchase options for and prepayment of the related debt of the Ardmore Sealeader and Ardmore Sealifter during the six months ended June 30, 2022, as compared to the six months ended June 30, 2021. Amortization of deferred finance fees for the six months ended June 30, 2022 was $0.8 million, a decrease of $0.6 million from $1.4 million for the six months ended June 30, 2021.

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LIQUIDITY AND CAPITAL RESOURCES

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Our primary sources of liquidity are cash and cash equivalents, cash flows provided by our operations, our undrawn credit facilities and capital raised through debt and equity financing transactions. As at June 30, 2022, we had $63.3 million in liquidity available with cash and cash equivalents of $45.4 million (December 31, 2021: $55.4 million) and amounts available and undrawn under our revolving credit facilities of $17.9 million (December 31, 2021: $11.6 million). We believe that our working capital, together with expected cash flows from operations, 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 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 may reduce the volatility (as rates can fluctuate within months) and seasonality from revenue generated by vessels that operate in the spot market. 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.

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Our long-term capital needs are primarily for capital expenditures and debt repayment and finance lease payments. Generally, we expect that our long-term sources of funds will be cash balances, long-term bank borrowings, finance leases and other debt or equity financings. 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.

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Our credit facilities and finance leases are described in Notes 3 (“Debt”) and 4 (“Leases”), respectively, to our interim condensed consolidated financial statements included in this Report on Form 6-K. 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.  The majority of 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. 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 applicable agreements immediately due and payable, and terminate any further loan commitments, which would significantly affect our short-term liquidity requirements. As at June 30, 2022, we were in compliance with all covenants relating to our financing facilities.

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CASH FLOW DATA

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Cash Flow Data for the Six months Ended June 30, 2022 and June 30, 2021

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Cash provided by operating activities

For the six months ended June 30, 2022, net cash provided by operating activities was $8.9 million. Net income of $22.7 million driven by a significant increase in TCE rates together with non-cash items such as depreciation of $14.7m and loss on vessels held for sale of $6.9 million which were offset by an increase in receivables of $31.6 million due to increase in TCE rates and increase in inventories resulting from higher bunker prices. For the six months ended June 30, 2021, net cash provided by operating activities was $0.3 million. Net loss of $16.6 million due to poor market conditions with non-cash items such as depreciation of $15.7 million and amortization of $2.8 million.

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Cash provided by investing activities

For the six months ended June 30, 2022, net cash provided by investing activities was $13.3 million, with proceeds received from the sale of the Ardmore Sealeader of $13.8 million, as well as payments in relation to vessel equipment, advances for ballast water treatment systems and other non-current assets of $0.5 million. For the six months ended June 30, 2021, net cash provided by investing activities was $3.6 million, with proceeds from the sale of the Ardmore Seamariner in January 2021 of $9.9 million partially offset by payments made for the Element 1 Corp. investments and related transaction costs of $5.0 million as well as payments in relation to vessel equipment, advances for ballast water treatment systems and other non-current assets of $1.3 million.

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Cash (used in) financing activities

For the six months ended June 30, 2022, the net cash used in financing activities was $32.2 million. Advance payment of $9.3 million against the lease obligation relative to one of the vessels that is classified as held for sale. Proceeds from debt were $9.8 million. Repayments of debt amounted to $21.9 million and total principal repayments of finance lease arrangements were $28.9 million. Proceeds from the issuance of common stock pursuant to our “at-the-market” offerings were $16.8 million. Proceeds from a junior loan associated with finance leases amounted to $2.8 million, and the payment of preferred dividends were $1.6 million. For the six months ended June 30, 2021, the net cash used in financing activities was $6.9 million. Repayments of debt amounted to $68.5 million and total principal repayments of finance lease arrangements were $9.5 million. Net proceeds from the issue of preferred stock were $23.0 million and proceeds from finance lease arrangements were $49.0 million.

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CAPITAL EXPENDITURES

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Drydock

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The drydocking schedule for our vessels that were in operation as of June 30, 2022 is as follows:

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We endeavor to manage the timing of future dockings across the fleet in order to minimize the number of vessels that are drydocked at any one time. As our fleet matures, our drydock expenses are likely to increase.

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(1) Six-month period ending December 31, 2022

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Ballast Water Treatment Systems Installation

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The installation schedule for ballast water treatment systems on our vessels that were in operation as of June 30, 2022 is as follows:

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We endeavor to manage the timing of future ballast water treatment system installations across the fleet in order to minimize the number of vessels that are completing ballast water treatment system installations at any one time.

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(1) Six-month period ending December 31, 2022

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CRITICAL ACCOUNTING ESTIMATES

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We prepare our financial statements in accordance with U.S. GAAP, which require us to make estimates in the application of our accounting policies based on our best assumptions, judgments and opinions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ materially from our assumptions and estimates. Accounting estimates and assumptions that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties are discussed in “Item 5. Operating and Financial Review and Prospects” in our Annual Report on Form 20-F for the year ended December 31, 2021. There have been no significant changes to these estimates and assumptions in the three and six months ended June 30, 2022.

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DISCLOSURES ABOUT MARKET RISK

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In addition to the risks set forth below, you should carefully consider the risk factors discussed in “Item 3. Key Information – D. Risk Factors” in our Annual Report on Form 20-F for the year ended December 31, 2021, regarding risks which could materially affect our business, financial condition and results of operations.

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Operational Risk

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We are exposed to operating 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 occur in vessel operations, the fleet is insured against various types of risk. We have 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, 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. We are also subject to operational risks relating to COVID-19 as described in the “Significant Developments” section of this report.

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Foreign Exchange Risk

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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 risk that currency fluctuations may have a negative effect on the value of our cash flows. Such risk may also have an adverse effect on our financial condition and results of operations. We believe these adverse effects to be immaterial and we have not entered into any derivative contracts to manage foreign exchange risk during the three and six months ended June 30, 2022.

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Interest Rate Risk

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We are exposed to the impact of interest rate changes, primarily through borrowings that require us to make interest payments based on LIBOR. Significant increases in interest rates could adversely affect our results of operations and our ability to repay debt. We regularly monitor interest rate exposure and enter into swap arrangements to hedge exposure where it is considered economically advantageous to do so.

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We are exposed to the risk of credit loss in the event of non-performance by the counterparties to the interest rate swap agreements. 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, interest rate swaps are entered into with different counterparties to reduce concentration risk.

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During the three months ended June 30, 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 $252.1 million of which $210.2 million are designated as cash flow hedges. The swaps are due to expire in mid 2023 and as interest rates are currently rising, interest costs could increase significantly on expiration of the swaps.

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LIBOR is scheduled to be phased out and alternative reference rates for interest rates may be adopted, which could affect our interest rate risk.  For additional information, please see the risk factor entitled “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” Item 3.D (Key Information--Risk Factors) in our Annual Report on Form 20-F for the year ended December 31, 2021.

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Liquidity Risk

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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 come due and to provide adequately for contingencies. Our policy is to manage our liquidity by forecasting of cash flows arising from or expense relating to spot voyage revenue, time charter revenue, pool revenue, vessel operating expenses, general and administrative overhead and servicing of debt.

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Credit Risk

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There is a concentration of credit risk with respect to our cash and cash equivalents to the extent that substantially all of the amounts are held in ABN Bank and Nordea Bank, and in short-term funds (with a credit risk rating of at least AA) managed by Blackrock State Street Global Advisors and JPMorgan Asset Management. While we believe this risk of loss is low, we intend to review and revise our policy for managing cash and cash equivalents if considered prudent to do so.

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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.

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We may be exposed to 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, including credit concentration risk. As at June 30, 2022, our 27 vessels in operation (including three chartered-in vessels) were employed with 14 different charterers.

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Inflation

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With inflation becoming a significant factor in the global economy, inflationary pressures are expected to result in increased operating, voyage (including bunkers) and general and administrative costs.  Inflationary pressures on bunker costs could adversely affect our operating results to the extent our spot charter rates do not adequately cover the cost of any increases in bunker costs.

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Ardmore Shipping Corporation

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INDEX TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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Ardmore Shipping Corporation

Unaudited Interim Condensed Consolidated Balance Sheets

As at June 30, 2022 and December 31, 2021

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The accompanying notes are an integral part of these interim condensed consolidated financial statements.

Ardmore Shipping Corporation

Unaudited Interim Condensed Consolidated Statements of Operations

For the Three and Six Months Ended June 30, 2022 and June 30, 2021

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The accompanying notes are an integral part of these interim condensed consolidated financial statements.

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Ardmore Shipping Corporation

Unaudited Interim Condensed Consolidated Statements of Comprehensive Income / (Loss)

For the Three and Six Months Ended June 30, 2022 and June 30, 2021

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The accompanying notes are an integral part of these interim condensed consolidated financial statements.

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Ardmore Shipping Corporation

Unaudited Interim Condensed Consolidated Statements of Changes in Redeemable Preferred Stock and Stockholders’ Equity

For the Three and Six Months Ended June 30, 2022 and June 30, 2021

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