Imperial Petroleum - Earnings Call - Q4 2024

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Imperial Petroleum Inc. Q4 2024 and 12-month 2024 financial and operating results conference call and webcast. All participants will be in listen-only mode during the conference, with no question-and-answer session. Please note that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Harry Vafias, CEO of Imperial Petroleum. Please go ahead.

Harry Vafias (CEO)

Good morning, everyone, and thank you all for joining us at our Q4 and 12 months 2024 conference call. I'm Harry Vafias, the CEO of Imperial Petroleum, and joining us today is Fenia Sakellari, who will be discussing our financial performance. Before we commence our discussion, please read the safe harbor disclaimer on slide two. In essence, it is made clear that this presentation may contain some forward-looking statements as defined by the Private Securities and Litigation Reform Act. We raise the attention of our investors to the fact that such forward-looking statements are based upon current beliefs and expectations of Imperial Petroleum and are subject to risks and uncertainties which could cause future results to differ materially from these forward-looking statements.

In addition, before we commence our discussion, we would like to clarify that during this call, we will quote monetary amounts unless explicitly stated otherwise, all in U.S. dollars.

In slide three, we summarize our key highlights for Q4 2024 and 2024. As a general remark, market conditions during the last quarter of 2024 were somewhat atypical, as the expected seasonal strengthening failed to materialize. Geopolitical tensions, mild winter, along with OPEC delays in unwinding the production cuts, brought upon a softness in the tanker market. In spite of a lack of strong market momentum in the fourth quarter of 2024, we managed to attain a strong operational utilization of 86%, attributed to an increase in time charter recovery with negligible quarterly technical off-hire. Indeed, in Q4, compared to the fourth quarter of 2023, our time charter recovery increased by 180% as two of our product tankers were under time charter employment for the whole period. Looking at the 12-month results, our operational utilization came in at 78.3%.

About 69% of our fleet calendar days were dedicated to spot activity, while almost 29% to time charter activity. We continued to grow our fleet. In early January 2025, we took delivery of the product tanker Clean Imperial, and with this addition, our tanker fleet totals nine ships, while our total fleet equals 12 vessels. Touching briefly upon our financial performance, softer market conditions led to somewhat lower quarterly revenues when compared to the same period of last year. However, solid operational utilization and fleet coverage led to higher income from operations. From the fourth quarter of 2024, our revenues came in at close to $26 million, leading to an operating income of close to $5 million. Our net income was in the order of $3.9 million, slightly undermined by the $3.3 million foreign exchange loss incurred in the quarter.

Looking at our performance for the whole of the year, this is quite satisfactory, as we managed to end the year with a hefty profit of about $50 million and an annual operating cash flow close to $78 million. These results are outstanding when taken into consideration that they were generated by a small fleet of close to 10 ships. Our recurring profitability and debt-free capital structure facilitate robust cash flow generation and low break-even. Slide four will provide a summary of our current fleet employment. As mentioned, we have increased our time charter coverage, which for the remainder of 2025 is in the order of 23%. In more detail, our Handysize bulk carriers are employed on short TCs, while three of our product tankers are under time charter employment up until May 2025, January 2026, and August 2027, respectively. Let us briefly comment on the tanker spot rates.

2024 started off strongly, both in terms of demand and rates, but this trend gradually subsided, leading to a mild second half of the year. In more detail, from the summer period onwards, the Red Sea situation, combined with increased Iranian exports and softer Chinese oil demand, contributed to the closing of the West-East arbitrage for crude tankers. For product tankers, weaker rates for the second half of 2024 were brought upon by reduced refinery runs. We did, however, witness a rise in product rates and higher cargo flows following the end of the refinery maintenance season. In January 2025, rates for both crude and product tankers were positively affected by the sanctions imposed on the dark fleet, while recently rates for tankers have been affected by the U.S. trade war and respective retaliations. On slide five, we reviewed the tanker market.

It was overall positive for the tanker market, even though we witnessed an excess of 30% year-on-year declining rates from multi-year highs. This is rerouting around the Cape of Good Hope due to Red Sea disruptions, long-haul Russian-Asia trade flows, and limited fleet expansions sustained rates and trade activity at firm levels compared to historical averages. From 2025, oil demand is expected to grow steadily, driven predominantly by emerging economies and the anticipated recovery of Chinese oil demand. Indeed, China is expected to adopt monetary policies to stimulate consumption and continue to invest in domestic infrastructure which supports crude oil demand. However, the recent depreciation in the yuan, which raises the cost of imports, might affect crude import volumes in the short term. Looking at oil supply for this year, this is expected to be driven mostly by non-OPEC countries.

Largest growth is anticipated to come from the U.S., followed by Brazil, Canada, and Norway. In terms of oil tanker trade growth for 2025, this is anticipated to reach 2%. However, various ongoing geopolitical events could impact this expectation. On slide six, we are providing additional information on tanker market outlook for this year. Oil trade patterns remain complex and dynamic. In terms of crude oil, U.S.A. is emerging as a significant exporter, while China remains the top source for demand. On the other hand, Asia-Pacific accounts for over a third of global clean product exports, with China and South Korea leading the way. Various geopolitical risks, especially recent developments, have the power to alter current trade, thus affecting rates and ton-miles.

For instance, sanctions on the dark fleet imposed in January 2025 favor demand for non-sanctioned vessels but affect trade, as the Chinese coastal region of Shandong, which accounts for 50% of China's crude imports and 81% of crude imports from Iran and Venezuela, announced it will not receive vessels that are sanctioned by OFAC. In addition, U.S. trade tariffs on China, Canada, and Mexico could have a material impact on the global energy trade and affect oil tanker markets both negatively and positively. For example, a 25% tariff on oil imports from Mexico could potentially boost dirty tanker rates in the U.S. Gulf and affect trading activity in the area, while any potential tariffs imposed on the European Union could be highly disruptive for the transatlantic oil trade, affecting East-West trade volumes. On slide seven, we touch upon the tanker fleet fundamentals.

The current order book for product tankers stands at about 15%, while for Suezmax tankers at close to 16%. For both categories, though, the number of vessels above 20 years of age outweighs newbuilding deliveries, which limits the risk of potential oversupply of vessels. Briefly, to comment on the outlook for the dry bulk Handysize vessels, the last quarter of 2024 was quiet for dry bulk ships. The sector performance in 2025 will greatly depend upon China's anticipated economic improvement. Strong dollar and the fact that China's 2024 build-up of inventories for commodities was significant led to a flat dry bulk market. However, limited order book is considered quite positive and could potentially assist the sector this year. I'm passing the floor to Mrs. Fenia Sakellari for our financial performance.

Fenia Sakellari (Interim CFO)

Thank you, and good morning to everyone. Let us discuss our financial performance for Q4 2024 and 12 months 2024. As mentioned earlier in our call, the second half of 2024 was softer than anticipated. The seasonal effect of the period did not compensate for the broader decline in market conditions as compared to what prevailed in the beginning of 2024. Looking at our income statement for Q4 2024 on slide eight, revenues came in at $26.2 million in Q4 2024, marking a $3.5 million decline compared to revenues generated the same period of 2023. This decline stems from lower market rates. Indicatively, we mentioned that as of the end of Q4 2023, daily rates for standard product tankers were close to 33%, while for standard Suezmax tankers, close to $60,000.

As of end of Q4 2024, though, these daily rates had fallen to $22,000 for standard product tankers and about to $30,000 for standard Suezmax tankers. The effect of lower rates was offset by our quarterly operational utilization of 86% and the rise in our time charter coverage. Voyage costs amounted to $8.5 million, down by 39% compared to Q4 2023. In the last quarter of 2024, we had no transit from the U.S.-Suez Canal and overall lower spot activity. Consequently, our bunker costs declined by 16%, while our port expenses by almost 45%. Running costs amount to $6.7 million, increased by $1 million due to the increase of our fleet by an average of two vessels. Overall, we do maintain across the quarters our OpEx fairly steady, maintaining a daily average per fleet calendar day of about $7,000.

EBITDA for the fourth quarter of 2024 came in at $6.4 million, while net income at $3.9 million. We need to stress that the biggest hurdle this quarter was the $3.3 million foreign exchange loss we incurred due to the strengthening of the U.S. dollar. However, this is a non-operative, one-off item subject to currency value fluctuations. For December 2024, EBITDA came in at $59.2 million and our net income at $50.2 million, corresponding to an earnings per share of $1.54, which is equivalent to 50% of our current share price levels. Moving on to slide nine, let us look at our balance sheet for the 12 months of 2024. We enjoy a hefty cash base of close to $207 million and a debt-free balance sheet. Within 2024, we attained a 67% increase in available cash, which is smartly placed under time deposits.

Within 2024, we generated $6.7 million of interest income from time deposits. We managed to increase our fleet book value by 15% as a result of our expansion strategy. Through the accumulation of earnings, our equity base increased by 16% as well. Proceeding to slide 10, we provide a snapshot of our strong fundamental basis for 2024 annual performance. Our high liquidity is fueled by our strong operating cash flow generation, while our profitability is assisted by our low break-evens. Going forward, as already announced, we do have upcoming vessel deliveries in Q2 2025 and related vessel payments in the second half of 2025. Concluding our presentation with slide eleven, we summarize yet once more our company's strong points and place emphasis on the discrepancy between our low share price and our true company value.

At this stage, our CEO, Mr. Harry Vafias will summarize our concluding remarks for the period examined.

For yet another year, Imperial Petroleum demonstrated exceptional results. We continue to be consistent with profitability, cash flow generation, and fleet growth across the quarters. Market conditions in 2024 were somewhat softer than 2023, when tanker rates oscillated around all-time high levels. Nevertheless, our debt-free fleet of 11 ships managed to generate $50 million of profit and maintain an enviable cash base of $207 million. In the period ahead, our key focus is to materialize our already announced fleet growth plans, sustain our profitable momentum, and, as always, seek opportunities to enhance the value of our company. We'd like to thank you all for joining us and for your interest and trust in our company, and we look forward to having you once again at our next call for Q1 2025 results. Thank you very much.

Operator (participant)

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.