Imperial Petroleum Inc.

Good morning to everyone and thank you all for joining our second quarter and six months 2024 conference call of Imperial Petroleum. I am Fenica Kilaris, the CFO of Imperial Petroleum. Before we commence our discussion, I would like you all to read the safe harbor disclaimer posted in slide number two of our presentation. In essence, it is made clear that this presentation may contain some forward-looking statements as defined by the Private Security Litigation Reform Act. We raise the attention of our investors to the fact that such forward-looking statements are based upon the 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. I would like to note that the slides of the webcast presentation will be available and archived on our company's website after the conference call. In addition, before we commence our discussion, I would like to clarify that during this conference call, we will quote monetary amounts. This, unless explicitly stated otherwise, are all denominated in US dollars. Let us now turn to slide 3, so as to summarize our operational and financial highlights for the second quarter and first half of 2024. Both crude and product rates hardly changed from Q1 2024 to Q2 2024, thus allowing us to enjoy a profitable quarter in spite of the customary negative seasonal effects. The effect of the Russia-Ukraine conflict has, and it seems that it will continue having, a long-lasting impact mostly on European source of energy, while Red Sea diversions will most likely last beyond 2024. This environment sustains tanker rates at firm levels compared to historical averages, but yet, going forward, it remains unknown how the tanker market will be affected should this geopolitical tension subside. Indeed, In Q2-24, leveraging upon strong rates and an efficient utilization of our fleet, particularly our product tankers deployed west of Suez, where market for these vessels was tight, we managed to generate a profit of about $20 million, marking our second-best quarterly performance so far. Our operational utilization came in to 81%, a solid performance when taking into consideration that about 80% of our fleet calendar days were dedicated to spot activities. Looking at our fleet expansion, we strive to enhance our fleet's strength and value, as in May 2024, we entered into agreements to acquire a handy-sized dry-ball carrier and a product tanker. The delivery of the handy-sized dry-ball carrier, the Neptune 2012 build, took place a few days ago, that is on August 24, 2022, while the product tanker, the Clean Imperial 2009 build, will be delivered towards the end of this year. The aggregate consideration for this acquisition is 40 million, and we have scheduled payment for both vessels either in Q1 2025 or within Q2 2025. From a financial standpoint, we view it as positive that for the past three quarters we enjoyed an escalating profitability. Our numbers in Q1 2024 were much improved compared to Q4 2023, and this trend continued in Q2 2024 as well. Compared to the first quarter of this year, our revenues were up by 14% and our profits by 15%. We do not expect this trend to continue in Q3-24 because markets are quite soft during the summer period, but should fundamentals remain the same, we do expect a firm strength of the current market, particularly for crude tankers, as we move on into the winter season. Our capital structure remains healthy as we enjoy debt-free balance sheets. But most importantly, a solid cash base, which as of the end of June 2024 was in the order of 130 million, while currently stands at about 190 million. High liquidity gives us flexibility to grow our company when opportunities of economic value arise. Proceeding to slide four, we provide a summary of our current fleet deployments. All of our handy-sized dry-bite carriers are on short-time charters, with two vessels concluding their employment in August and one vessel concluding her employment in September 2024. We are also pleased to announce that one of our MR tankers, the Clean Justice, was recently fixed on a three-year time charter up until August 2027. Secured revenues stemming from this employment amount to approximately 30 million. Overall, looking at market spot rates for product tankers, these have been higher in the first half of 2024, When compared to the same period of last year, as particularly towards the end of Q2-24, product tankers enjoyed high rates due to further activity in the Leotard Basin, resulting from higher U.S. exports. Swissmax rates were lower in the first half of 2024 when compared to the same period of last year. In Q2-24, Swissmax rates declined due to summer seasonality and reduced cargo levels, yet still remain at fair levels when compared to historical averages. Let us move on to slide five to review the tanker market. In Q2-24, geopolitical tensions such as the war in Gaza and Ukraine continue to affect the market and elevate tanker rates offsetting the seasonal drop in oil demand in regions like Europe and China. Houthi attacks still threaten shipping in the Red Sea. So far in 2024, Swiss canal transits are down roughly 50% from 2023. This decline in transit for product tankers is 69%. Majority of product anchors deviated via the Cape of Good Hope, and this has a substantially positive effect on the ton-mile distances, consequently freight rates. At the moment, rates for product anchors have declined below the levels witnessed in Q2-24, mainly due to the summer period. On the cruise side, we witnessed a slight softening of the market compared to the first quarter of this year. This is generally in line with usual seasonal patterns, and we have seen a further softening through the first half of Q3-24 as well. We would normally expect the market to pick up in the last quarter if the red sea situation remains unresolved. Going forward, global oil demand is anticipated to grow by 2.3 million barrels per day year over year in the second half of 2024, mainly driven by the US, China and a slight growth in Europe and Asia Pacific. While China is still the largest driver of oil demand in Asia, India is poised to lead global demand growth in the years ahead. Proceeding to slide 6, as mentioned, product anchor rates hold at firm levels, favored by various factors, particularly longer travel distances and limited vessel supply. Indeed, fleet growth for product anchors is expected to be low this year, around 1.2%, mainly due to limited number of vessels contracted in 2022. Additionally, product anchor scrapping activity is at an all-time low, given the strong prevailing market. It is expected that about 20% of the product tanker fleet will be above 20 years of age by 2026. Looking briefly at crew tanker segment, this also experienced firm rates and very limited freight growth. It is expected that during 2024-2025, rates for crew tankers will remain at firm levels. However, any potential normalization to the rate C might lead to a decline in freight rates. As of the first half of 2024, about 1.4 million deadweight tons have been added to the fleet. Vessels supply for crude tanker looks increasingly tight, as 34% of Suez maxis and 50% of Afra maxis are above 15 years of age. Moving on to the dry bulk market, the outlook for this segment is positive, marking so far an improvement compared to 2023. In Q4-24, earnings for the handy-sized dry bulk carriers were 60% above long-term averages. The market continues to benefit from increased tonne miles due to the Red Sea detour caused by Houthi attacks. Chinese iron ore imports remained healthy despite weak steel output. A key market driver is that global gold trade continued its strong pace with both Chinese and Indian imports running at high levels. Let us now discuss our financial performance in Q2-24 compared to the same period of last year. Looking at our income statement for Q2-24 on slide 7, Revenues came in at 47 million compared to 59 million, a 20.3% decrease compared to Q2-23, due to a decrease of our average fleet by 1.5 vessels and a decrease of Suez max market rates by about 25%. Voyage costs decreased by 2.2 million due to a decline in port expenses by $2,200 per day due to a reduction in transit through the Suez Canal, partially offset by an increase in daily banker costs. Running costs decreased by 0.5 million due to a lower average number of assets. EBITDA for the second quarter of 2024 came in at 21.8 million, while net income at 19.5 million. Moving on to slide 8, let us take a look at our balance sheet for the first half of 2024. We enjoyed high liquidity. As of June 30, 2024, our cash, including time deposits, were in the order of 130 million. The sharp increase in cash compared to Q124 is attributed to the receipt of 42 million from the sale of Stade Grace II in April 2024 and our strong operating cash flow generation within Q224 in the region of 20 million. We also enjoyed the flexible capital structure governed by high liquidity, zero debt, and minimum liabilities. Proceeding to slide 9, we provide a snapshot of our strong fundamentals, such as dynamic profitability, as our net profit margin is in excess of 40%, Robust cash flow generation. In the first half of 2024, we generated close to 40 million of operating cash flow. Strong market rates allow us to have a daily TCE per fleet voyage day in excess of 30,000, while our cost-cost management and zero leverage achieve the daily vessel cash flow break-through of less than 9,000. Proceeding to slide 10, we provide the financial evidence of why we feel our stock is heavily undervalued. Within the course of 18 months, that is from January 2023 to June 2024, and basis our financial statements and management estimate of net asset value computation, Imperial Petroleum achieved a 45% increase in net asset value to around 430 million, a 10% rise in cash to 130 million, even though during this period we repaid 70 million of debt and about 120 million of operating cash flow generation. In spite of our astounding performance, At the moment, our market capitalization is close to 120 million, which implies that our share trades at a steep discount to our net asset value levels. Concluding our presentation with slide 11, we summarize yet once more Imperial Petroleum's strength, which we feel makes our company a sound investment choice. At this stage, I will summarize our CEO's concluding remarks for the period examined. In Q2-24, we managed to turn a typically weak seasonal period to our second most profitable quarter thus far, as we generated a net profit of 19.5 million. Our excellent performance was mostly leveraged by our product tankers that were strategically situated west of Suez, where market for this vessel remained tight. We enjoy recurring profitable quarters, a very strong cash base, which currently stands to close to 190 million, and as we repeatedly stress, zero leverage. This gives us plenty of flexibility to grow further. We remain significantly undervalued as our market capitalization is even lower than our cash, but are confident that gradually we will see an appreciation to our share price driven by our recurring strong results. We would like to thank you for joining us at our conference call today and for your interest and trust in our company. We look forward to having you with us again at our next conference call for our third quarter results.