Earnings Call Transcript - IMPP Q4 2022

Harry Vafias, CEO

Good morning, everyone, and thank you for joining our Fourth Quarter 2022 and 12 Months 2022 Conference Call of Imperial Petroleum. I’m Harry Vafias, the CEO of the company, and I’m here with our Interim CFO, Ms. Sakellari. Before we begin, we encourage everyone to review the Safe Harbor disclaimer found in slide two of our presentation. This disclaimer indicates that our presentation may include forward-looking statements as defined by the Private Securities Litigation Reform Act. We want to remind our investors that these statements carry risks and uncertainties that could impact our company’s future performance. Additionally, during this call, we will mention monetary figures, which, unless specified otherwise, will be in US dollars. Let's start with slide three to review some highlights from our company’s performance. In Q4, we capitalized on a robust tanker market that continued from the third quarter. Thanks to the tanker recovery in 2022, we finished the year with a net income of almost $30 million, representing 36% of our current market capitalization — a noteworthy achievement. Throughout the fourth quarter, tanker rates held steady. The EU's ban on Russian oil and price caps on oil and refined products have positively influenced trading patterns. Furthermore, as China gradually reopens, we expect strong oil demand. The tanker market will face challenges from ongoing inflation and the uncertainty of a potential global recession. Overall, we had an exceptional year marked by significant fleet growth. Over the course of 12 months, we more than doubled our fleet to 10 vessels, achieving strong earnings. In the fourth quarter of 2022, our fleet utilization was 79.4%, somewhat limited due to the dry docking of two vessels and a balancing period for one Suezmax that lasted 40 days after its dry docking. During the quarter, about half of our fleet operated under time charter contracts, while the remainder performed in the spot market, benefiting from high charter rates. Regarding our fourth quarter financial performance, our revenues approached $38 million, nearly 950% higher than the same time last year. Our time charter equivalent revenue for the fleet reached $27.4 million, translating to an average daily TCE of approximately $36,600. Our net income was close to $14 million, and at year-end, we had $119 million in free cash available for fleet expansion and other purposes. Our free cash at the end of 2022 was about 1.5 times our equity market capitalization. Slide four outlines the current deployment status of our fleet. Two of our tankers and both of our handysize dry vessels are engaged in short-term time charter contracts. We have strategically focused most of our fleet on the spot market due to strong demand and elevated charter rates. Spot rates have experienced some volatility since the start of the year, as the market anticipated the EU ban on Russian oil imposed on February 5. Since that ban, rates have risen and remained very robust. Year-to-date, compared to the same period in 2022, tanker rates across our segments have increased by more than 1,000%. On slide five, we analyze the tanker market. Despite a global economic slowdown linked to the energy crisis and high interest rates, oil demand is projected to grow by 1.8% in 2023. A significant rebound in oil demand is anticipated as China fully reopens, which may lead to a reversal of OPEC production cuts. On February 5, 2023, the EU implemented two separate price caps on Russian oil, establishing limits for premium crude products at $100 per barrel and for discount crude products at $45 per barrel, reflecting market dynamics. The ban on Russian refined oil will require Europe to source oil from other regions, and it’s projected that Russia will seek new non-European buyers for 0.7 million barrels per day of clean petroleum products and 0.4 million barrels per day of fuel oil, which will likely increase tonne-miles. A potential global recession poses a significant risk for 2023, potentially necessitating production cuts. In slide six, we discuss the product tanker market, which we anticipate will have a positive outlook this year and beyond due to slow fleet growth and longer-haul trade patterns. The limited availability of yard slots, primarily filled by orders for dry bulk carriers, containers, and LNG ships, is applying pressure on the already record-low tanker order book. It is expected that product tanker fleet growth will only be 1.2% in 2023, while other product tankers may witness growth of about 10%. Briefly addressing market rates and trade patterns for the first quarter, the crude oil market is seeing an increase in tonne-miles due to the longer distances Russian oil is now being transported, primarily to India and China, alongside the EU's ban on Russian oil imports from December 5. This situation has created a substantial rise in tonne-miles, especially for Aframaxes and, to some extent, Suezmaxes, resulting in very high spot rates during Q4. In the clean petroleum product sector, market strength is experienced as preparations ramp up for the February 5 EU import ban on oil products, with significant imports before the prohibition. Some clean petroleum product trades reached historical freight rate highs in Q4. Now, I’ll turn it over to Ms. Sakellari to summarize our financial performance.

Ifigeneia Sakellari, Interim CFO

Thank you, Harry, and good morning to everyone. During the fourth quarter of 2022, we continued to record strong revenues and generated net income of close to $14 million. We are very satisfied with our results, reflecting a tremendous improvement in the overall tankers and product tankers in particular. Our results were somewhat undermined as one of our Suezmax tankers, the Suez Enchanted, and one of our dry bulk vessels, Engine Bay, underwent dry docking. This, along with the repositioning voyage on ballast of the Suez Enchanted following the completion of its dry docking added to our lot higher, almost 130 days, further reducing revenue generation. Indeed, our operational utilization was low during the fourth quarter in the order of 79.4%. Looking at our income statement for Q4 2022, on slide seven compared to Q4 2021, revenues came in at $37.9 million, up by $34 million compared to the fourth quarter of 2021 due to our fleet additions as we increased our fleet by six vessels along with a noticeable rise in market rates. Voyage costs increased by $9.6 million due to the increase in spot voyages by an additional 320 days, reflecting a 516% increase in rising bunker prices. This quarter we included $1.7 million of voyage costs for the balancing of our Suezmax tanker, Suezmax Enchanted, which was off balance for about 50 days. The benefit of which will appear in the first quarter of 2023. Our running costs increased by $4.6 million due to the average increase of our fleet by six vessels and one of our product tankers, the Clean Sanctuary, coming off their bareboat lease close to the end of August 2021. Based on the above, we generated a strong EBITDA of almost $18 million, which is $17 million or 2,125% higher than in Q4 2021, and a net profit of $8 million corresponding to an EPS of $0.7. Our profit margin for the quarter was around 36%. For the 12 months of 2022, we generated a net profit of $29.5 million corresponding to an EPS of $0.19. As a result, our trailing price to equity ratio is slightly above 10 times. Moving on to slide 8, let's take a look at the balance sheet. For the 12 months of 2022, as of December 31, 2022, we had a cash balance of about $120 million. Our operating cash flow for the year was $40 million, so we generated from our fleet operations cash almost equal to our current market capitalization. For the time being, we leverage our free cash base as we place the majority of our cash in time deposits as evident during the 12 months of 2022. Our time deposits generated a total of $1.3 million covering the majority of our finance costs. During the fourth quarter of 2022, we increased our loan, taking on a $30 million loan against our two Aframax vessels. Our total debt is in the order of $70 million, which equates to a gearing ratio of 19% based on fleet book values. As of the end of year 2022, our free cash was 1.7 times above our outstanding leverage, resulting in a negative net debt to fleet book value ratio. In slide 10, we present a financial snapshot emphasizing our solid capital structure. Going forward, as mentioned, our balance is quite high, enabling us to expand our fleet further. Our loan repayments are well structured with a low annual repayment schedule of about $10 million per annum, while our first balloon payment is due in December 2026. Looking at our profitability and growth, this has been a success. Having almost tripled our fleet within the course of 12 months, during the fourth quarter of 2022, we had an average daily TCE per vessel of $33,600, while our average daily OpEx per vessel was $7,000. This is how the recently imposed cap on Russian oil will affect the margins. Adding to this, we also need to see how inflationary pressures might impact demand on oil products. Concluding our presentation with slide 10, we highlight the strong yet proven points that make Imperial Petroleum a growing company with a short but impressive track record of successful fleet expansion which ensures immediate returns. At this stage, our CEO, Harry Vafias, will summarize our concluding remarks for the period examined.

Harry Vafias, CEO

2022 can only be characterized by one word, success. As market conditions were favorable, particularly during the second half of the year, we managed to increase our net income by about 1,020%. We managed to increase our EBITDA by 2,175%, grow our one-year-old company to 10 vessels, and generated net income of about $30 million. Going forward, our main focus will continue to be growth and profitability. We positioned the company well with an enviable capital structure, $257 million in asset market values, $120 million approximately in cash, and only $70 million of debt. The market outlook for tankers looks promising for this year, and we are set to capture the continuing favorable charter environment as well as acquisition opportunities in the tanker and dry bulk sectors. We have now reached the end of the presentation, and we would like to open the floor for your questions. So, operator, please open the floor.

Operator, Operator

Thank you. We will now take the questions. One moment, please. It comes from the line of an unidentified analyst. Please go ahead. Your line is open.