TORM plc

Good day and thank you for standing by. Welcome to the TORM first six months and second quarter 2024 results call. Please note that today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. To withdraw your question, press star one again. Thank you. I'll now turn the call over to Jacob Milgaard, CEO. Please go ahead, sir.

Thank you, and thank you, everybody, for joining us on this call today. This morning, we released our company announcement with the results for the second quarter of the year, and I'm pleased to report that, again, this quarter, Solum has achieved a strong financial performance. Our time-sharer equivalent earnings increased to US dollar 326 million, and EBITDA improved to US dollar 251 million, as freightways remained firm throughout most of the quarter. Again, we have witnessed a continuation of the market dynamics that we've seen in the previous quarters, i.e. geopolitical tension stemming from both the Ukrainian-Russian conflict and the escalating confrontations in the Middle East that leads to rerouting of vessels, longer voyages, and higher ton-mile demand. This, of course, adds to an already tight supply-demand balance in the product anchor market. We remain optimistic about the prospects for the coming years as we believe that the supported fundamentals for the positive rate environment is likely to stay intact. Thus, we expect longer ton-mile, higher utilization rates in the years to come, and at the same time, manageable new building deliveries. Consequently, and in line with what you have seen in previous quarters, in early July, we entered into an agreement to acquire additional secondhand vessels. This time, eight MR vessels to be delivered during the second half of this year for a total consideration of US dollar 340 million. The vessels have all been built at Hyundai Meepo Dockyard in 2014-2015, and six of the vessels have been fitted with scrubbers. And then, as you would expect us to do when our vessels reach a certain age, we have divested one 2006-built MR tanker for delivery in the third quarter of 2024 for a cash Thus, adding it all together, we are both expanding and replenishing our fleet. And as we've done for some time now, we are using our partner share-based structure to finance the transaction. By continuing this way forward, we believe that TORM will be in a strong position to further add to our value creation over the coming years. All in all, this has been a very satisfactory quarter and in line with our intention of distributing the cash flow net of debt repayment, TORM has declared a dividend for the quarter of US dollar 1.80 per share, thus adding to the positive dividend load seen over the recent quarters. And here, please turn to slide five. In the past two and a half years, EU political tensions, first in Europe, then in the Middle East, have led to the product tanker rate increasing to a new higher average level. At the same time, we're also seeing increased volatility in rates as the feed utilization has moved closer to full utilization. Please turn to slide eight. The main impact of these geopolitical tensions has been a reshaped product and a trade towards longer distances, all while overall trade volumes have risen, supported by increasing oil demand and changes in refinery landscape. The EU sanctions against Russia in 2023 led to a trade rerouting towards longer-haul trade, both for European imports, but also for Russian exports. This year, the product-hanger market has been strongly affected by the Houthi attacks against commercial vessels at the Bab and Maldives Strait. The share of global clean petroleum products trade transiting the Suez Canal has declined from 12% to only 4%, meaning 8% of the global trade has been redirected. The majority of this is going a longer route around the Cape of Good Hope. While the Middle East situation is very dynamic, the recent escalation of the conflict between Iran and Israel suggest that the timeline for disruption continues to be drawn out. Now, please turn to slide seven for a closer look at the market development here in the second quarter of the year. In the second quarter of the year, trade volumes with refined oil products increased by 2% compared to the same quarter last year, supported by higher oil demand and recent changes in the refinery landscape. Together with the longer trading distances, this has led to an overall increase in ton mile demand for product tankers. At the same time, earnings for larger crew tankers have been subdued both seasonally, but also given the fact that VOCCs have not directly benefited from geopolitical drivers. This has led to a cleanup of a number of VOCCs and Suez Maxis since the end of the second quarter. However, As we move towards the fourth quarter, TORM expects a seasonally improving crude tranquil market to significantly reduce incentives for crude cannibalization at the same time as both seasonality and volatility with continued market disruptions will keep clean trade distances longer. Please turn to slide eight. When we combine the tonnage demand and supply drivers, our calculations show that the product-tanker demand-supply balance has stayed on a much firmer footing than before the geopolitical tensions started. After an 8% increase in tonn-miles last year, the Red Sea disruption, together with organic growth and trade volumes, has so far this year added around 10% to tonn-miles. This has been front-loaded, but actually more than what we had forecasted. What is important to mention here is that ton mile has grown significantly also on trades not directly related to the Red Sea disruption. At the same time, net fleet growth has been much more limited. The cleanups of both LR2s as well as large crude carriers have increased the supply of tonnage. But even with this, the supply growth has been much more limited than the growth in ton miles. Please turn to slide nine. The product tanker ordering at shipyards has picked up after years of subdued new building activity. Currently, the order book stands at 19% of the feed. As we have pointed out earlier, new building activity has largely concentrated around the LR2 segment. Given the versatility of the LR2 feed, which can trade both clean and dirty products, the LR2 order book should be seen in connection with the dirty Afromax order book. The combined order book is currently at 17%, which is equal to the share of the combined fee being candidated to recycling. Furthermore, it's important to mention that the current order book is spread over four years, and with the increasing average delivery time, vessels ordered today will most likely not be delivered before 2028. And I'll kindly turn to the next slide, turn to slide 10. When we look further ahead in time, we now expect the potential additional ordering of the product tankers from 2028 onwards to be lower than our previous forecasts. This is predominantly due to Chinese shipyards opting to build container vessels, energy carriers, and other vessel segments where China has strategic import interests. coincides with a period where an increasing share of the feed reaches a natural scrapping age. Should a strong freight market result in less-than-expected scrapping activity, we still expect older vessels to leave the mainstream market and go into sanctioned or carbon-fired straits. Please turn to slide 11. Lastly, Behind the geopolitical factors that have reshaped refined products and trade, there is a refining industry influx. In recent years, new refining capacity has been added in net exporting regions such as the Middle East. On the other hand, a number of refineries have been closed in net importing regions, for instance, Europe and Australia. This has led to higher trade volumes and higher demand for products and goods. Beyond the already announced closures, the refinery environment remains dynamic. The risk of falling utilization rates in mature demand regions raises the likelihood of further capacity closures before the end of the decade. Here, especially Europe, stands out with older, relatively small and less complex refineries that are more open to international trade than in other regions. A new wave of refinery closures is likely to again increase trade with refined products. Now, with these comments, I conclude my part of the presentation. I'll hand it over to my colleague, Kim, who will walk us through the financials.

Thank you, Jacob. Now, please turn to slide 12 for the financial highlights. In the second quarter of the year, our time chart equivalent earnings increased to 326 million US dollars. And based on this, we achieved $251 million in EBITDA and $194 million in net profits. When we adjust for the unrealized gains on derivatives in Q2 2023, the operating result is around 30% year-on-year, up around 30% year-on-year driven by both the firm freight rate environment and the increased relative share of LR2s in our fleet. Total cheap fleet-wide TCE rates of more than 42,000 dollars per day, with LR2s close to $52,000 per day, LR1s at more than $42,000, and MRs at more than $38,000. It should be noted that spot rates were at a relatively high level in the first part of the quarter, followed by some retreating towards the end of the quarter as seasonal desofting started. Our fleet had a total of 7,749 earning days, i.e. a little higher than the 7,451 days we had in the same quarter last year. However, as previously mentioned, with LR2's accounting for a relatively higher part of the total compared to last year, we believe these are strong numbers, and altogether, they reflect a very satisfactory performance, enabling us to realize GCE rates per day that have increased by $5,700 compared to Q2 2023. Further, the results that we have produced translate into a return on invested capital of 29.5%, thus underscoring the positive environment in which we are operating. And as highlighted previously, you should expect us to maintain a stable and conservative financial leverage also in periods where we are increasing our operational leverage as we are using our shares as part of the consideration in connection with acquisitions of assets. Again, this quarter, our business is generating significant profit and cash flow, and again, we remain firmly committed to returning a significant part of our earnings to our shareholders. Slide 13, please. The chart in the upper left illustrates how vessel values have increased over the previous quarters, leading to a total value of 3.7 billion US dollars, and it has a value showing a similar progression, reflecting higher broker valuations, of the vessels, as well as an increased fleet. Also, on this slide, we show in the chart in the lower left corner, the development in our net interest-bearing debt, which now amounts to 737 million US dollars, thus 157 million US dollars lower than a year ago, as we have increased our cash position somewhat, and thereby more than offset an increase in our gross debt. Based on this, we currently stand at a net loan-to-value ratio of 20.4. However, when subtracting the declared dividend for Q2, then it would be around 25%, but continuing the quarter-by-quarter decline in financial leverage. Slide 14, please. On this slide, we have made an overview of per share development in recent quarters. The result we announced today translates into an EPS of $2.08, significantly higher than the same quarter last year. The share count has increased by 10 billion shares over the period since last year, driven by our partly share-based transactions, and is up from 84.9 to 94.9 over the same period. Based on our strong earnings, the Board of Directors has declared a Q2 2024 dividend eight dollars per share, thus offering the dividend by 30 cents per share compared to same quarter last year. And now please turn to slide 15. These slides give you the full overview of the dividend distribution and the key dates to observe. Ex-dividend date for the shares on Nasdaq Copenhagen will be on 28th August and for the shares on Nasdaq New York on 29th August, as shares are now trading T plus one in New York, but otherwise the same process as usual. And now turn to slide 16 for the outlook. Based on the satisfactory results we have published today and the coverage we have for the third quarter of 2024, we increased the low end of our guidance range with 50 million US dollars and thereby narrowing the guidance range reflecting the increased transparency on full year numbers. Thus, we expect TCE earnings for 2024 of 1.15 billion US dollars to 1.35 billion US dollars and EVDA of $850 million to $1.5 billion. The table shows that we, in the third quarter of 2024, expect to have 7,859 earning days, and as of 12 August 2024, we had faced a total of 64% of those at a fleet-wide rate of $38,340 per day. For the full year, we are now at 68% coverage at a feed-wide rate of 42,205 per day. And with this, I conclude my part of the presentation, and I will hand it back to the operator who will take care of the Q&A session. Thank you.