TORM plc

Thank you for standing by. My name is Janice and I will be your conference operator today. At this time, I would like to welcome everyone to the TORM first quarter 2025 results. All lines have been placed on mute to prevent any background noise. After the speaker remarks, we will have a question and answer session. If you would like to ask questions during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Jacob Melkart, CEO. Please go ahead.

Thank you. Thank you, Janice, and a warm welcome to everyone joining us on the call today. This morning, we released our report with the interim results for the first quarter of 2025. TORM achieved a solid result in the quarter in line with our expectations, but again, it was a quarter that has been influenced by a wide range of external factors that we need to take into consideration. The first quarter reflected a more stable market environment compared to the volatility we experienced in the latter half of last year. PCE amounted to US$214 million, thus broadly in line with the previous quarter, signaling early signs of stabilization following the declines we saw in the second half of 2024. Fleet-wide freight rates remained consistent with the levels seen in the fourth quarter, enabling us to deliver solid earnings. For the quarter, we achieved a net profit of US$63 million, demonstrating that while our income has normalized compared to the elevated levels a year ago, we continue to generate strong and sustainable results. I would also like to highlight that we successfully divested several older vessels. Despite a quiet secondhand market with buyers and sellers struggling to align on pricing, we secured the sale of three 20-year-old MR vessels during the first quarter and one 17-year-old LR2 vessel after the end of the quarter. These transactions underscore the high quality and strong maintenance standards of our fleet. Looking into the reaming part of 2025, the shipping market remains highly dynamic, with sentiment continuing to shift and new factors emerging at a faster pace. This environment presents both challenges and opportunities, and it reinforces the need for us to be agile and adapt quickly to changes. To stay ahead, we maintain a sharp focus on monitoring and analyzing new trends, ensuring that we're ready to respond swiftly to evolving conditions and can position ourselves effectively amid heightened uncertainty. As part of this approach, I will, on the following slides, walk you through some of the key issues currently on our radar. Please turn to slide five. Since the second half of last year, product tanker freight rates have lost momentum compared to the high levels seen since 2022. But the rates have nevertheless remained at levels which are still strong in historical terms. One of the main reasons behind lower rates has been the fact that the Red Sea disruption effect has not been supportive of the product tanker toll miles since the last quarter of 2024. And here, I'll return to slide six, and I can elaborate on that. While crude cannibalization has normalized, trade volumes on the routes mostly affected by the Red Sea disruption have lost momentum. By the start of this year, trade volumes from the Middle East to Europe had fallen by around 40% compared to the first three quarters of 2024. Lower trade volumes counterbalanced longer trading distances, and with this, the ton-mile impact of the Red Sea disruption has been non-existent or even negative in recent months. Since March, we have, however, seen some rebound in these trades. Nevertheless, we believe that such low trade levels are not sustainable, especially considering that European deep demand this year is supported by increased demand for marine gas from the Mediterranean emission control area, starting from this month. At the same time, three refineries in northwest Europe are closing, leading to lower local product supply. According to our calculations, Europe is about to lose around 140,000 barrels per day of combined diesel and jet fuel supply by the end of this year. If all of this were replaced by imported fuels from the Middle East, this would translate into an additional demand of 12 LR2 equivalents per year, which is a conservative estimate based on the Red Sea transit. This corresponds to around 5% of the current CPP trading LR2 fleet. At the same time, since the start of the fourth quarter last year, 24 new built LR2s have entered the fleet. while the size of the CPP trading feed has actually declined by around 20 vessels. This means that more than 40 vessels have left the clean trade and are now trading dirty instead. Please turn to slide seven. Looking a bit further ahead, the product-hanger market is expected to continue to be driven by geopolitical factors and high uncertainty. While a sustainable return of the red tea shipping in the near term is uncertain, we estimate that it could encourage trade and return the volumes lost since the end of last year. The return of lost trade volumes can potentially offset shorter trade distances, and at the same time, incentives for crude cleanups would decline. When it comes to EU sanctions against Russia, we do not foresee a quick abolishment of these, and the last month have shown that the prospects for a peace settlement remain highly uncertain. Further to this, internal disputes within OPEC Plus have resulted in a sizable production increase in May and another one in June, accelerating the timeline for unwinding voluntary production costs. With the potential to continue this trend, we expect this to have a favorable effect on the crude tanker market indirectly, supporting product tankers. Last, but definitely not least, a new layer of uncertainty stems from the current US administration's approach towards geopolitics and trade policy. Although it has caused a lot of uncertainty, the measures implemented so far are not expected to have any major direct effect on the product tanker market. However, a potential slowdown in global economic activity and consequently lower oil demand can have indirect effects on our market. On the other hand, the US administration's more tough approach towards Iran, towards Venezuela is expected to indirectly benefit product tankers via strong crude tanker markets. The much discussed US PR Section 301 port fee has currently been revised to a version which will not have any material impact on the product tanker market, as the majority of voyages will avoid the fee. Please turn to slide eight. And we also turn to the tonnage supply side. And as we pointed out earlier, the relatively high product tanker order book should be seen in combination with the fact that the average age of the fleet is the highest in two decades, with 15%, of the fleet being more than 20 years old, this will potentially offset a large part of the fleet growth in the coming years. Furthermore, we see that as vessels turn towards 20 years of age, their average utilization drops significantly compared to younger vessels. That will lead to a growing share of the fleet operating at lower utilization. In addition, a large share of especially the older fleet is sanctioned which is expected to support exits from the market. This is basically the case for the combined LR2 Afromax fleet, where a relatively large share of the fleet is under US sanctions. Finally, the ordering of new vessels has basically come to a standstill this year, with the combined capacity of LR1s, LR2s, and MRs ordered in the first quarter of this year at the lowest quarterly levels in three years. kindly turn to slide nine. To some of the market, we continue to operate in an environment characterized by high geopolitical uncertainty where the speed of change has increased significantly. While feed growth will gain pace compared to recent years, we still see favorable developments in the refinery landscape. I'm certain that TORM is well positioned to maneuver in this environment of increased uncertainty through our strong capital structure, operational leverage, and integrated platform. And now, with that, I'll hand it over to Gil, who will walk us through the financials.

Thank you, Jacob. Now, please turn to slide 11 for an overview of the financials. In the quarter, our TCE amounted to U.S. dollar 214 million, and based on this, we achieved U.S. dollar 136 million EBDA and U.S. dollar 63 million in debt profit. Fleet-wide, we averaged TCE rates of close to 27,000 per day, with LR2s close to 34,000 US dollars per day, LR1s at US dollar 25,000, and AMRs slightly below this. All these numbers are in line with the 84% coverage that we published in Carnation with our full-year results in March. Thus, freight rates have stabilized at a level compared to Q4 2024, reflecting strong underlying fundamentals. This renewed stability of the solid foundation as we move throughout the year, with our earnings remaining highly sensitive to market volatility due to our operational leverage. Based on this, TORM achieved basic earnings per share for 2.64 US cents per share, and the board has decided to declare a dividend of 40 US cents per share. We believe that our approach ensures that distributions align with actual financial performance maintaining a disciplined, transparent, and sustainable capital allocation strategy. Please turn to slide 12. On this slide, we show the quarter-by-quarter development of our TCE since the first quarter of 2024. Looking back, it is now clear how the elevated freight rates in the first half of 2024 gave way to softer conditions later in the year, impacting our overall performance. Today, freight rates have stabilized at a lower but still healthy level that supports solid financial performance. Despite ongoing geopolitical uncertainties, ton-mile demand fundamentals remain supportive, although we remain mindful that conditions can shift quickly. In this market, we generated TCE of US$214 million and EBITDA of US$136 million based on a feed-wide rate of US$26,807 per day. As a reminder, due to our operational leverage, a change of US dollar 1,000 in day freight rates would have an EPDA impact of approximately 8 million US dollars per quarter based on around 8,000 earning days. This highlights the significant earning sensitivity to freight rate movements, which remains a key consideration for our financial outlook. Likewise, on slide 13, we provide a breakdown of the quarterly development in net profit and the key share-related ratios. While the current freight rate environment has led to a sequential decline in net profit, earnings per share, and consequently dividend per share, it is important to emphasize that earnings remain at historically attractive levels. Also, our approach to shareholder returns remain firm and consistent. We continue to return excess liquidity on a quarterly basis, while safeguarding financial strength through a disciplined buffer. Our liquidity threshold is based on two components, a fixed minimum of US dollar 1.8 per vessel, and a discretionary element determined by the board, which considers capital structure, future investment needs, and overall market sentiment. For the first quarter, this disciplined approach has resulted in a declared dividend of 40 US cents per share in line with our free cash flow the net of debt repayments reflecting both our earnings performance and our continued commitment to responsible capital allocation. And now please turn to slide 14. As illustrated on the slide, following several quarters of steadily rising investment values, we saw the first correction in Q4 last year, and that trend has continued into Q1 2025. Average broker valuations for our fleet declined to US dollar 3.1 billion, down 12% compared to year end, aligning more closely with actual market transactions. The largest valuation drop has been in older vessels from 2010 to 2012, with a reduction of up to 18%, while newer tonnage has held up relatively well, showing only single-digit declines. Turning to the center charge, our net interest-bearing debt now stands at US dollar 832 million, which with a stable net loan to value of 27% before distribution of dividends for Q4 2024. This is consistent with year-end and underscoring the strength of our conservative capital structure. On the right, you will find our debt maturity profile. So over the next 12 months, we only have US dollar 162 million in borrowings maturing equal to 13% of the total, plus US dollar 14 million in committed scrubber installations Beyond that, our obligations remain manageable with no major maturities until mid-2029. Altogether, our solid financial foundation gives us flexibility to navigate current market conditions and to pursue value-creating opportunities as they arise. And now please turn to slide 15 for the outlook. Our performance in the first quarter puts us on a solid path to achieving our full-year guidance. Also, based on our rates and coverage as of 5 May 2025, we have fixed a total of 57 of our earning days at US$28,026 per day in the second quarter across the field. Likewise, for the full year 2025, we have now fixed a total of 43% of our earning days at US$27,829 per day. That said, we continue to operate in a volatile geopolitical environment, and we recognize that actual results may deviate depending on how key events unfold. Nevertheless, we are comfortable in narrowing the guidance range compared to the guidance provided to the markets two months ago. Thus, we forecast full year TCE earnings in the range of US dollar 700 to 900 million compared to the previous guidance of US dollar 650 to 950 million. Likewise, we narrow the range for our expected EBITDA to US dollar 400 to 600 million compared to the previous guidance of US dollar 350 to 650 million. This outlook incorporates an expected year-over-year decline in trade rates aligned with both current spot rates and the forward market trends. And with this, I conclude my remarks and hand it back to the operator.