logo

TORM plc

Q22025

8/14/2025

speaker
Operator
Conference Operator

ORM second quarter 2025 conference call. All lines have been placed on mute to prevent 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 followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the conference over to Jacob Meldgaard, CEO. You may begin.

speaker
Jacob Meldgaard
Chief Executive Officer

Thank you very much, and a warm welcome here to everyone joining us on TORM's Q2 2025 conference call. Earlier this morning, we did release our interim results for the second quarter of 2025, and I'm pleased that, again, we can report market-leading performance. In the quarter, we witnessed a continuation of the more stable operating environment established in the first quarter offering a clear contrast to the freight rate volatility seen in the latter part of last year. Our TCE came in at 208 million US dollars, broadly consistent with both the last quarter of 2024 and the first quarter of 2025. This translated into a net profit of US dollar 59 million, leading to another quarter with attractive dividend distribution of 40 US cents per share. We also advanced our fleet optimization strategy by divesting one LR2 vessel and two MR vessels, all built in 2008. This aligns with our ongoing approach of phasing out older tonnage to maintain a modern, high-quality, and commercially attractive fleet. These well-placed transactions underscore the strong condition and upkeep of our vessels and do reinforce our commitment to operating an efficient and competitive platform. Looking ahead, the macro environment continues to be fast moving and marked by geopolitical uncertainty, but market sentiment remains broadly positive. We have entered the third quarter with strong momentum, supported by firming rates across our vessel segments and an encouraging degree of visibility into our upcoming fixtures. Despite the external challenges, both the underlying for the menthols and the forward curve for freight rates, they remain positive. Based on this and the rates we have already secured, we have raised our full year guidance to affect a stronger earnings outlook for the remainder of this year. As always, we remain vigilant and agile, and with that, let us turn to the key drivers shaping the market and our positioning going forward. Please turn to slide number five. Let me just go into, first, it's a snapshot of the market landscape, and product tanker rates have remained both stable and attractive across the board. And here, as illustrated in this graph, benchmark earnings for MR and LR2 vessels, they show resilience, and with recent figures reflecting a healthy uptick. This stability is underpinned by increased trade flows and the limited net growth in CPP trading fleet. And here, please turn to slide 6, Alp, elaborate on that. Trade volumes have surged recently. They reached a 16-month high at the start of Q3. This growth has been driven by increased east-to-west middle distal flows, and for the past two quarters, we've been pointing out that low trade volumes on this route have not been sustainable. With inventories in northwest Europe falling into the lower end of the 5-day range, We have recently seen a surge in East to West Middle Distance Trades, further supported by strong exports from the United States. This has lifted ton miles again to levels well above what we saw before the Red Sea Disruption. At the same time, crude cannibalization has normalized more at the historical levels. Looking further ahead, the product tanker market is expected to continue to be driven by geopolitical factors, high uncertainty, but we expect market fundamentals to continue to support trade flows and vessel utilization. And please turn to slide seven. Since the start of this year, two refineries in Northwest Europe have closed, with two more expected to close by the end of the year. These closures combined correspond to 6% of the region's refining capacity, leading to a lower local product supply and increased need for imported middle distillers in an environment where product supply is already tight. According to our calculations, if all this supply were replaced by imported diesel and jet from the Middle East Gulf, This would translate into an additional demand of 15 to 24 LR2 equivalents per year, depending on whether vessels transit directly or sail around the Cape of Good Hope. To put it into perspective, this corresponds to 6 to 10% of the current TPP trading LR2 fleet. Refinery closes are not limited to Europe. In less than one year from now, two refineries with a combined 11% of the region's capacity will close on the US West Coast. This we expect to lead to increased need for gasoline and jet imports, which according to our calculations will translate into an additional demand of more than 25 MR equivalents on a round trip basis if they all come from Asia. Please turn to slide eight. Geopolitical developments remain a key driver in the market. in its latest sanctions package against Russia, the EU introduced a ban on third country petroleum products obtained from Russian crude oil from January next year, which mainly affects diesel imports from India and Turkey. We do not expect any significant effect on ton miles from this with alternative sources available from the same distance, but there will be a slight positive impact if imports are replaced by supplies from further away. While it is still unclear whether President Trump's threat of additional tariffs on India will force Indian refineries to shift away from Russian crude, potential reshuffling of crude flows with China taking more Russian oil and India more Middle East or Western oil is likely to be positive for larger crude tankers, while negative for the Afromax segment. Nevertheless, we expect the demand laws for Afromaxis to be offset by a substantial share of sanctioned Afromaxis not returning to the mainstream trades. Clearly, it is highly uncertain what the US administration's next move vis-a-vis Russia is, but we do not foresee any reversal of EU sanctions anytime soon. Please turn to slide nine. And let's take a look at 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. In addition, a large share of especially older fleet is sanctioned, which is expected to support exits from the market. This is especially the case for the combined LR2 Afromax fleet, where every fourth vessel in the global feed is under either OFAC, EU, or UK sanctions. It is especially the OFAC sanctions that had a strong impact on feed utilization, with our data showing that ton mile on vessels sanctioned since January has declined by 75%. Lower utilization on sanctioned Afromaxis has incentivized LR2s to move to dirtiest rates, as a result of which we've seen a 2% decline in the CPP trading fleet over the past 12 months. This is while the nominal product tanker fleet has grown by 4% driven by new building deliveries. Please turn to slide 10. Looking ahead, several factors will continue to shape the product tanker market, including ongoing geopolitical uncertainty, additional EU sanctions against Russia, evolving U.S. trade policy, and continuing red sea disruption. In addition, returning crude output from OPEC is indirectly supporting our market. On the demand side, oil consumption remains robust, and changes in the refinery landscape are increasing ton miles. On the supply side, increased new build deliveries need to be seen in combination with the increasing number of scrapping candidates, alongside reduced trading on the sanction fleet. This will influence TORM's availability and market balance. I'm certain that TORM is well positioned to maneuver in this environment through our conservative capital structure, the operational leverage, and the integrated platform. So with that, I'll hand it over to you, Kevin, who you will walk us through the financials.

speaker
Kim Fejfer
Chief Financial Officer

Thank you, Jacob. Now, please turn to slide 12 for an overview of the financials. In the second quarter, our TCE amounted to US$208 million, and based on this, we achieved US$127 million in EBITDA and US$59 million in net profit. Field-wide, we averaged TCE rates of US$26,772 per day, with LR2s above US$35,000, LR1s slightly above US$27,000, and AMRs around US$23,000. Thus, trade rates during the quarter remain broadly in line with the previous two quarters, underpinned by solid market fundamentals. This stability provides a strong base as we progress through the year, with our earnings continuing to reflect performance well above market rates. And now, please move to slide 13, please. This slide illustrates our revenue progression quarter by quarter since Q2 2024. With this quarter's results, we now mark three consecutive quarters with stable freight rates and earnings, highlighting a period of sustained performance in consistent market conditions. Despite continued geopolitical uncertainty, underlying ton-mile demand remains solid, though we stay alert to how quickly market dynamics can evolve. Against this backdrop, we deliver a satisfying result generating CCE of US dollar 208 million, and EBDA of US dollar 127 million based on a fleet wide range rate of US dollar 26,672 per day. Adjusting for gain on sold versus EBDA amounted to US dollar 122 million, thus at par with the US dollar 126 million realized in the previous quarter. With our current operational leverage, we are well positioned to benefit from any future improvement in freight rates. So for every $1,000 increase in daily rates, our quality EBDA could rise by approximately US dollar 8 million based on around 8,000 earning days, highlighting the meaningful earning upside should the market strengthen further. Slide 14, please. Here, we show the quality development in net profit and key share-related ratios, which closely follow the trend in EBDA. As a result, earnings per share for the second quarter amounted to 60 US cents. Our approach to shareholder return remains clear and consistent. We continue to distribute excess liquidity on a quarterly basis while maintaining a disciplined financial buffer to safeguard our balance sheet. So for the second quarter, this approach has led to a declared dividend of 40 US cents per share, representing a payout ratio of 67%. This aligns with our free cash flow after debt repayments and reflects both our solid earnings performance and our ongoing commitment to responsible capital allocation. And now, please turn to slide 15. As illustrated on this slide, following several quarters of steadily rising vessel values, broker valuations for our fleet were at US dollar 2.9 billion at the end of the quarter, reflecting both lower vessel valuation as well as our described divestment of vessels. Although vessel values were down around 7% across the fleet, then it is worth noticing that this number is heavily influenced by older tonnage from 2010 to 2012, while newer tonnage has held up relatively well, showing only low single-digit declines. Turning to the center chart, our net interest-bearing debt now stands at US$767 million, with a stable net loan-to-value of 27%, consistent with the levels prevailing for the last couple of quarters and underscoring the strength of our conservative capital structure. So on the right side of the slide, you can see our debt maturity profile. And over the next 12 months, we only have US dollar 157 million in borrowing maturing, just around 14% of our total debt. and we face no significant maturities until 2029, giving us ample runaway and financial stability. But to further strengthen our capital structure, TORM has secured commitments for up to 857 million US dollars on the most attractive refinancing terms in our history. This refinancing package covers two existing syndicated loan facilities and our lease agreements. The new structure will be divided between term loans and revolving credit facilities, enhancing our liquidity and giving us greater financial flexibility. Thus, the package also extends the maturity profile with the new financing running into 2030. Our loan facilities are expected to be refinanced in Q3 2025, while the lease agreements will be refinanced on a rolling basis as buyback options are exercised. with final completion expected before Q2 2026. 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 16 for the outlook. A strong performance in the first half of the year August 4th, we have secured 56% of our earnings days in the third quarter at an average of TCE of 30,617 per day across the feed. For the full year 2025, we have fixed 66 of our earning days at an average TCE of US dollar 27,833 per day. These levels provide us with solid earnings visibility and reflect continued market strength across our business segments. While geopolitical volatility remains a factor, we are seeing improved sentiment in the market environment. And on that basis, we are confident in both increasing and narrowing our full year guidance range. We now forecast TCE earnings of US dollar 800 to 950 million compared to our previous guidance of US dollar 700 to 900 million. And similarly, we raise our expectations for EBITDA the year to us dollar 475 to 625 million up from 400 to 600 million us dollar previously this revision reflects our secured coverage and the future market expectations while acknowledging the potential for continued fluctuations overall we remain well positioned to never to deliver strong results in 2025 so with this i will conclude my remarks and hand over the mic to the operator

speaker
Operator
Conference Operator

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of John Chappelle with Evercore ISI. You may go ahead.

speaker
John Chappelle
Analyst, Evercore ISI

Thank you. Good afternoon. Jacob, on page 13, the TCE, fleet-wide TCE chart, the consistency over the last three quarters is really noticeable, especially for an industry that's notoriously volatile, and especially given all the geopolitics and macro uncertainty that you mentioned in your prepared remarks. What do you think has caused this consistency over the last nine months or so, and does that restrict you at all with the things that you could do with TORM, whether it's positioning vessels or S&P activity or charter in, charter out? Does it kind of restrict some of your flexibility?

speaker
Jacob Meldgaard
Chief Executive Officer

Well, that's a good question. I think I agree with the fact that it is really a remarkable stability that we've seen, I would say, let's say, over the last three quarters predominantly. But it really doesn't restrict us. I always see these markets as that we need to establish, I want to say, a clear view on where is the market kind of headed and what range we are in. And I think we've been range-bound for some time here. And I think that, as also in my prepared remarks, that I think that we're illustrating that I think there is some option of that things could change. The dynamic could change to the upside. Of course, if we look at, for instance, additional oil coming to market, the fact that trade routes will, everything has been equal, still remain stretched, and there's further closure of refineries in the parts of the world where we already have a need for import. I think that sort of the the headwinds that we've seen, which have sort of put a cap on the market, could in the coming quarters change the dynamics so that we have more tailwind. So I see it more from that perspective, that this is really a solid foundation for creating more upside potential as the oil markets also will change their dynamics change in sort of turning on the tips. Okay.

speaker
John Chappelle
Analyst, Evercore ISI

Thank you. And then just to follow up, Kim, I think it needs to be asked. I understand you have a calculation for your dividend policy. The payout ratio thus far this year has been lower than it was last year. Now that you've completed this tremendous financing process, Do you think that the calculation, if we kind of look beyond the leases, maybe fourth quarter or first quarter next year, becomes a bit more favorable in the magnitude of payout ratio?

speaker
Kim Fejfer
Chief Financial Officer

Yes, I do. That is our expectation. So our expectation is that when we look into 2026, for several reasons, our cash flow per given will decrease. Notable. And with that, you will also, you should expect, of course, it depends on where we are in the markets, but you should expect the payout ratio to, or the dividends to be higher, but the payout ratio also to in itself be higher. Yeah, I would expect, we would expect that.

speaker
John Chappelle
Analyst, Evercore ISI

Do you have any sense on what the magnitude is? Is it kind of 75 to 80 again, similar to what it was in 24?

speaker
Kim Fejfer
Chief Financial Officer

Yeah. Good question, but probably yes. I would imagine that now I'm going out on a little limb here because I don't have it calculated for this meeting, John, but I would expect that 75-8 would be a fine place to be.

speaker
John Chappelle
Analyst, Evercore ISI

Okay, great. Thanks, Kim. Thanks, Jacob. Yeah, thanks. Thanks, John.

speaker
Operator
Conference Operator

Your next question comes from the line of Omar Nolte with Jefferies. You may go ahead.

speaker
Omar Nolte
Analyst, Jefferies

Thank you. Hi, Jacob and Kim. Thanks for the update. Yeah, nice to hear the thoughts of lower break even and a potential higher payout ratio as we look at the next year. I wanted to maybe just ask about kind of what we're seeing here in the third quarter. Obviously, some pretty good guidance in terms of your bookings, but especially on the MRs where you're showing 28,000, which is quite a bit above kind of peers, but also what you have been capturing the prior few quarters. which is interesting because the LR2s and LR1s are kind of flattish to slightly higher, but it's really the MRs that have gone up. Can you maybe just talk about what's driving that upside and what can we expect from here for the rest of the year, to the extent you can say?

speaker
Jacob Meldgaard
Chief Executive Officer

Yeah, so I think on a granular basis, what I've been thinking about, and I think it's the right question, is, okay, what has been driving this? And really, as we look at the data points, the fact that CPP on the water now has, going into the third quarter, gone up to the highest that we've seen for more than a year, is significant in combination with that if we go back exactly 12 months, I think we were all sort of a bit puzzled by the fact that crew tankers predominantly Suez, but also some VLC, were really turning their attention to the CPP market, taking away demand for about 8% or so. And now we are back to 1% of the trading Suez and VLC being in our market. So I think the combination of that, really, you've seen a trading uptick sort of in general, you see the cannibalization, at least for now, having more or less evaporated from a very high, historically unusual high level. And that really just trickles down more into the MRs because you only have that many LR2s trading, as I alluded to. It is a little fascinating that I think we have all been following the order book of LR2s, watching it and thinking, okay, that seems to be quite a hefty order book. But the fact is actually that even, I think numbers will say that there's 50 vessels that have been delivered over the last three quarters or so, the trading fleet of La Trousse is the same, sort of in broad strokes. So I think it's just this filtering down into that there's just been more trade at a granular basis in the EMRs, and that we've also then been assisted by the Fed in the larger segments that TPP has simply not been moving on our sister vessels or the sister segment to the extent that it was. So it's been very, I think the fact that it is so widespread demand is extremely positive because I think it demonstrates a very solid market when you see that. It's not like, I don't understand what it's like that we should count it. Okay, how many cargoes are there of NASA out of the AGE to Asia? I mean, that will not tell you the dynamic and the strength of the market. It is actually a lot of pockets of strength. And that's what in aggregate leads us to that we've got more CPP on the water now than at any point in time over the last 16 months. And it's really that underlying strength that translates into the MR rates that you've seen.

speaker
Omar Nolte
Analyst, Jefferies

Thanks, Jacob. That's very helpful to get a good lay of the land there. And so I guess maybe just with that backdrop, a lot more cargo in the water, less cannibalization, so the fleet in general is seemingly tighter. You talked in the presentation just about values having been softer. You're obviously very transaction-oriented with the acquisitions and the sales. What are you seeing right now in terms of the S&P market? Are values finding a floor? Is there any potential for them to rise just given this improvement in rates? Any color you're able to share on that front?

speaker
Jacob Meldgaard
Chief Executive Officer

Yeah, I think it's a very good question. Our thinking is that in these markets, the first thing to observe is obviously if spot rates drop, they can, as we all understand, following the volatility and trend over the last three years, you know, flood rates are very volatile, and they can change, you know, really fast. And that's what they actually did over the last year, is that they kind of, also from the slide that was referenced before on the EBITDA, it seems as if actually rates have been stable over at least three quarters, whereas asset prices have been slowly coming down. And I think this is a little like you would expect also in, let's say, a real estate market. It's rare that you certainly get that everybody puts the price down of their asset at the same time. It takes a little time to get the clearance prices. And I think we've reached, in our opinion, we're at that flexion point where rates have stabilized for a longer period. it has meant that asset prices have also been creeping down, but that right now, if we sort of take a snapshot, I would argue that they're probably stabilizing around the prices that we've seen also reflected in our Q2, in the Q2 numbers, and that now it remains to be seen what happens over the course of this quarter and the next quarter. And I think that there is potential if freight rates they start to climb up in a general sense that asset prices could either stay or go up from where they are now. That would be the logical.

speaker
Omar Nolte
Analyst, Jefferies

Okay, very interesting. Thank you, Jacob, again for that. I'll turn it back. Yeah, thanks.

speaker
Operator
Conference Operator

Again, if you would like to ask a question, press star 1 on your telephone keypad. Your next question comes from the line of Srodi Moreto with Clarkson Securities. You may go ahead.

speaker
Srodi Moreto
Analyst, Clarkson Securities

Thank you. Hi, guys. This is Soda. Just looking at this slide you provided on page five or six, I think, on the CPP, some miles, it sounded like it was trade volumes driving that up. So the question is really, have you seen any change to the miles component? I feel like a lot of the It has been more like a regionalized trade for a while, and we've basically been waiting for, let's say, the interbasin trade to pick up on the LR2s, right? So are you seeing any change there?

speaker
Jacob Meldgaard
Chief Executive Officer

Yeah. So, yes, trade volumes is trading exactly as we say on slide number six, I believe it is, has gone up a ton, a mile on this. is reflected also in the fact that the incentive to bring middle distillates from especially the Middle East and the hemisphere into the West has also increased in this period. So it means that everything has been equal, will both have an effect on volume, but also on the distances sailed. So it is a combination of both. because of the restock, you could say, of middle distillers into the inventories in Northwest Europe. I think we were, if you followed our last couple of calls, I think we have been a little puzzled that sort of from a strategic point of view, that the suppliers of middle distillers were not to a larger degree still maintaining their inventories at higher levels But towards the end of the second quarter, it was then clear that now you could no longer just eat out of inventory and that you needed to replenish. And that was done predominantly from Middle East and also US Gulf, but also Middle East, driving up volumes and miles.

speaker
Srodi Moreto
Analyst, Clarkson Securities

Great. And then on the next slide, which was also great, the refinery closures, right? Can you talk a bit more? Maybe you said it already, but what's the timeline here? When can we expect this positive effect to kick in?

speaker
Jacob Meldgaard
Chief Executive Officer

Yeah, so we believe that at the end of 2025 already, so within this year, we will see the European refiners be closing down. So they have been, I would say, moving along at a slow pace, but the decision has been made for them to finally close business and allow longer viable. So that will already be from the end of this year, whereas in the U.S. West Coast, as I mentioned, that will be in about a year time from now. This one is middle of next year.

speaker
Clement Mullins
Analyst, Value Investors Edge

Yeah, next year.

speaker
Jacob Meldgaard
Chief Executive Officer

But the greater picture around that, if I just may add a little comment, is that obviously that from a political standpoint, it is the ambition to close the local refineries down in, for instance, Western Europe and also U.S. West Coast. But it has just proven that those actions have sort of accelerated compared to how fast the transition on the demand for exactly the product that they're producing is. So it may be that the consumption, let's say, on the U.S. West Coast is slowly going down, but the pace of closures is much faster than that And that means that we will be called upon in the broader market to carry more cargoes, actually. Yeah, indeed.

speaker
Srodi Moreto
Analyst, Clarkson Securities

I guess my final question is on this Russian price cap change. Specifically, I guess, I mean, there's a lot of LR2s that are trading into dirty trades, right? which has been positive, but then when the EU lowers the price cap, you might see FOMXs that are trading legally Russian crude today, will lose that compliance and then they have to move out of that trade and into the conventional market, which would put downward pressure on FOMX crude rates probably. see that as a threat to that switching for other Jews or not?

speaker
Jacob Meldgaard
Chief Executive Officer

Yeah, I think that it is clearly the jury's out on the real effect of this. I think that the fact that these vessels, especially if you look at the type of vessels that have been sanctioned, which in many cases also would be the vessels that you point to, whether they can easily, both from sort of a commercial point of view, be accepted back in the traits that we operate in as number one, and whether they are also actually maintained in that is what I would probably argue that on the margin, a lot of vessels will not easily come back. And I think quite a lot of vessels are actually not maintained to a standard where it makes sense for them to sort of be retrofitted into the standard of our type of customers. So obviously the jury's out, but it does seem to me as if when investments have been made by people into the gray fleet or the dark fleet and that they then subsequently get sanctioned, they are not looking for a long-term investment. They're looking for the short-term gains of being in a trade that few people want to touch. And sort of the operating earning is what they're looking at. It's not the maintenance of the vessel. That is the main focus. So the jury's out. I think that it could be negative as you point to for mid-sized vessels and more positive for VLCCs as this trade goes on, but most likely there is quite a part of this, let's say, crude trading LR2 slash Afromaxis of older vintage already sanctioned that will have a hard time coming back either for sort of commercial reasons or for because of after a period of time that they have substandards.

speaker
Srodi Moreto
Analyst, Clarkson Securities

Okay. All right. Thank you, guys. Thanks. Thanks for those good questions.

speaker
Operator
Conference Operator

Your final question comes from the line of Clement Mullins with Value Investors Edge. You may go ahead.

speaker
Clement Mullins
Analyst, Value Investors Edge

Hi. Good afternoon, and thank you for taking my questions. I wanted to start by following up on John's question on the cash break even. Could you talk a bit about the average margin on the single and leasebacks you're buying back relative to the margin on the new financing facilities?

speaker
Kim Fejfer
Chief Financial Officer

I think you can actually find this in our 20F. I would recommend you take the recent 20F where you can find the full overview of our leasing arrangement. The reason why I'm saying that it is a split on the specific arrangements. And of course, it's not of course, but it is a fixed rate there. So the comparison here is when you then look into the syndicated facilities we've made, that will also be published. We've not published it, what the rate is. It will also be visible in our upcoming 20th for 2025, but it is notably lower than what you can see that we have in our current syndicated facilities. that are around 1.85, 1.9. So it's significantly lower than that.

speaker
Clement Mullins
Analyst, Value Investors Edge

Makes sense. Thanks for the color. And you sold the 2008 build, Torn Discoverer and the Torn Voyager. Could you disclose the selling price for modeling purposes?

speaker
Kim Fejfer
Chief Financial Officer

We have agreed not to disclose the prices for those versions with the buyer of them. But we will not do that.

speaker
Clement Mullins
Analyst, Value Investors Edge

All right. I had to try.

speaker
Kim Fejfer
Chief Financial Officer

Thank you for taking my question. That's fair. Of course. Any more questions?

speaker
Operator
Conference Operator

That concludes today's question and answer session. I would now like to turn the call back over to Jacob Mildgaard for closing remarks. You may go ahead.

speaker
Jacob Meldgaard
Chief Executive Officer

Thank you very much. I just want to say thanks to all of you for being interested in SOMA and for listening in today. Have a great day. Thank you.

speaker
Operator
Conference Operator

This concludes today's conference call. You may disconnect.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

-

-