TORM plc

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.

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.

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