TORM plc

Thank you for standing by. My name is Rebecca and I will be your conference operator today. At this time, I would like to welcome everyone to the TORM third quarter 2025 results conference call. 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 followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would like to turn the call over to Jacob Melgaard, CEO. Please go ahead.

Yeah, thank you. And also, welcome to everyone joining us here today from me. This morning, we released our interim results for the third quarter of 2025. delivering another strong set of numbers that underscored TORM's ability to generate market-leading performance. In Q3, we continued to operate in a relatively stable market environment despite ongoing geopolitical tensions. Trade rates firmed compared to the first half of the year, driving a TCE of US$236 million above the levels achieved in the previous quarters. This, in turn, resulted in a net profit of US $78 million, enabling us to declare a dividend of 62 US cents per share, clearly reflecting how stronger earnings translate into higher shareholder returns. Also, we advanced our fleet optimization strategy with the acquisition of five vessels for 2014-built MRs and one 2010-built LR2, while divesting a 2007-built MR. We also agreed a three-year time charter for the 2009-built MR Vessel Tome Lily to a European refiner at a daily rate of US$22,234, thus above the prevailing market rate for such vintage. These transactions support our ongoing focus on maintaining a modern, high quality and commercially attractive feed. Looking ahead, while the macro environment remains dynamic and shaped by geopolitical uncertainty, market sentiment is broadly positive. We enter the final month of the year with solid momentum, supported by firm rates across all vessel segments and good visibility on our upcoming fixtures. Based on this and the coverage we have already secured, we further increase the midpoint of our guidance and narrow the range to reflect a high level of transparency on earnings with relatively few uncovered days for the remainder of 2025. As always, we remain disciplined and agile in our execution. And with that, let's turn to the key market drivers and how we are positioned for the quarters ahead. Here, please turn to slide five. And here, let's start with a snapshot of the market landscape. Power tanker rates have remained both stable and attractive across the board. While recent figures reflect the onset of refinery maintenance season in the Atlantic and the Middle East, benchmark earnings for MR and LR2 vessels continue to show resilience. This overall rate stability is supported by consistent demand and limited growth in the CPP trading fleet. Let's turn to slide six. As we've noticed for some time, the low levels of east to west trade volumes observed earlier this year were unsustainable. Indeed, in the third quarter, trade volumes increased significantly, driven by higher middle distal flows from east to west, supported by transatlantic movements. This lifted ton miles well above the level seen before the Red Sea disruption, while crude cannibalization stabilized at historically normal levels. At the start of the fourth quarter, trade flows have eased slightly, as refineries in the west and the Middle East undergo seasonal maintenance. However, as maintenance concludes, trade flows are expected to resume, further supported by refinery closures in the West, which increase the need to source products from alternative locations. Please turn to slide seven to elaborate on that. And since the start of this year, two refineries in Northwest Europe have closed, with two more scheduled to shut by end year. Together, these clauses represent 6% of the region's refining capacity, reducing local product supply and increasing reliance on imported middle distillates in an already tight market. If this supply were fully replaced by imports from the Middle East Gulf, an additional 15 to 24 LR2 equivalents per year would be required depending on whether vessels transit the Red Sea or sail around the Cape of Good Hope. To put this in perspective, this represents six to 10% of the current TPP trading LR2 fleet. Beyond Europe, two refineries on the US West Coast representing 11% of the region's capacity are expected to close within the next six months. This will likely drive increased demand for gasoline and jet fuel imports, translating into a need for more than 25 MR equivalents on a round trip basis if sourced from Asia. And here, I kindly ask you to turn to slide eight. Geopolitical developments continue to be a key market driver. Since our last quarterly call, several new measures have emerged. While the duration of these measures remain uncertain, inefficiencies caused by the red sea disruption and sanctions on Russia, continue to support the tanker market. Earlier this year, OPEC Plus began unwinding production costs, but the impact on crude tanker rates only became apparent at the end of the first quarter. We expect the positive effect of strong VLCC rates on product tankers to become more visible once the refinery maintenance season concludes. Sanctions against Russia have intensified in recent months. The EU import ban on third country petroleum products derived from Russian crude, effected January next year, is not expected to significantly affect product tanker tonne miles, as alternative sources are available at similar distances, or could slightly increase demand if imports are sourced from farther away. Meanwhile, intensified drone attacks on Russian refineries have reduced Russian clean petroleum product flows, boosting flows from the US Gulf. Recent OFAC sanctions on Rosneft and Lubecoil may further lower Russian crude export. While the direct loss of Russian barrels is limited to the sanctioned fleet, replacement barrels from other regions would provide additional demand support for the conventional crude tanker fleet in an already strong rate environment, indirectly benefiting the product tanker market. Regarding US-China reciprocal port fees, these are now off the table for another 12 months. While such measures could have added inefficiencies to the broader tanker market, TORM would have seen limited impact due to exemptions and the flexibility of our fleet. Finally, the IMO postponement of the net zero framework in October does not affect the market today, but signals that oil will continue to play a role in the maritime industry for the foreseeable future. Please turn to slide nine. Let me turn to the tonneau supply side. This year's higher nominal fleet growth has been largely absorbed by a significant shift of LR2s into dirty trades, as OFAC sanctions continue to limit the productivity of sanctioned Afromaxes. Over the past year, nearly 50 new-built LR2s have joined the feed, yet the number of LR2s trading clean has declined by around 10 vessels. As a result, total steam product tanker capacity has fallen by roughly 1%, despite a 5% increase in the nominal product tanker feed. Looking ahead, the relatively high order book for the next two to three years should be viewed in the context of an aging fleet. The average age is now at a two decade high, and the share of vessels approaching scrapping age is almost equivalent to the current order book. Furthermore, a significant portion of the older fleet remains under sanctions, which is expected to accelerate exits from the market. This is particularly evident in the combined 802 Afromax segment, where one in four vessels globally is under OFAC, EU or UK sanctions. Kindly turn to slide 10. To summarize, the key factors shaping the market this year are expected to continue into next year, including ongoing geopolitical uncertainty, the Red Sea disruption, and sanctions on Russia. In addition, higher crude output from OPEC is indirectly supporting the product anchor market. On the demand side, oil consumption remains solid and structural changes in the global refinery landscape continue to support ton mile growth. On the supply side, a wave of new build deliveries will be offset by an increasing number of scrapping candidates and reduced trading activity among sanctioned vessels, factors that will influence overall tonnage availability and market balance. I'm confident that TORM is well positioned to navigate this environment of elevated uncertainty supported by our strong capital structure, operational leverage and fully integrated platform. And with that, I'll now hand it over to Kim. who will walk us through the financials.

Thank you, Jacob. And please turn to slide 12 for an overview of the financials. In the third quarter, we generated TCE revenues of US$236 million, resulting in an EBITDA of US$152 million and a net profit of US$78 million. On a fleet-wide basis, we achieved TCE rates of US$31,012 per day and bringing it down By basic class, LR2s earned well above 38,000, LR1s around 29,500, and AMRs exceeded 28,000 US dollars per day. Compared to previous quarters, freight rates have strengthened, supported by solid market fundamentals. Once again, the rates we secured reflect our continued outperformance relative to the broader market. And now move to slide 13, please. This slide shows our quarterly revenue progression since Q3 2024. With this quarter's results, we see meaningful uptick adding to the stable freight rates and earnings of prior quarters. This further highlights the favorable market conditions we are operating in. We delivered a satisfactory result with TCE of 236 million and an EBDF 152 million, US dollar 25 million higher than previous quarter. This improvement reflects a US dollar 4,340 per day increase in feed-wide TCE rates. Given our current operational leverage, we are well-positioned to benefit from the already very attractive freight rates. Please turn to slide 14. Here we present the quality development in net profit and key share-related metrics, which closely track the trend in EBITDA. So for the third quarter, earnings per share came in at 79 US cents. Our approach to shareholder returns remains clear and consistent. We continue to distribute excess liquidity on a quarterly basis while maintaining a prudent financial buffer to protect our balance sheet. For Q3, this has resulted in a declared dividend of 62 US cents per share, representing a pay-up ratio of 78%. This aligns with our free cash flow after debt repayments and reflects both our strong earnings and our ongoing commitments to responsible capital allocation. Please turn to slide 15. As shown here, broker valuation for our fleet stood at USD 2.9 billion at quarter end. This reflects generally stable vessel values with a slightly positive sentiment amongst other factors resulting in a NAV increase of approximately USD 100 million to USD 2.4 billion. In the central chart, you will see our net interest-bearing debt now stands at USD 690 million, corresponding to around 24%, roughly the same level as the same time last year, underscoring the strength of our conservative capital structure. On the right, our debt maturity profile shows that only USD 122 million in borrowings will mature over the next 12 months, and that we will have no significant maturities until 2029. This provides us with ample financial runway and stability. As we mentioned in August, we have secured an attractive refinancing package to replace two syndicated loan facilities and our lease agreements. To date, TORM has repurchased 13 out of 22 leaseback vessels and two additional purchase options have been exercised, with one vessel expected in Q4 2025 and the other in Q1 2026. The remaining vessels are scheduled for repurchase during 2026. Altogether, our strong financial position gives us the flexibility to navigate current market conditions and pursue value creating opportunities. And now, please turn to slide 16 for the outlook. Our strong performance in the first three quarters provides a solid foundation for the remaining part of the year. As of 31st October, we have secured 55% of our Q4 earnings days at an average of TCE $30,156 per day. For the full year 2025, 89% of our earning days are fixed at an average TCE of $28,281 per day. These levels provide solid earnings visibility and reflects continued market strength across our business segments. While geopolitical volatility remains a factor, market sentiment is firm on this basis we are confident in increasing the midpoint of our tca guidance by us dollar 25 million to 900 million us dollars while further narrowing our full year guidance thus we now expect tc earnings of between 875 to 925 million us dollars compared to our previous range of 800 to 950 million us dollars Similarly, we increase the midpoint and narrow our EBITDA guidance to US dollar 540 to 590 million compared to the prior range of US dollar 475 to 625 million. This revision reflects both our secured coverage and current market expectation while acknowledging the potential for continued fluctuations. And with that, I will conclude my remarks and hand it back to the operator.

At this time, if you would like to ask a question, press star 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Frodey Markindale with Clarkson's.

OK. Thank you. Hi, guys. Hi there. Yes. Just read Tradewinds, where you talked about, you know, 2009 built MR, charted out for three years at 22,000 per day, which is like a fantastic rate given the age, right? Basically, three and a half times evened it up, as I see it. So the question is really, you know, how do you manage to pull that off? And how repeatable is it to chart out for such long duration for that type of age?

Yeah, well, thank you for noticing. I did also mention it in the remarks here. I think there are two things. One is the enable to be able to chart out the ships that are, in this case, more than 15 years of age, and then how many opportunities are there? We take the first point first, and I think the point about having an integrated platform. Really, our customers, I would argue, are not really age-focused in their dealings with us because we have a platform where all our assets are living up to the same standards if you come to human behavior, safety, etc. is exactly the same people on board a vessel that is, let's say, straight out of the yard or one that is built in 2009. And also on efficiency, you know, all the things that we do to make it a TORM vessel when we own and control it, it's the same across the fleet. So I think my point being, I don't see this as unique because our customers will look at TORM delivering the same type of service for any of our vessels. Then to your question, how many are there? I mean, this is a European refinery, A1. Will there be more? Time will tell. We are in negotiations on several of our ships on a longer duration. Clearly, with the market that we are experiencing right now, it is It is so that we are in more frequent dialogue with customers around longer term deals than what we were six months ago. But it is quite a game up that we are only going to do this if it makes financial sense. We don't need to take the cover because of, obviously, the financial strength on the balance sheet that Kim, I think, went through in detail.

Interesting. I mean, yeah, for sure. I mean, you know, 30% cash return on such a deal certainly means ship value should increase, right? Which brings me to the next question, really. It's about, you also announced before at Mars, you're buying ships, and one LR2, I guess. You also sold older ships. Just like... Broadly speaking, how's your thought process when you made those decisions? Are you looking at some type of return hurdle, cashback even, or maybe the time chart opportunities?

Yeah. Yeah, good question. I think the answer is all of the above. So we don't only look at one matrix, but of course it needs to qualify for that our internal hurdle for what we deem to be a proper IRR and also return investor capital given that we are in volatile markets and we are spot operation of course it needs to pass on on that parameter when we look at asset acquisitions but I think again I'll make the same point here so probably I'm a little repetitive but I think we are also we have the benefit of that when we make investment analysis, we are not thinking on vessel H or the vessel segment. What we are really thinking on is that it meets the return requirements, the hurdles that we have set for ourselves, because we are in a business that is volatile. So, of course, we need to have a decent return in order for us to utilize our capital against the asset. But the luxury we have because of the platform that I also described about the charter opportunities is so that I feel very comfortable that our organization can generate maximum value out of whether it's an MR built in five years of age or 10 or 15, or whether it's one of the other segments. And that, of course, offers me more investment opportunities to study and look at IRRs and ultimately return on invested capital from not only one angle, and not only one particular type of ship, because we really have the ability with our integrated platform to accommodate all of this. So obviously, coming to your point, the four, actually five vessels we've acquired, they, in our opinion, all of them individually meet the return hurdles that we have, whereas if we looked at the one that we sold, that was an asset where we could see that it was actually the NPV of that sale was better than maintaining it in our feed and operating it. It was not that we could not do it, but we had an offer that was better than what our business plan would dictate that you could get.

Interesting. Can you remind us, I guess, on how the OneTorrent platform actually works in practice, I guess, you know, the way you pull intelligence, I don't know, cargo opportunities, positioning, essentially why that translates into the higher TCE than the arguably pairs are getting.

Yeah, very happy to. So, Peggy, I think you should look a little away from the fact that we are chartering the ships and start by looking at the ships themselves, where we have an integrated a platform where we hire all of our seafarers. We can dictate which seafarers are on what ships at what time. We can, of course, dictate the quality, but also the focus area and incentivize these to work for the same thing as adjusted price, i.e. the return on invested capital at the end, because they are not motivated by a particular ownership structure inside of a ship management company, they are all integrated. So I think it starts on both the ships and it also starts with all the technicalities that we can apply on the ships. If we take over a ship, we will probably add 20 different investments that is physically changing the ships from how they are today into the type of vessels with the fuel efficiency that we would like to have. And then it's sort of the broader picture of that we see, of course, ultimately, that it is the dialogue with the customers that dictates the price. But before you get to that, there's a whole company that is working towards enabling the chartering team to get the best rates. And I think in that sense, it is different than the business models that we see in other companies where you are more of a steel owner, but where you outsource control of various functions. We actually have everything in-house. And the discipline we can create by that is that we actually have common KPIs. Everybody in the organization is driven by the same KPIs. I think that is the secret source in this. And then underneath the hood, there's of course many other things you also point to. You need to be in the right markets at the right time. You need to be really clever about how you position your feet and think forward. And of course we use tools in order to inform us about what do we believe is the best position that you can come in to maximize earning over a longer period. And I'm happy that you, we really recognize that the value of the platform is that we are delivering TCE earning Ultimately, that exceeds obvious.

Yes, exactly. Thank you, guys. That's very good. Thank you.

Again, if you would like to ask a question, press star, then the number one on your telephone keypad. And your next question comes from the line of Omar Nukta with Jefferies.

Thank you. Hey, guys. Good afternoon. Good update. Obviously, very strong figures. I just had a couple of questions, maybe just in terms of capital deployment. You bought the four MRs, the LR2. Those ships are somewhat older, but it looks like perhaps maybe they're in that sweet spot of return on investment. But just want to get a sense from you. Does this mark maybe a difference in how you're going to start deploying capital? Do you think going younger makes sense, or is this the right age profile where we are in the cycle, and I guess maybe where TORM is in its life cycle? Is this the right age to be going after at this point?

Yeah, I think coming back to the right age is the age where you get the highest return on invested capital. If we are not concerned about the age of these assets, then we would obviously not have looked that way. So yes, I think it's absolutely the right thing. Could it be that we could supplement with younger tonnage? Yes. When and if the price curve gives us the opportunity to buy the right type of assets that are younger, we will absolutely look that way also. But for now, I feel very comfortable with the choices that we have made, and then we are very open for business.

on on any potential additional 12 feet okay very good and then a second question i have is on the dividend uh looks like you you bumped the payout uh ratio from say 70 up to 78 i know it's not a meaningful change but it's noticeable uh anything you're willing to share in terms of how you think about dividends going forward from here do you want to keep it in that 70 to 78 range Do you think it's more on the higher end going forward? Anything you're willing to share?

Yeah, thank you for that question, Omar. We were asked the same question last time. You remember that? And if we go to the 520, I think we were supposed to say, yes, we'll get there. Lovely. We are there already this quarter. know that is not that's not how we have designed our you know our distribution policy it's not designed to hit a p or payout ratio it's designed to distribute free liquidity we generate throughout the quarter but of course it is correlated to our cash flow break even levels and as they go down uh and i'm just taking the network capital uh impact out of the equation but all all that being equal of course as our cash flow even decreases the ability to pay out more of course increases likewise so hopefully we will look into uh some coming quarters where we can keep it as at this level I also, I think I alluded to last time, potentially higher, but let's just call it at these levels is very satisfactory. But it is not an aim we have on a payout ratio. It is the free liquidity we're generating that we are, that is the outset of when we propose dividends to our board and then they decide from that.

Okay. Thank you. That's helpful. And then last question, just in terms of the reported interest expense was a bit higher. than the prior few quarters. And just wondering, is that an accounting treatment? Is that a timing of a coupon payment?

No, it's the refinancing. So it's the account treatment or the refinancing and the fees that are generated there. So you're just hitting a quarter where we did it.

Yeah. Okay, so it smooths out kind of back to a more normalized level in 4Q.

Definitely, we can have a talk about that, Omar, if you want some more details on that, but that's the accounting effect.

Okay, very good. Well, thanks, guys. That's it for me.

Thanks, Omar.

Again, if you would like to ask a question, press star 1 on your telephone keypad. And at this time, there are no further questions. I will now turn the call back over to Jacob for closing remarks.

Yeah, thank you, everyone, for listening to the Q3 2025 report from TORM. Have a great day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.