TORM plc

Thank you for standing by. My name is Angela and I will be your conference operator today. At this time, I would like to welcome everyone to the TORM first quarter 2026 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 that 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 Mr. Jacob Milgaard, CEO. You may begin.

Thank you, and welcome to everyone joining us today. We started 2026 with a very strong first quarter. delivering results that demonstrate both the earliest power of our platform and the strength of our execution in a supportive freight market. This morning we released our Q1 2026 results and we are pleased with the performance. However, before I go into the details of the quarter, I would like to take a step back and briefly talk about TORM and the foundation that underpins these results and continues to differentiate us in the market. Again, our performance was driven by a combination of strong freight rates, disciplined execution, and a one-time platform. While we remain attentive to global developments, we continue to align ourselves with market changes and believe we have a unique ability to react quickly to movements in spot prices. This is something we are often asked about. The answer is that it represents a quantifiable advantage over our peers, what we refer to as the one-term advantage. It is now embedded in the way we operate and is a capability our competitors would undoubtedly like to replicate. Importantly, this advantage is the result of a journey over many years, a journey that continues to evolve. We are able to track this across a range of performance indicators. For example, over a three-year period, our MR fleet generated TCE revenue that exceeded the peer average by approximately US$200 million, reflecting the strength and efficiency of our operating model through higher utilization, disciplined cost control, and strong commercial execution. This culture of operational excellence is supported by our centralized management platform that coordinates and accelerates our decision making. This is good news for our investors because it means we are now extremely well placed for the complex landscape ahead and we remain confident that the shifting sands of geopolitical uncertainty continue to present opportunities for us. Thus, it's no surprise to us that Tom's shares are currently in focus among the investment community as a route to unlock value from this uncertainty. And now please to slide number four. As always, I'll start with the key financial outcomes for the quarter to give you a clear picture of how the business is developing. During the first quarter, we delivered TCE of US$286 million, representing a clear continuation of the positive earnings trajectory seen over recent quarters. This was significantly higher than the same quarter last year, driven by consistently firm freight rates throughout the period, which strengthened further towards quarter end. These conditions reflect a value chain currently characterized by abnormal trade flows and structural inefficiencies, resulting in elevated margins, not only for tanker companies like us, but also for our customers who are capturing strong profitability across the trading and refining segments. That top-down performance translated into an EBITDA of US$201 million and a net profit of US$122 million, reflecting both the strength of the market environment and our ability to convert rates into earnings through disciplined commercial execution and operational leverage. Supported by the continued strength we see across our markets and the solid momentum entering the remainder of the year. We are therefore increasing our full year guidance to US dollar 1.15 to 1.45 billion, underscoring our confidence in sustaining profitable growth. Also, we continued active fleet renewal, adding younger secondhand vessels and committing further acquisitions while divesting older tonnage. After quarter end and We also agreed to acquire six MR resales with expected delivery of four in 2027 and two in 2028. These acquisitions further enhance fleet's flexibility and earnings capacity while preserving a prudent edge profile. As of quarter end, our fleet consisted of 95 vessels. Once all the beforementioned transactions are completed, the fleet will increase to 103 vessels on a fully delivered basis. Please turn to slide five. Before moving to the broader market, let me briefly address our current operating status. Safety remains our highest priority. We currently have one vessel inside the Persian Gulf, and I'm pleased to say that the crew are doing well, moral is high, and provisions are not an issue. As we will describe on this call, the market impact has been significant, tightening effective supply and contributing to the sharp increase in freight rates. Bunker prices have also moved higher, although availability remains secure. Throughout this period, our approach has been clear and unchanged. We take a safety first approach in all operating decisions. Please turn to slide seven. Following a strong close to 2025, product tanker markets entered the first quarter of 2026 with rates stabilizing at levels well above historical averages. This strength was supported by broader momentum in the crude tanker market, which benefited from record volumes of cargo on the water, as well as the return of Minnesotan exports to the compliant fleet and generally more cautious use of sanctioned vessels globally. And on top of this, The development was further supported by the consolidation of the ownership in the VOCC segment. The outbreak of the US-Israel-Iran war in late February and the subsequent closure of the Strait of Hormuz marked a further and unprecedented escalation in tanker rates. This is clearly reflected in our commercial performance with Q2 average bookings to date above US$70,000 per day across vessel sizes. Taken together, these dynamics have created one of the strongest cross-segment market environments we've seen in several years, underpinned by both structural and event-driven factors. And kindly turn to the next slide. Turn to slide eight, please. The closure of the Strait of Hormuz had an immediate and profound impact on global energy flows. Approximately 14% of global clean petroleum product volumes and around 30% of crude oil movements that would normally transit the strait were suddenly constrained. Combined, this corresponds to approximately 20% of global daily oil consumption. In scale and immediacy, this represents the largest oil supply disruption the market has ever experienced. On the clean product side, the impact was uneven. NAFTA and jet fuel were disproportionately affected reflecting the Persian Gulf's central role in global exports, accounting for 37% of global NAFTA exports and 21% of jet fuel under normal conditions. Diesel and gasoline were relatively less exposed. As the next slide will show, only a fraction of these lost volumes have been replaced so far, underscoring how structural this shock has been. Please turn to slide nine. In crude markets, part of the lost Persian Gulf supply has been mitigated through pipeline redirection from Saudi Arabia and the UAE, alongside increased flows from the Atlantic Basin. However, reduced crude availability at Asian refineries has forced meaningful run costs, which in turn has sharply reduced clean petroleum product exports from the region. By the end of April, global clean petroleum product trade was down by roughly 16%. as incremental supply from Western markets proved insufficient to offset the loss of Middle Eastern and Asian exports. Crude oil trade saw a decline of similar magnitude. Despite this contraction in traded volumes, product tender rates remained elevated. Some of this reflects longer replacement voyages and urgency premiums. But the more important explanation lies on the tonnage supply side, which I'll address on the next slide. And here, please turn to the next slide, to slide 10. The closure of the Strait of Hormuz caused significant vessel dislocation, with more than 200 crewed and product centers stranded inside the Persian Gulf. This equates to roughly 3% of the global product center fleet and 6% of the crewed fleet. As vessels were rerouted toward regions with replacement volumes, we saw higher ballast ratios and materially increased inefficiencies. In simple terms, ships spending more time sailing empty to reach their next cargo. In the MR segment, increased east to west balancing was partly offset by stronger west to east cargo flows as Asian product supply tightened. At the same time, we saw an unprecedented shift of LR2 vessels into crude trading, the so-called dirty ops. By the end of April, The number of Velotools trading clean products had fallen by more than 50 vessels compared with the start of the year, despite the delivery of 27 new buildings. As a result, effective CPP trading feed capacity declined by around 4%, even before accounting for the vessels stranded in the Gulf. Please turn to slide 11. It is, however, important to recognize that this migration of LR2s into crude trading began well before the trade war moved closer. Since 2025, the Afromax and LR2 segments have faced extensive vessel sanctioning, largely linked to Russian crude trades. In 2025 alone, more than 200 Afromax and LR2 vessels were sanctioned. This has created a growing disconnect between new building deliveries and effective fleet growth. Since the start of 2025, nominal product tanker capacity is up 8%, yet the capacity actually trading clean today is around 4% lower. The scale of sanctions is notable. One in four vessels in the combined AfroMax LR2 segment is currently under US, EU or UK sanctions. This comes on top of an already balanced order book due to the high share of older vessels. with 60% of the sanctioned fleet older than 20 years, the prospect of these ships returning to the mainstream clean market, even if sanctions were lifted, appears increasingly limited. And now turn to slide 12. Let me frame this slide with one central point. What we are facing is not a return to normal, but a structural market reset. First, on timing. The duration and persistence of the closure of the Strait of Hormuz remain uncertain, despite recent diplomatic attempts to end the conflict. Currently, tanker transits through the Strait of Hormuz remain more than 95% below the pre-conflict levels. We don't know when transit will resume, and we're not speculating on the timing. That uncertainty is real, and we are managing the business responsibly with that reality in mind. What is equally important, however, is what happens after reopening. When transits resume, the market does not simply switch back to where it was. There'll be tonnage dislocation and significant vessel repositioning as assets re-enter trade lanes that have been disrupted for extended period. That creates friction in efficiency and volatility, conditions where agile operators outperform. At the same time, depleted strategic and commercial inventories will need to be rebuilt. A multi-year process that supports sustained activity rather than a temporary outlet. The UAE's recent exit from OPEC enables higher production, which is likely to accelerate the replenishment of global oil stocks. It's also important to remember that tanker market strength was already evident before the trader promotes closure. Those fundamentals were paused, not erased. From our perspective, the key is readiness. We have deliberately built an agile business platform that allows us to react immediately. So when the trade opens, we are well positioned to benefit from the market reset. Please turn to slide 13. Now, to conclude on the market, the tanker industry today is operating in an environment shaped by an unusually large and growing number of geopolitical factors. Trade routes, cargo flows, sanctions regimes, and security considerations are all contributing to greater market inefficiency. Importantly, it's not new, but it has intensified. In 2022, the number of geopolitical variables we are navigating has increased significantly, adding friction and complexity to global energy transportation. For the industry, inefficiency translates into longer voyages, dislocated torrents and volatility. For well-positioned operators like us, it also creates opportunity, provided you have the scale, agility and discipline to navigate it effectively. And with that, I'll now hand it over to Kim. who will walk us through the numbers.

Thank you, Jacob. Now, please turn to slide 15 and let me walk you through some of the drivers behind our performance. The product anchor market entered 2026 on a strong footing, and this momentum was sustained throughout the first quarter, supporting another solid set of results for TORN. For the first quarter, we delivered TCE of US dollar 286 million, translating into EVDA of US dollar 201 million, and a net profit of US$122 million. These results reflect firm freight markets across the quarter and our continued ability to consistently capture this across the field. On a field-wide basis, average TCE was US$34,937 per day and by segment LR2 earnings exceeded US$41,000 per day MRs earned just under $33,000 per day, while LR1s came in around US$35,000 per day, i.e. up significantly compared to the freight rates we had a year ago. Our TC earnings were affected by timing issues related to IFRS 15. Under IFRS 15, we recognize freight revenue from when cargo is loaded until it is discharged, not from when the voyage is agreed and hence influenced by changes in balance patterns. It does not impact our underlying cash earnings or the economic performance of the vessels. Again, the realized earnings level highlight the continued strength of the underlying market, supported in part by very firm crude tanker rates, which again influence product tanker dynamics positively. With that overview in place, let me turn to slide 16, where we break earnings down in more detail and walk through the underlying drivers. This slide illustrates our quarterly earnings development since the first quarter of 2025, and what stands out very clearly is the step up we see in the most recent quarter. With the Q1 results we delivered, meaning uplift in earnings, continuing and accelerating the positive trajectory we have seen over recent quarters. This reflects the strengths of the freight market and confirms that the supportive market conditions are translating directly into financial performance. For the quarter, we generated TCE of 286 million dollars and EBITDA of US dollar 211 million, making this our strongest quarterly result since the second quarter of 2024. It is a clear validation of both the market environment and our ability to capitalize on it. The primary driver was firm freight rates supported by strong spillover from the food tanker sector and continued geopolitical disruptions in the Middle East, which have introduced additional inefficiencies into the market. Importantly, given the inherent operational leverage in our business model, incremental rate improvements translate efficiently into higher earnings. This sets out a solid foundation as we move through the remainder of the year. Please turn to slide 17. On this slide, we show the quarterly development net profit alongside earnings and dividends per share. Starting with earnings, net profit increased to US dollar 122 million, corresponding to earnings per share of US dollar 1.21. Returning to free cash flow generation and capital return, it is important to note that a combination of high freight rates and elevated bunker prices resulted in a net working capital increase of around US dollar 30 million during the quarter. Against this backdrop, the board has declared a dividend of US dollar 0.7 per share, equivalent to a payout ratio of 58%. This reflects the free cash flow generated after accounting for the working capital bill. Absent to this effect, the implied payout ratio would have been in the range of 80 to 85%. We believe this once again demonstrates that our capital return framework strikes the right balance remaining clear and disciplined while being firmly anchored in strong and sustainable underlying cash earnings generation. And now please turn to slide 18. As shown on this slide, broker valuations for our fleet stood at US dollar 3.6 billion at the end of the quarter. This reflects continued positive sentiment across the tanker asset market and results in an increase in our net asset value to US dollar 3.1 billion. Importantly, average broker valuations for the fleet increased by 9.7% during the first quarter, with particularly strong appreciation seen in the yellow two and yellow one segments. This development is an acceleration of what we observed the previous quarter and further underlies both the improving market backdrop and the quality of our asset base. Turning to the center chart, you can see our net interest rate of debt, which now stands at US$894 million, and this corresponds to a net loan-to-value ratio of 25.1%, keeping us comfortably within the range we have maintained for many quarters. This highlights the strength of our conservative capital structure. Maintaining stable leverage at these levels provides us with significant financial flexibility, allowing us to pursue value-accretive opportunities as we have demonstrated this quarter. while at the same time preserving balance sheet resilience through market cycles. Finally, on the right side, you see our debt maturity profile. We have US$287 million in borrowings maturing over the next 12 months, and beyond that, maturities are modest and well distributed across the subsequent years. Overall, our solid balance sheet positions us well to navigate current market conditions with confidence while preserving the ability to act decisively on attractive opportunities as they emerge. And now please turn to slide 19, where I will walk you through our outlook for 2026. Based on the strong start to the year and the earnings visibility we now have in the near term, we are upgrading our full year 2026 guidance. For the full year, we now expect TCE of US dollar 1.15 to 1.45 billion Up from our previous guidance range from US dollar 850 to 1250 million. At the same time, we upgrade our EBITDA guidance to US dollar 800 million to 1.1 billion, compared with the previous US dollar 500 to 900 million. Market conditions have reached exceptionally strong levels in the second quarter, supported by tight tonnage balance and continued trade dislocations. As a result, we have already secured 57% of our earning days in Q2 at a feed-wide average of TCE USD $71,494 per day. A significant share of this quarter is therefore fixed at very attractive rate levels, providing a high degree of near-term earnings visibility. This strong coverage gives us a very solid foundation for the year and reflects the positive traction we have seen across all data segments. Thus, this upgrade reflects two main factors. First, the strong earnings performance delivered in the first quarter, and second, the very strong coverage we have secured for the second quarter at rate levels that are unprecedented for the product anchor market. For the uncovered days, we have, as usual, used the forward derivatives market as a reference. And as always, the updated guidance remains subject to market volatility, geopolitical developments, and potential changes in trade patterns. particularly as we move into the second half of the year. That said, we believe our upgraded guidance properly reflects both the strengths of the current market backdrop and the visibility we have today. And with this, I will hand it back to the operator.