TORM plc

Good morning and thank you for standing by. My name is Jeannie and I will be your conference operator today. At this time, I would like to welcome everyone to the TORM second quarter 2026 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 one again. Thank you. I would now like to turn the conference over to Jacob Meldgaard, CEO. You may begin.

Well, thank you and welcome to everyone joining us today. We are pleased to report a record second quarter reflecting both exceptionally strong market condition and the strength of the platform we have built over many years. Before turning to the quarter itself, I would like to briefly revisit what continues To differentiate TORM and creates value for our shareholders across market cycles. At the core is what we call the One TORM Advantage. This is our integrated operating model where commercial, technical and operational decisions are aligned across the organization. It allows us to react quickly to changing market conditions, optimize fleet deployment, and consistently capture opportunities as they emerge. Our culture is equally important. Through a unified organization and centralized decision-making process, we are able to execute faster and more effectively than many of our peers. This alignment creates accountability, improves utilization and supports disciplined cost management throughout the business. The results are measurable. Over the period from 2023 through 2025, our MR fleet generated more than $200 million of additional TCE earnings compared to the peer average. This demonstrates the strength of our commercial platform and our ability to consistently create value across different market environments. At the same time, We remain committed to active fleet renewal and disciplined capital allocation. Recent investments in resale and new building vessels demonstrate our confidence in the long-term fundamentals of the product tanker market while helping ensure that TORM maintains a modern and efficient fleet. Our approach to fleet growth has always been driven by value creation and Customer Needs. Over recent years, we have primarily expanded through vessels already on the water, but the relative economics have evolved. With secondhand vessel prices continuing to increase, we now see attractive opportunities in new buildings. As a result, we have established a phased pipeline of resale and new building deliveries from 2027 through This ensures that we continue to renew our feet, maintain a modern offering for our customers, and secure future earnings capacity in a disciplined manner. Importantly, these initiatives have not come at the expense of shareholder returns. Our approach remains to balance growth and investment with attractive cash distributions ensuring that shareholders benefit from both today's earnings and tomorrow's value creation. Please turn to slide four. The second quarter was the strongest in TORM's history, driven by exceptionally strong freight markets following heightened geopolitical tensions in the Middle East and the resulting disruption to global oil trade flows. During the quarter, We generated CTE earnings of USD 512 million more than doubling the level achieved in the same period last year. The market benefited from significant inefficiencies created by disruptions around the Strait of Hormuz, which supported freight rates across all vessel classes. This translated into EBITDA of USD 416 million and net profit of USD 338 million, highlighting Both the strength of the market and the operating leverage embedded in the OneTORM platform. Reflecting the continued strength in freight markets and the visibility provided by our contract coverage, we are also increasing our full year guidance. Thus, we now expect to generate the highest annual TCE earnings in TORM's history, surpassing all previous years and underscoring the exceptional market conditions currently supporting the product tanker sector. Reflecting these results, our board has approved an interim dividend of USD 2.4 per share corresponding to a total distribution of USD 246 million. Fleet renewal also remained a key priority during the quarter. Our fleet stood at 97 vessels at quarter end and we further strengthened our growth pipeline Thank you very much. for product owners with scale, flexibility, and strong execution capabilities. And here, kindly turn to the next slide, to slide five. And the key element of TORM's strategy is maintaining a balanced approach to capital allocation. While we are committed to growing organically and renewing the business, it has been equally important to ensure that shareholders directly benefit from the strong earnings generated by the company. Since 2023, we have distributed USD 16.1 per share in dividends, returning a significant share of our earnings to shareholders. In total, this amounts to USD 1.5 billion, representing a very significant sum of money relative to the total market capitalization of TORM. This reflects our philosophy that value generation and creation should translate into tangible cash returns, allowing investors to participate directly in the strong cash generation of the business. At the same time, we have continued to invest in the platform. Over the same period, we have expanded the fleet from 78 vessels at the end of 2022 to 97 vessels today, increasing our earnings capacity while also renewing the fleet profiles. This balance is important. Shipping remains a cyclical industry, and our objective is not only to maximize returns today, but also to ensure that TORM continues to have a modern and competitive fleet in the years ahead. By maintaining a pipeline of vessel acquisitions and new building deliveries extending through 2029, we position ourselves to participate fully in future market opportunities. We believe This approach creates long-term shareholder value. It allows us to distribute meaningful cash today while ensuring that we continue to have vessels on the water here and now as well in the years ahead, particularly during periods when market conditions are exceptionally attractive. Importantly, the pipeline of vessel acquisitions and new building deliveries will also gradually replace older vessels that over time Recent age web divestment becomes the most attractive option. As illustrated in the appendix on slide 27, the delivery profile through 2029 and potentially 2030 supports a continuous renewal of the fleet while preserving earnings capacity and maintaining a modern fleet for our customers. In short, our strategy is to keep high operational leverage, renew the fleet, maintain financial discipline, and returned excess cash to shareholders. And now please turn to slide number seven. The product anchor market remains exceptionally strong. Recent Middle East tensions have further tightened what was already a fundamentally robust market. Disruptions to key trade routes had increased voyage distances and reduced effective fleet availability directly supporting freightways. This is reflected in our commercial performance, where average earnings in the second quarter exceeded USD 59,000 per day, while third quarter bookings secured to date averaged USD 38,600 per day across vessel classes. It is also worth highlighting the historical perspective shown on this slide. Market conditions were already robust prior to the latest geopolitical developments. Limited effective feed growth and sanctions had already created a favorable supply-demand balance. The five-year average earnings levels for both MRs and LO2s show that product hangers have generated solid returns under changing market conditions. The wide gap between historical highs and lows illustrates the significant volatility inherent in our industry, with freight rates sometimes moving sharply From one month to the next. What we are experiencing today is a market operating well above historical averages, supported by geopolitical disruptions and structural inefficiencies. At the same time, the volatility shown by the historical ranges reinforces the importance of maintaining a flexible commercial platform that can respond quickly to changing market conditions and capture opportunities as they emerge. And now, please turn to slide eight. Despite major disruptions to global oil flows, the product anchor market has remained highly resilient. While the closure of the Strait of Hormuz reduced oil volumes, the loss was more than offset by longer haul movements and extensive trade rerouting. Fewer barrels moved, but they traveled significantly further. Following the temporary ceasefire, oil flows improved from roughly 17% below pre-conflict levels in April and May to around 10% below by July, demonstrating how quickly global energy markets adapt. However, renewed hostilities are again disrupting trade. Rising tensions around the Strait of Hormuz and Houthi naval blockade against Saudi Arabia Thank you very much. was absorbed through increased pipeline exports from Saudi Arabia and the UAE, as well as higher exports from the Atlantic Basin. Nevertheless, lower crude availability in Asia reduced refinery runs and clean product exports from the region. Since then, rerouting, inventory releases, and the seaside period have stabilized trade flows. What is particularly interesting is how Gulf producers have adapted. The UAE and others are increasingly using dedicated shuttle operations and ship-to-ship transfers to sustain exports. Today, more than 30 VLCCs and around 14 LR2s are engaged in these activities. To restore pre-closure export volumes entirely, these shuttle operations could require 2-3 times more VLCCs and over 3 times more LR2s than currently employed. Even before reaching that level, every additional vessel tied up in shuttle trades reduces effective market supply and creates incremental support for freight rates. Please turn to slide 10. The latest escalation around the freight overmoves combined with the continued Red Sea disruptions is driving another round of freight rerouting. Cargoes that previously moved on direct Routes are increasingly being diverted through the Suez Canal and around the Cape of Good Hope. In some cases, these changes add weeks to voyage duration. We have experienced this firsthand. In July, our LR-1 vessel TORM Innovation was fixed to load in Jandu for discharge in Asia. The original routing was through BAP in Mandet. Following renewed security concerns, the voyage was redirected via Suez and around Cape of Good Hope under the terms of the Charter Party. The result was an extension of more than 30 days. A single voyage extension of more than 30 days effectively removes a vessel from the market for an additional month. When this is replicated across the industry, the impact on effective supply becomes significant. This serves as a practical example of how geopolitical events translate directly and to increase ton-mile demand and kiter vessel supply. Please turn to slide 11. And let's now look in more detail in supply. While vessels trapped in the Persian Gulf were gradually released during the ceasefire, another and potentially more important trend has emerged. A record number of LR2 vessels have shifted from clean product transportation into crude transportation A process known in the industry as dirty up. By the end of July, approximately 70 fewer LR2s were available for CPP transportation than at the start of the year. As a result, effective CPP capacity overall has declined by roughly 5%, despite nominal feed growth of a similar magnitude. In other words, headline feed growth suggests more supply. The reality is that the feed available to transport clean petroleum products has become tighter. And now, please turn to slide 12. Although strong markets have encouraged additional new building orders, particularly in crude tankers, fleet growth remains constrained by an aging fleet profile and sanctions. In the combined LR2 and AFROMAC segments, approximately one in four vessels is currently subject to US, EU, or UK sanctions. Importantly, around 60% of those sanctioned vessels are more than 20 years old. Given their age, many are unlikely to return to mainstream trading, even if sanctions were eventually lifted. As a result, headline prequels overstate the increase in effective market supply. Taken together, sanctions, feed aging, and replacement requirements suggest that effective prequels is likely The key message is simple. This is unlikely to be a temporary market event. It looks increasingly like a structural reset. We do not speculate on when Our focus is on operating the business prudently and maintaining flexibility. What matters equally is what happens after reopening. Even if transit is normalized, the market will not immediately return to its previous state. Vessel repositioning, trade normalization, and fleet rebalancing will take time and create additional friction throughout the system. At the same time, Strategic and commercial inventories will need to be rebuilt. As an illustration, replanning inventories depleted so far could add approximately 1-2% to global trade volumes over the next 12 months, with further upside if stock rebuilding accelerates or sourcing patterns become more geographically diverse. Just as importantly, the product and the market was already supported by strong fundamentals before this rate of almost disruption. Those supported fundamentals remain in place. Our view is therefore that reopening this rate should not be viewed as the end of the story, but rather as the beginning of a new phase of market adjustment that can continue to support tanker demand.

Slide 14, please. To conclude,