Hafnia Limited

Welcome to Hafnia's Q2H1 2020 Financial Results Presentation. We will begin shortly. You will be brought through the presentation by Hafnia's CEO, Michael Skoll, CFO, Perivan Ektaal, EVP Commercial Ends, Christopher Sen, and EVP Head of Investor Relations, Thomas Anderson. They will be pleased to address any questions after their presentation. Should you have any questions, please press star 1 on your telephone keypad or type your questions into the chat box on the website. You will receive further instructions as required. Certain statements in this conference call may constitute forward-looking statements based upon management's current expectations and include known and unknown risks, uncertainties, and other factors many of which HFNIA is unable to predict or control. That may cause HFNIA's actual results, performance, or plans to differ materially from any future results, performance, or plans expressed or implied by such forward-looking statements. In addition, nothing in this conference call constitutes an offer to purchase or sell or a solicitation of an offer to purchase or sell any securities. With that, I'm now pleased to turn the call over to Hafnir's CEO, Michael Skov. Thank you. Please go ahead, sir.

Thank you very much for that, and thank you for the introduction. My name is Michael Skov, and I'm the CEO of Hafnir, and I would like to welcome you all to the second quarter, first half of 2020 conference call. As mentioned above, I have with me today a few of my colleagues, our CFO, Perry Van Echtel, EVP Commercial, Jens Christoffersen, and EVP and Head of Investor Relations, Thomas Anderson. The four of us will present the financials for the second quarter and first half of 2020 for Hafnia. So we're moving on to slide number two. I would like everyone to be aware of the mandatory disclaimer and recommend that you read it and understand it. Moving on to slide number three. So focusing on the highlights of the second quarter of the 2020. So the first six months of 2020 have been among the most extreme periods in the product change stage. And I'm pleased to see that Hapkia delivered the best quarterly result in our company's history. However, due to the COVID-19, we're now all living with confinement restrictions which has led to unprecedented demand destruction and weak economic fundamentals. These negative impacts are short to medium-term market outlook. We are now very proud of establishing the Hafnia Specialized Pool, which is adding an additional pillar to our successful pool management business. In addition, we are together with a strategic joint venture partner invested in a methanol project exemplifying our strategy to look at sustainable and modern shipping technologies. Finally, and particularly considering the difficult period we have been through, I would like to take this opportunity to thank all our employees, both at sea and ashore, for their extraordinary efforts during these challenging times, and stress that the priority for Hafner will always be the health and safety of our employees. Moving into the financials for the second quarter, still on the same slide. The time chart of current earnings for Hafnia was $206.9 million for the quarter and $400.4 million for year-to-date. And EBITDA was $145.9 million for the quarter and $275.5 million year-to-date. When we look at our pool business, commercially managed pool business, that generated an income of $7.1 million for the quarter and $13 million year-to-date. It meant that for the second quarter, we achieved a net profit of $97.7 million and will pay a total dividend of $38.6 million. Our net profit for the first six months of 2020 amounts to $174.8 million. Huffington has invested $10 million together with a strategic joint venture partner, for 3.33 percent of a PFID methanol project, converting regionally-sourced natural gas to methanol with a 3.6 million tons per annum production capacity, of which the joint venture will be transporting one-third on 19-year contracts. In addition to investing in the methanol plant, the joint venture will be building these vessels, transporting their share of the methanol. The exact vessel composition is still under negotiations. The investment shows the focus which we as a company have on long-term contracts and alternative fuel vessels being either LNG, methanol, or ammonia. As a final bullet, Hafni has in the third quarter sold the Hafni America for $11.6 million net to the company. Moving on to slide number four and talking a little bit about the market that we've been through. As the economic activity started to recover in China in April this year, many other economies in the West and parts of Asia went into lockdown. Globally, it is estimated that more than 4 billion people were under some form of lockdown in the early part of the second quarter in 2020. This led to a collapse in global demand for oil. Oil demand in April this year It was estimated to have fallen by 21.8 million barrels per day, year on year, which is the single largest contraction in history. On the back of an oversupply of refined products from increased crude oil production by OPEC+, a super-contango market structure emerged. With land-based storage filling up rapidly, the steep new contango market led to a surge in demand for floating storage for crude oil and refined products. With active tonne supply being further reduced by poor congestion, freight rates across the product tanker segment soared to new historical highs in late April. The product tanker markets remained at elevated levels until mid-May 2020, before higher oil prices, primarily driven by OPEC Plus production cuts of 2 million barrels per day, began to flatten the contango curve and diminish the viability of floating storage. Thereafter, demand for product changes receded significantly as inventories built up over the past few months, started to be drawn down, triggering the unwinding of vessels and floating storage, which in turn placed further pressure on product tanker freight rates for the remainder of the second quarter in 2020. Moving into slide number five, we'll talk a little bit more in detail about the third quarter, so I'll hand it over to you, Vince, to talk a little bit about that.

Thank you, Michael. Market activities in the third quarter. There was a notable rebound in trade rates in the U.S. Gulf in the early part of the quarter, where more than 2 million barrels per day of offline and de-rated refinery capacity returned to the market. In response to this, the U.S. Gulf Coast MR market rose by more than $13,000 a day between late June and late July 2020. The clean product tanker market in the Middle East in particular for LRs firmed in the middle of August on the back of a tighter tonnage availability, while freight rates to ship gasoline from Northwest Europe to the Atlantic coast in the U.S. recently soared on the news of the U.S. Gulf Coast refinery shutting down ahead of Hurricane Laura making landfall. This happened only 36 hours ago, and today, again, the market looks different. The outlook for oil demand growth in the second half of 2020 remains uncertain. The resurgence of coronavirus infections in several parts of Asia and Europe suggests that the risk of an extended rebound period is ever present. A few comments on the individual markets where the company's ships are employed. On the handy side, 30 handy markets outperformed the clean handy markets in the first half of the third quarter. The average quarter to date earnings are approximately $10,000 a day, with current average handy earnings of $8,000 to $10,000 a day. In the MR segment, MR rates in the U.S. Gulf climbed, as previously mentioned, as refinery utilization rose in the region and exports of products increased. Western markets have generally outperformed the eastern market in the third quarter. The average quarter to date earnings so far has been about $12,000 a day, with current average MR earnings across the world in the range of $13,000 to $15,000 a day. On the LR1 side, rates in the East were suppressed in the early part of the third quarter due to excess tonnage availability and low refinery runs, but has improved mid-August with a tighter tonnage list in the Middle East. Average quarter-to-date earnings so far in the LR1 segment has been about $15,000 a day, with current average LR1 earnings worldwide of $20,000 to $22,000 a day. Lastly, on the bunker side, the first half of the quarter, the split between high sulfur fuel oil and very low sulfur fuel oil narrowed to $79 per metric ton. The spread for 2021 is currently about $80 per metric ton. And Perry, can you take the next few slides?