Hafnia Limited

Welcome to Hafnir's first quarter 2023 financial results presentation. We will begin shortly. You will be brought through the presentation by Hafnir Chief Executive Officer Michael Skov, Chief Financial Officer Perry van Echtelt, Head of Commercial Jens Christoffersen, and Head of Investor Relations Thomas Anderson. They will be pleased to address any questions after the presentation. should you have any questions you could submit them via the chat function or use the raise hand function to be unmuted to ask your question verbally questions will be answered at the end of the presentation 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 Hafnir is unable to predict or control, that may cause Hafnir'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 pleased to turn the call over to Hafnir Chief Executive Officer Michael Skov.

Thank you. My name is Michael Skov and I am the CEO of Hafnir. Let me welcome and thank all of you for attending Hafnir's first quarter 2023 conference call. Joining me today are Peri van Echtelt, our Chief Financial Officer, Jens Christoffersen, Head of Commercial, and Thomas Andersen, Head of Investor Relations. The four of us will present Hafnir's first quarter 2023 financials. During today's presentation, we will cover four main areas. We will start by providing an overview and key highlights of Hafnir, followed by the financials for the first quarter. We will then proceed to share commercial updates and provide an outlook on the product anchor market and finally conclude the presentation with key corporate updates. Let's move to slide number two. You should all be aware and take a note of the mandatory disclaimer. Moving on to slide number three. So let me begin by giving an overview of Hafnia. Slide four. Hafnia is one of the world's leading tanker owners and operators within the product and chemical tanker market. With a strong global presence across seven offices worldwide, Hafnia operates as a fully integrated shipping platform. This entails having our main dedicated in-house technical management and chartering teams situated in Asia, Europe, the Middle East, and the USA. We have a robust business model. Whilst Hafnir is a shipowner in its own right, our value proposition extends beyond that. Our shipping platform consists of diversified revenue streams, such as our pool management and bunker procurement services. At the end of the first quarter, Hafnir owns and has chartered in a diversified portfolio of 124 vessels and commercially operates a fleet of over 200 vessels. Our bunkering team are now also buying bunkers for more than 1,000 vessels for our pool platform and third-party owners. Our own vessels have an average broker valuation of $4.1 billion. giving Hafnia a net asset value of around $3.4 billion. This represents a net asset value per share of $6.8 or 71 NOC, representing significant upside in Hafnia's share. Since our listing in 2019, Hafnia has significantly enhanced its value proposition. With our expertise and active management strategy, we have navigated through the volatile global environment cautiously and delivered robust results. The foundations for the products and the market also remain strong, driven by a resurgent China and inefficiencies arising from the altering trading patterns. With limited fleet growth and rising global oil demand, I'm confident that the high rates environment will continue in an otherwise volatile world. Slide number five. Moving on, I'm proud to announce that Hafni has delivered another quarter of solid earnings. For the first quarter 2023, we achieved a net profit of $256.6 million. This is Hafnia's best first quarter results so far and brings our total EBITDA in the last 12 months to above $1.2 billion and net profit just shy of a billion dollars. Despite a high interest rate environment, we have continued optimizing our balance sheet to further reduce our leverage. our net loan-to-value ratio at the end of the quarter was 31.4%. With that, I'm pleased to announce a dividend of $0.3144 per share or 3.3 NOC for the quarter. This represents a 60% dividend payout ratio of $154 million. This quarter demonstrates another strong shareholder return and brings Hafnia's total dividends in the last four quarters to $546.2 million, representing a total payout ratio of 55.3%. These strong results and consistent shareholder returns underscore the resilience of our business model and the effectiveness of our active management strategy. I look forward to the next quarter where we once again will build on this momentum and produce robust results and shareholder value. Perry, why don't you take us through our financials?

Thanks, Michael, and good day, everyone. If we move to the financial summary, we can say that on the back of an already very strong 2022, the spot market had a very promising start in the first quarter of 2023. Average spot rates in the first quarter decreased marginally compared to the fourth quarter of 2022, but mainly due to the weakness early in January. However, we're already seeing significant increases in the volumes of refined products in transit and believe market conditions will remain firm. As a result, we're pleased to announce that Hafnia has displayed another strong result for this quarter. The first quarter generated a TCE income of $377.2 million, more than doubling the levels we generated in the first quarter of last year. EBITDA was just shy of $300 million for the quarter, resulting in a quarterly net profit of $256.6 million. Also, our fee-focused businesses have benefited from this increased rate environment, generating $11.1 million from our commercial pool and bunkering business. These strong results saw an annualized return on equity of 49.9% for the quarter. Also, our balance sheet remains very strong, with a cash balance of $268.3 million and a total liquidity exceeding $500 million. By the end of the quarter, 62.6% of our debt was hedged at a weighted average rate for the quarter of 1.36%. And we will maintain a cautious approach in navigating the higher interest rate environment to mitigate any interest rate risks going forward. We'll be able to lower our break-even levels and maximize shareholder value. With increasing asset prices and a higher earnings environment, cash flow from operations has been utilized to optimize in our capital structure. We constantly work on refinancing part of our balance sheet to reduce our funding costs and cash flow break-even levels so that we build both market resilience and enjoy significant operating leverage in these high markets. As a result, we have decreased our outstanding interest-bearing debt and combined with further improving asset values, our net loan-to-value further improved to 31.4% as compared to the end of last quarter where it was 37.4%. Then moving on to the operating data on the next page. For the first quarter, our TCE was based on 10,389 earning days, giving us an average TCE per day of $36,312 per day. For OPEX, which includes our vessel running costs and technical management fees, it was based on 9,470 calendar days in the quarter, resulting in an average of $7,468 per day per vessel. This increase in OPEX was due to timing difference in budgeted supply for stores and spares in the fleet, as well as handover-related costs for vessels that we divested in the quarter. All-in G&A expense per day for the quarter was $998 per day, and operating cash flow breakeven for the first quarter was approximately $515,800 per day. As mentioned in previous calls, we're very much focused on bringing down our cash flow breakeven. But due to the higher leverage from the acquisitions we did last year, inflation and higher interest rates had increased these break-even levels to where we are today. Despite our industry high dividend distribution, we expect our cash flow break-even to be in the mid-13s by the end of this year through a combination of refinancing and further debt reduction. We're also constantly benchmarking our performance against our peers and we remain operating the business at the most competitive levels. despite the very strong markets continue to focus on our cost levels. Then moving on to earnings coverage on the next page. Rates have been very strong over the past four quarters, but high volatility remains. However, with expected growth in oil demand and longer trading routes, we expect rates to remain firm for the year. As of the 15th of May 2023, we had 65% of the total earning days in Q2 23 recovered at an average of $34,378 per day. For the rest of the year, Q2 to Q4 of 23, 31% of the total earnings recovered at an average of $31,330 per day. And if we look at the various scenarios that we currently present, the strong financials or fundamentals in the product anchor market, the outlook for 23 remains strong and Huffington is well positioned to take advantage of this continued elevated freight market with a high spot market exposure. On this page, we present a comparison of three different scenarios regarding the company's potential full year earnings. These scenarios include, in first place, the consensus forecast provided by the equity analysts. Secondly, the extrapolation of the Q2 covered rate for the entire year. And on the right side, the third scenario based on year-to-date numbers projected for the entire financial year. And as you can see in all three scenarios, the indications point towards another exceptionally strong year for Hafnia. Jens, why don't you take the next few pages?