Hafnia Limited

welcome to hafnir's third quarter 2023 financial results presentation we will begin shortly you will be brought through the presentation by hafnir ceo michael skov cfo perry van ecktelt vice president commercial soren vinder executive vice president head of investor relations thomas anderson they will be pleased to address any questions after the presentation should you have any questions you can 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 look 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 buy or sell any securities. With that, I'm pleased to turn the call over to Hafnir CEO, Michael Skov.

Thank you. My name is Michael Skov and I'm the CEO of Hafnir. Let me welcome and thank all of you for attending Hafnir's third quarter 2023 conference call. With me here today are our CFO, Perifran Echtelt, VP for Commercial, Søren Vinter, and EVP, Head of Investor Relations, Thomas Anderson. Together, we will present Hafnir's third quarter 2023 financials. Today's presentation agenda consists of four key areas. I will start with an overview and highlight key corporate developments during the quarter. Following that, we will look into the financial performance for the third quarter. Next, We will provide commercial updates and an outlook on the product tanker market before concluding the presentation with our ESG overview. Let's move to slide number two. Before we proceed, you should all be aware and take note of the mandatory disclaimer. Certain statements in this conference call may constitute forward-looking statements, and it's important to recognize that these statements involve inherent risks and uncertainties. In addition, nothing in this conference call constitutes an offer to purchase or sell or solicitation of an offer to buy or sell any securities. Thank you for your understanding, and let's continue with the presentation. Let me begin by giving an overview of Hafnir and the main highlights in the third quarter. Slide number four. Hafnir is one of the world's leading tanker owners and operators within the product and chemical tanker market. As owners and operators of over 200 vessels, we offer a fully integrated shipping platform, including technical management, commercial and chartering services, pool management, and a large-scale bunker desk, which has been actively procuring fuel for over a thousand vessels within our pool platform and for external ship owners. With a robust business model, Aftia has secured its position as one of the foremost players in the industry. At the end of the quarter, we owned and chartered a diversified portfolio of 128 vessels. Our own vessels have an average broker valuation of $4.3 billion, giving Hafni an estimated net added value of $3.6 billion this quarter. This represents a net asset value per share of around $7.2 or 76.7 Norwegian kroner. At Hafnir, we maintain a proactive approach to market evaluation, continually seeking advantageous opportunities as part of our active management strategy. Through our fleet renewal strategy, we can maintain Hafnir's fleet at a low average age of eight years to enhance its utilization and improve its earnings. Moving to slide number five. Moving on, I would like to provide some key updates on Hafnir for this quarter. Firstly, I'm delighted also to announce the delivery of Hafnir Lavik, marking the third LNG dual-fuel new build out of the four ordered through our VISTA joint venture. The final vessel will be delivered in early 2024. These dual fuel vessels play a pivotal role in Hafnir's commitment to decarbonization, propelling us toward a more sustainable maritime future. Moving on, and in alignment with our dedication to sustainability, we've recently concluded a sustainability-linked credit facility with commitments totaling up to $303 million. This facility was established in partnership with a syndicate of eight banks and incorporates an annual sustainability margin adjustment mechanism. Lastly, I'm proud to share that Hafnir is working towards a secondary listing in the US. Our goal is for Hafnir to reach a wider base of investors and further improve the liquidity of our shares. It's important to note that the contemplated transaction It's exclusively focused on a direct listing of existing half-year shares without any plans to raise additional capital. Further details will be shared as they become available. Perry, why don't you take us through our financials?

Yes, thanks Michael. Following a strong second quarter, the product anchor market experienced a slight slowdown in the third quarter. Market inefficiencies arising from Russia's invasion of Ukraine have gradually been alleviated as new trading lanes have been established. Despite that, we continue to deliver robust and steady earnings across all vessel segments for the quarter. We achieved a net profit of $146.9 million for the quarter, bringing our net profit in the first nine months to $616.8 million. Amid this high interest rate environment, we continue to optimize our balance sheet to reduce our leverage even further. Our net LTV ratio continues to decrease from the 30.1% in Q2 to 27.4% in the third quarter. mainly through strong operating cash flows and the subsequent repayment of our loans. This shows how far we have come, as at the beginning of 2022 our net LTV ratio was 64%, more than double from what it is today. As a result of our LTV below 30%, our payout ratio will be further increased to 70% of net profit. This is the highest payout ratio in half a year's history, with potential future upside should we continue to meet our financial targets. With that, I'm happy to announce a dividend payout of 0.2032 dollars per share, or approximately 2.3 Norwegian kroners for the quarter. This represents a total dividend payout for the quarter of 102.9 million dollars and brings Hapnia's year-to-date dividends to 384.8 million, representing a payout ratio of 62.4% for the period. Moving on to the next page. The third quarter generated a TCE income of $310.3 million, bringing our year-to-date TCE income to just over a billion dollars. As a note, in the fourth quarter, we will be adopting IFRS 15 principles under which revenue for freight voyages is recognized under load-to-discharge basis instead of commonly used industry approach of the discharge-to-discharge basis. This would have resulted in a decrease of approximately $8M in revenue if we had adopted it in the third quarter. But please note that this is only representing a timing difference as an effect from freight voyages in progress at the reporting date and any downward adjustment made to our freight income now would in turn contribute to a higher income in the subsequent quarter. Our fee generating business has also performed well, generating $7.5 million from our commercial pool and bunkering business, leading to an EBITDA for the whole company of $220.8 million. This resulted in an annualized return on equity of 27.9% for the quarter. Our balance sheet keeps adding strength quarter on quarter with a cash balance of $125 million and a total liquidity of over $500 million when we add our existing credit lines. At the end of the third quarter, 77.4% of our debt was hedged at a weighted average of 1.6% base rate. While we keep working on reducing our overall debt, this hedging strategy will help to minimize financing costs and has helped to protect us against the sharp increases in interest rates. We will maintain cost discipline by monitoring our key leverage ratios and break-even levels. This will allow our balance sheet to remain robust and capitalize on any opportunities, all while safeguarding the long-term sustainability of our business. Then if we move to the next page, we move on to the operating data. For the third quarter, our TCE was based on 10,716 earning days, giving us an average TCE per day of $28,954. OPEX, which encompasses vessel operational costs and technical management expenses, were based on 9,566 calendar days in the quarter, leading to an average of $8,160 per day, higher than the previous quarter. The rise is mainly attributed to extra crew costs due to trading demands, underestimated repairs and overalls needed due to worn-out system conditions on our chemical fleet, and non-cash incidental costs related to insurances. Despite these strong markets, we must maintain a keen focus on cost efficiency and we benchmark ourselves against our closest peers and operate the business at the most competitive levels. And if you move to the next page, you move to earnings coverage. Despite the slight decline in rates compared to previous quarters, rates are still solid across all sectors. The outlook remains positive with the winter season approaching, which historically has been the strongest season. We are now seeing a market driven primarily by fundamentals, which remains strong as demand growth continues to exceed supply growth. As of 8 November 2023, 65% of the total earning days in the fourth quarter of 23 were covered at an average rate of $29,893 per day. For 24, 13% of the entire earning days were covered at an average of $23,842 per day on our time charters. Moving to the next page, which shows our scenarios. So benefiting from solid fundamentals and market efficiencies seen throughout the year, our performance thus far has been quite robust. Looking ahead, oil demand remains robust and we anticipate increased import levels from Europe and North Atlantic. We are well prepared to capitalize on this through our strategically positioned fleet and high spot market exposure. But this page represents a comparative analysis of three scenarios outlining Havnia's potential earnings for the entire year. These scenarios include consensus forecasts from the equity analysts, an explanation of the Q4 covered rate projected for the remainder of the year, and a third scenario based on year-to-date figures extended through the entire year. And in each of these three scenarios, the indications show yet another exceptionally strong year for Havnia. Then for the next slide, Søren, why don't you take the next few pages?