Hafnia Limited

welcome to hafnir's second quarter 2024 financial results presentation we will begin shortly you will be brought through the presentation by hafnir ceo michael skov cfo perry van egtelt evp commercial jens christopherson and evp 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. During this conference call, some statements may be considered forward-looking, reflecting management's current expectations. These statements involve risks, uncertainties, and other factors, many of which are beyond Hafnia's control that could cause actual results, performance, or plans to differ significantly from those expressed or implied. Additionally, this conference call does not constitute an offer or solicitation to buy or sell any securities. With that, I'm pleased to turn the call over to Hafnir's CEO, Michael Skov.

Thank you. Hello, everyone. I'm Michael Skov, CEO of Hafnir. Thank you for joining Hafnir's second quarter 2024 earnings conference call. With me here today are our CFO, Perifran Echtelt, EVP Commercial, Jens Christoffersen, and EVP and Head of Investor Relations, Thomas Anderson. Together, we will present Hafnir's performance for the second quarter of 2024. Today's presentation agenda will cover four key topics. First, I will begin with a summary of our key achievements and events from the second quarter. Following that, I will provide an overview of Hafnir's key investment highlights. Next, We will discuss commercial updates and provide an outlook on the product market. After that, we will delve into our financial performance for the quarter. And finally, we will conclude with an overview of our ESG projects. Let's move to the next slide. Slide number two. Before proceeding, you should all be aware and take note of the mandatory disclaimer. Some statements in this call may be forward-looking and carry inherent risks. This call does not constitute an offer to buy or sell securities. Thank you for your attention, and let's start the presentation. Let me begin by outlining some of the key highlights from the quarter. We're on slide number four. I'm pleased to announce another strong quarter of financial results for Hafnir. In the second quarter, we achieved a net profit of $259.2 million, bringing our total net profit for the first half of 2024 to $478.8 million. This quarter marks our best performance since the start of 2023 and represents the strongest first half result in our company's history. In line with these robust results and our recent increase in the dividend payout ratio, I'm pleased to announce a dividend payout of 80% of net income for the quarter. This translates to a total distribution of $207.4 million, or $0.4049 per share, approximately 4.4 Norwegian kroner. For the second consecutive quarter, this marks the highest dividend payout ratio in Hafnir's history, underscoring our commitment to delivering strong shareholder returns. We anticipate further upside potential as we continue to reduce our leverage in these strong markets. Slide number five. Moving on, I would like to provide an overview of Hafnir, which today offers unparalleled investment opportunities. As an introduction, Hafnir is one of the world's leading tanker owners and operators within the product and chemical tanker market. As owners and operators of around 200 modern vessels across eight pools, we offer a fully integrated shipping platform, including technical management, commercial and chartering services, pool management, and an extensive bunker procurement desk, which has serviced over 1,400 vessels within our pool platform and for external ship owners. At the end of the quarter, we owned and chartered a diversified portfolio of 133 vessels. Our owned and joint venture vessels have an average broker valuation of approximately $5 billion, resulting in an approximate net asset value of $4.5 billion. This translates to an NAV per share of around $8.77 or 93.3 Norwegian kroner. Through the implementation of our fleet renewal strategy, we aim to maintain a low average age for Hafnir's fleet. At the end of the quarter, our old vessels had an average age of 8.8 years. This strategy enhances fleet utilization, boosts earnings potential, and reduces our environmental footprint. Let's move on to the next slide, which is slide number six. Our key value proposition today runs deeper than ever. This has been achieved through our active management and deep understanding of market dynamics. Since our merger with BW Tangers in 2019, our growth trajectory has been significant, establishing us as one of the world's leading product and chemical tanker companies. Our approach to market assessment is to continually seek advantageous opportunities as part of our active management strategy. Throughout our journey, we have executed several strategic acquisitions and joint ventures that align seamlessly with our overall goals. Most recently, in 2023, we formed a joint venture with Socatra, securing orders for four dual-fuel methanol MR new builds with expected delivery between 2025 and 2026. Upon delivery, these vessels will be charted out on long-term time charter arrangements to our long-standing partners, Total Energies. We remain committed to pursuing further strategic acquisitions and joint ventures that will drive sustainable growth and position us for long-term success. Additionally, we are dedicated to delivering strong and sustainable shareholder value. As you can see, we've consistently paid high dividends over the past year. We have actively worked to strengthen our balance sheet and reduce our leverage ratio. With the current strong markets, we anticipate further upside potential in our shareholder returns. Jens will now be sharing an industry review and market outlook. Over to you, Jens. Thank you, Michael.

Hafnia primarily operates within the cyclical and volatile product tanker segment, where charter rates and tanker capacities are influenced by multiple factors. Over the next few slides, we will provide an update on the current market conditions and share our expectations about the forward outlook. Since the beginning of 2024, an already strong product tanker market has experienced further positive momentum. Ongoing safety concerns in the Red Sea have led to shifts in trade routes, with vessels rerouting from the Suez Canal to the Cape of Good Hope. Additionally, droughts in the Panama Canal and low diesel inventories in Europe have further contributed to a robust second quarter. Volumes of CPP and chemicals on water continue to steadily increase, largely driven by geopolitical unrest. Currently, approximately 20% of these volumes are routed via the Cape of Good Hope, with Russian CPPs making up about 13%, double the pre-sanctions average. We are experiencing historically high levels of CPPs on water, and we anticipate these elevated volumes will persist through the end of the year. The graph on the right-hand side shows transportation demand development expressed in CPP ton days and how this has impacted MR and LR1 earnings. Next slide. Similarly, when we examine the ton-mile effect, we observe a significant impact. Since 2018, we have witnessed a steady rise in daily CPP and chemicals loadings. This disproportionate rise in ton-miles can be largely attributed to the geopolitical unrest and the dislocation of refineries, with eastern refineries increasingly supplying Atlantic consumers via the Cape Good Hope. On the other hand, crude and DPP daily loadings and ton miles have seen a slight decline as they continue to struggle under the weight of OPEC Plus production cuts. Looking ahead, we anticipate that the high ton mile levels for CPPs will persist, driven by the ongoing dislocation between refining capacity and end users. Next slide. In addition to the impact of geopolitical unrest, global inventory levels and the evolving refinery landscape are having a significant impact on the product tanker market. In 2023, export-driven volume gains were largely fueled by refinery startups in the Middle East, including Alzawa in Kuwait and Dukem in Oman. The commencement of production at Nigeria's Dangota Refinery and the expected ramp-up in Chinese refineries by late 2024 is anticipated to further boost global refinery operations. According to the IEA, global refinery throughputs are forecasted to increase by 0.8 million barrels per day, reaching 83.3 million barrels per day in 2024. This reflects approximately 100 mi equivalent of additional transportation demand. Conversely, continued refinery closures in regions such as the US and Europe will likely necessitate that these oil-consuming regions seek imports from refinery sources further away, and this shift in global oil trade flows will contribute to increased transportation demand. Whilst we are currently experiencing record high volumes of CPP on water, it's noteworthy that global product inventories remain below average, even when combined land-based inventories with CPP on water. Given that elevated oil and water levels so far have had marginal impact on land-based inventories, we assess that we are continuing to transport to fulfill demand rather than to strategic inventory bills. And this suggests a long runway for the current high earnings environment, as there will be a need to replenish inventory levels in the near future, supporting tanker demand. Next slide. In recent months, we have observed an increase in cannibalization from the crude sector, primarily driven by the spread in earnings between LR2s and Suez Maxes. This shift has led to more crude tankers converting their tanks to carry clean cargo and thereby introducing greater competition in the product market, especially within the LR2 segment, where these VLCCs and Suez Maxes are now competing. However, we believe this impact will be short-lived. Historically, earnings for large tankers tend to rise from the latter part of Q3 and onwards. With higher OPEC exports anticipated, crude rates are expected to increase, which should reduce the cannibalization effect starting from Q4 2024. Next slide. Looking at the product tanker supply, the average age of the global product tanker fleet is steadily increasing. The vessel is over 20 years old, now comprising a larger share of the global fleet. This trend has significant implications for fleet dynamics and market supply, as older vessels are underutilized compared to vessels under 15 years of age. The trend is generally that vessels above 15 years of age tend to become less efficient over time, as customers tend to prefer younger tonnage. However, the recent market strength in 2024 has provided some tailwind also for the older vessels. As the worldwide fleet age increases in the coming years, we can expect the fleet to generally become less efficient. Next slide. On the flip side, despite the increasing average age of the global product tanker fleet, contracting activities in the sector continue to rise. As of August 2024, the order book to fleet ratio for deliveries going out to 2028 stands at approximately 20%. However, it's worth noting that the LR2s account for over 50% of the tonnage to be delivered in the next few years. Historically, around 70% of LR2 capacity deliveries has been absorbed into the dirty and crude petroleum products trades. Additionally, the crude sector is getting increasingly old, and the order book on the crude side remains at a relatively low, only 19% ratio. We anticipate grabbing levels to exceed deliveries over the next four years, effectively removing tonnage supply and pushing more LR2 capacity into the crude and DPP trades. So, looking ahead, the outlook for product tankers remain highly positive. Despite global oil demand showing signs of slowing in 2024, with the IEA reporting a year-on-year increase of only 0.9 million barrels per day in the second quarter, primarily due to reduced consumption in China, The underlying market fundamentals remain strong. And Perry will now bring you through the key financials of the second quarter.