Hafnia Limited

Welcome to Hafnir's third quarter 2024 financial results presentation. We will begin shortly. You will be brought through today's presentation by Hafnir CEO Michael Scove, CFO Perry Van Echtelt, VP Commercial Soren Winter 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 CEO, Michael Skov.

Thank you. And hello, everyone. I'm Michael Skov, CEO of Hafnir. Welcome, and thank you for joining Hafnir's third quarter 2024 earnings call. Joining me here today are our CFO, Peri van Echtelt, our VP of Commercial, Søren Vinter, and our EVP and Head of Investor Relations, Thomas Andersen. Together, we will walk you through Hafnir's performance for the third quarter of 2024. Today's agenda focuses on four main areas. I will start by highlighting our key achievements and milestones from the third quarter. Next, we will recap Hafnir's key investment opportunities. We will then review recent commercial developments and provide our outlook for the product tanker market. Finally, we will review the quarter's financial performance before concluding with an update on our ongoing ESG initiatives. Let's move to the next slide. 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 now move to slide number four. I'm proud to announce that Hafnir has delivered another strong quarter of financial results. For the third quarter, we achieved a net profit of $215.6 million, bringing our total net profit for the first nine months of 2024 to $694.4 million, marking the best nine months performance in our company's history. Our corporations maintain their momentum to deliver robust earnings supported by contributions from our adjacent fee generating businesses, which added 7.8 million to our results this quarter. Additionally, I'm pleased to share that Hafnir has successfully completed its re-domiciliation from Bermuda to Singapore. Singapore's position as a global hub for shipping, ship management, and its robust financial and legal sectors present significant advantages for our organization. Importantly, the redomination has no impact on dividend treatment, as Singapore imposes no withholding tax on dividend distributions for all shareholders. Moving to slide number five. Next, I would like to provide an overview of Hafnia and highlight our key investment attributes. Hafnia is a global leader in the product and chemical tanker market, operating one of the largest fleets in the industry. As owners and operators of approximately 200 vessels across eight pools, we offer a fully integrated shipping platform. This includes technical management, commercial and chartering services, pool management, and a comprehensive bunker procurement desk, which has serviced over 1,400 vessels, both within our pools and for external ship owners. As of the end of the third quarter, we owned and chartered a diverse fleet of 130 vessels with a net asset value of approximately $4.6 billion. This equates to a net asset value per share of around $9.07 or 95.2 Norwegian kroner at the end of the third quarter. With the current exchange rate, the NAV per share has exceeded 100 Norwegian kroner. Our key value proposition today runs deeper than ever. This has been achieved through our active management and deep understanding of market dynamics. We will continue to lead by example, drive sustainable growth, and position ourselves for long-term success. Let's move on to the next slide, which is slide number six. We remain committed to delivering strong and sustainable value to our shareholders. During the quarter, We made further progress in strengthening our capital structure with our net LTV ratio decreasing to 19.1% at the end of Q3 from 21.3% in Q2. This achievement enabled us to reach a significant milestone in our dividend policy, distributing 90% of our net profit for the quarter. For Q3, we will pay a dividend of 0.379 US dollar per share, equivalent to approximately 4.15 Norwegian kroner, totaling 194.1 million dollars. This marks the highest dividend payout ratio in Hafnir's history. With a solid balance sheet and a favorable market outlook, we are well positioned to continue delivering strong returns to our shareholders. Additionally, Hafnir's Board has authorized management to explore a share buyback program of up to $100 million, scheduled to run from the 2nd of December 2024 to the 27th of January 2025, subject to market conditions. Authorization will be reviewed on a quarterly basis. we will disclose the structure of the program and details of any buyback as it occurs. The funds utilized for this buyback program will be deducted before declaring dividends for the fourth quarter 2024. This ensures that the combined total of dividends and share buybacks aligns with our payout ratio under the dividend policy. This approach underscores our commitment to shareholder value while maintaining strategic flexibility. Søren will now be sharing an industry review and market outlook.

Thank you, Michael. Moving on to slide eight in the deck. Hafnir primarily operates within the product tanker segment, where various factors influence charter rates and tonnage supply. In the following few slides, we will provide an update on current market conditions and share our outlook on the coming months. Product tanker markets has enjoyed an extended period of strong earnings over the past couple of years. This has been largely driven by geopolitical unrest, including Russia-Ukraine war and tensions in the Red Sea. These events have created new trading routes and increased vessel rerouting. In recent months, the market has experienced seasonal softness, primarily due to refinery maintenance and lower refinery margins. Despite this, underlying demand remains robust. Volumes of CPP and chemicals on water continue to grow steadily, and ongoing geopolitical tensions have caused more vessels to reroute from Suez Canal toward the Cape of Good Hope. While CPP volumes on water saw a slight dip in Q3 and also into Q4, levels remain historically elevated, and we anticipate strong demand for oil products to sustain high volumes through year end. Moving to slide nine. Strong demand fundamentals are further illustrated here. When we examine cargo volumes against ton miles, we observe an upward trend over years. Since October 2018, daily CPP and chemical loadings have steadily increased, reaching their highest levels earlier in October 2024. The disproportionate rise in ton miles can largely be attributed to geopolitical unrest and the dislocation of refineries, with Eastern refineries increasingly supplying Atlantic consumers via the Cape of Good Hope. We anticipate this high CPP ton-mile to persist, driven by ongoing geopolitical instability and export-driven volume gains fueled by refinery startups in the Middle East, including El Sur in Kuwait, Dokkum in Oman. On the other hand, DPP daily loadings and ton-miles have slightly declined as they continue to struggle under the weight of OPEC Plus production cuts. Moving on to slide 10. Historically, periods of high product ton miles have strongly correlated with vessel earnings. Longer transportation distances typically reflect increased demand for shipping capacity driving higher freight rates. This correlation has diverged in recent months. Despite ton miles remaining stable in the third quarter, vessels earnings have declined disproportionately. This suggests that factors beyond demand fundamentals such as market sentiment or operational inefficiencies may contribute to the downturn. Slide 11. Looking at the broader trend over the past three years, it becomes clear that the recent dip in product segment earnings has been driven by more market sentiment or more by market sentiment than fundamental factors. While ton miles have seen a slight decrease, they remain in line with historical averages. With that, as winter approaches, which is expected to seasonally strengthen the oil market, we can expect earnings to normalize and increase, reflecting higher ton mile levels. Slide 12. The drop in vessel earnings can largely be attributed to increased cannibalization from the crude tanker sector. Due to an increasing disparity between earnings in the clean and dirty markets in Q2, some crude tankers, despite high conversion costs, shifted to carrying refined products. As a result, in Q3, Suezmax and VLCC tankers transported more diesel shipments from the Middle East to Europe, a trade that is typically handled by LR Tonnage. We believe we have seen the worst of this cannibalization. As winter approaches, the crude market enter usual seasonal upswing, and technical challenges with using crude carriers for refined products are also reducing cannibalization. Recent daily loading data shows an increasing number of crude tankers switching back to dirty cargo after discharging CPP. Moving on to slide 13. Moving on to the tonnage supply landscape, the outlook remains positive. Despite the order book being approximately 20% of the current fleet for deliveries going into 2028, scrapping candidate tonnage over 20 years of age levels the supply balance. Additionally, these older vessels typically have lower utilization rates and tonnage over 20 years of age are often involved in dark trades. which reduces available tonnage and drives up utilization for the existing fleet. With global oil demand expected to rise, we anticipate further increases in tanker demand and utilization of the current fleet. Moving on to slide 14. Diving deeper into the current tanker mix, we observe that the average age of the global product tanker fleet is steadily increasing. with vessels over 15 and 20 years old, are now comprising a large share of the global fleet. This trend has significant implications as older vessels are underutilized due to customer preference for younger tonnage. The recent market strength in 2024 and the rise of dark trades have provided some tailwind for the utilization of older vessels. Overall, the worldwide fleet continues to age in the coming years, and we can expect the fleet to become less efficient generally. Slide 15. Looking at the tanker delivery schedule, we see that the majority of the order book is scheduled for delivery between 2025 and 2026. It's worth noting that LR2s account for over 50% of the tonnage to be delivered in the next few years. Historically, around 70% of LR2 capacity delivered has been absorbed into dirty petroleum products trade. The crude sector is also aging, with the order book to fleet ratio remaining relatively low at around 10% as of November this year. We therefore anticipate scrubbing levels to exceed deliveries over the next four years, effectively removing tonnage supply and pushing more LR2 capacity into the crude and DPP trade. Looking ahead, the outlook for product tankers remains highly positive. According to the IEA, global oil demand increased by 1.1 million barrels per day in Q3. Moving on to Perry, who will now bring you through the key financials of the third quarter.