Hafnia Limited

Welcome to Hafnir's fourth quarter and full year 2024 financial results presentation. We will begin shortly. You will be brought through today's presentation by Hafnir CEO Michael Skov, 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, and 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. Hello, everyone. I'm Michael Skov, CEO of Hafnir. Welcome to our fourth quarter 2024 earnings call, and thank you for joining us today. Joining me today are our CFO, Perif and Echtelt, our VP of Commercial, Søren Vinter, and our EVP and Head of Investor Relations, Thomas Anderson. Together, we will walk you through Hafnir's performance for the quarter. Today's presentation will cover four key areas. I'll begin with a review of our fourth quarter performance and key highlights, followed by an overview of Hafnir and our market position. Sean will then discuss recent commercial developments and share our outlook for the product tanker market. Per will review our financial results and capital allocation strategy. I will then conclude with an update on our ongoing sustainability initiatives and provide closing remarks. Let's move to the next slide. Before proceeding, I want to direct your attention to our safe harbor statement. Today's presentation will include forward looking statements that involve risks and uncertainties. Our actual results may differ materially from these statements. 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 and 2024. Going to slide number four. I'm pleased to share that Hafnir delivered another year of strong results, underscoring our operational resilience and ability to generate value through market cycles. While market conditions moderated in the fourth quarter, we achieved a net profit of $79.6 million, bringing our full-year net profit to $774 million, marking another year of great results. Our corporations continued to generate strong earnings, with a total TCE income of $1.4 billion for the year. This was further supported by our adjacent fee generating businesses, which contributed $35.2 million in full year revenue. Moving to slide number five. Next, I would like to highlight Hafnir's key investment attributes. Hafnir is a global leader in the product and chemical tanker market, and we operate one of the largest and most diversified fleets in the industry. As owners and operators of more than 200 vessels across eight pools, we provide a fully integrated shipping platform, which includes technical management, chartering services, pool management, and a bunker procurement desk that has serviced over 1,400 vessels, both within our pools, and for external ship owners. As of December 31st, 2024, our owned and chartered fleet comprised 125 vessels with a net asset value of approximately $3.8 billion. This equates to an NAV per share of around 7.63 US dollars or 86.34 Norwegian kroner per share. Our own vessels have an average age of 9.1 years, which when compared to the global product tanker fleet average of approximately 14 years, reflects the long runway for operational efficiency and earnings potential for our fleet. Additionally, as part of our ongoing fleet renewal strategy, and commitment to a more sustainable maritime future, I'm happy to announce that we have in January welcomed Ecomark Gascogne, the first of four dual-fuel methanol chemical IMO2 MRs, ordered through our joint venture with Socata of France. This marks a significant milestone in our decarbonization journey as these vessels can operate on both conventional fuel and methanol, paving the way for a transition to more sustainable fuel options. Through our active management approach and deep market expertise, we remain committed to driving sustainable growth, leading by example, and positioning Hafnir for long-term success. Let's move on to the next slide. The dislocation between our share price and NAV per share in late 2024 presented an attractive opportunity to enhance shareholder returns through share buybacks. In January, we completed our buyback program, having repurchased approximately 14.4 million shares at approximately 70% of NAV for an average of $5.33 per share and a total consideration of $76.7 million. Capital utilized for buybacks in December has been deducted from the total payout before declaring Q4 dividends. This approach ensures our total shareholder returns align with our payout policy, balancing returns and flexibility. This also reflects our commitment to enhancing shareholder returns, even amid market fluctuations, as we position ourselves for sustainable growth. At the end of Q4, our net loan-to-value ratio stood at 23.2%, increasing from the previous quarter, primarily due to a decline in vessel market values. Given this, I'm pleased to announce a payout ratio of 80% for the quarter. After deducting $49.1 million used in share buybacks in December, we will distribute $14.6 million or $0.0294 per share in dividends. Including share buybacks, our total shareholder payout for the full year reached $640.8 million, representing a payout ratio of 82.8%. Our strong financial position and disciplined capital allocation approach position us well to capitalize on favorable market conditions in 2025 and continue delivering value to our shareholders. Move to slide number seven. Søren will now be sharing the industry review and market outlook.

Thank you, Michael. I will begin with an update on the current market conditions in the product tanker and clean petroleum product markets where Hafnir primarily operates and share our outlook for the coming months. The product tanker market experienced an extended period of strong earnings through the first nine months of 2024, supported by high cargo volumes and longer ton miles as vessels rerouted via the Cape of Good Hope due to the situation in the Red Sea. In the fourth quarter, tanker rates came under pressure, primarily due to increased cannibalization from the crude sector. Further key market drivers, such as daily loadings of clean petroleum products and oil and water, dropped in the beginning of the quarter, mainly due to refinery maintenance and lower refinery margins. Fortunately, clean petroleum product loadings, unhandy to LR2 tankers, rebounded significantly in December. This trend has continued in this first quarter. This recovery was largely driven by reduced crude tanker cannibalization and higher export volumes from the US Gulf. As we can see, the cannibalization has reduced and is now at historical averages of about 1-2%, primarily due to improved crude tanker market conditions, technical difficulties for crude carriers to transport refined products, and the recent sanctions on larger tankers. Let's move to slide nine. An interesting dynamic. Here we observe the evolution of trade patterns. While clean petroleum product loadings and ton days for product tankers recovered following the late Q3 dip, earnings have not rebounded as strongly. This is mainly due to hampered market sentiment and limited cross-atmosphere trading, leaving tonnage static within regions. We have also noticed that latent void lengths have reduced after the initial market stress from the Red Sea closure. We believe this is mainly due to increased refinery output in the US Gulf replacing the Middle Eastern trade volume servicing European demand. Let's move on to slide 10. We have conducted a detailed analysis of potential Red Sea reopening supply versus demand impacts. While it's widely known that Red Sea transit volumes remained low since early 2024, it's important to highlight the overall decline in clean petroleum product flows across hemispheres. Our analysis suggests that the potential impact of a Red Sea reopening may be more limited than initially anticipated. Should Red Sea transits become safe and reopen to normal tonnage, we estimate based on 2023 and 2024 data that sewage transit volumes regained will be the equivalent of approximately 227 MRs worth of added transportation demand. The corresponding tonnage demand reduction for volume losses traveling via the Cape of Good Hope is projected to be around 290 mR equivalents. Assuming that cross-atmosphere trade, the volume will return to historical averages, we estimate the net impact of a Red Sea reopening to be marginal at just 10 mR equivalents worth of tonnage demand reduction. Let's move on to slide 11. A significant development in 2025 is the January OFAC listing of additional 183 vessels, which we believe will significantly impact the overall market supply-demand balance. The sanctioned tanker fleet is roughly equivalent in size to the entire new-built tanker program through 2025. While sanctions primarily affect food tankers, we see positive spillover effects for clean tankers. The defective scrapping of sanctioned vessels will reduce crude tanker cannibalization and potentially shift more product tankers into dirty trades, tightening supply in the clean sector. Additionally, we estimate that around 400 non-OFAC listed dark fleet vessels remain engaged in Russian trade. The dark fleet is identified as tonnage with questionable ownership and predominantly older age profile. while the grapefruit is tied to more reputable ownership. This signals the potential for further sanctions from the EU and OFAC, which could further restrict tonnage availability. Let's move on to slide 12. The effects of the OFAC sanctions are already becoming evident. Following the sanctions, China and India have announced that they will exclude sanctioned tankers from imports. We estimate that the replacement of sanctioned barrels will be equivalent of approximately 100 Suez Maxes. Early evidence supports this shift. We have already in February observed a decline in imports from Russia, Iran and Venezuela to China and India. This impact is also visible in a significant drop in ton miles produced by the sanctioned fleet. And we expect this trend to accelerate. Comparing the total deadweight increase expected from new bills in 2025, this defective grabbing helps support the underlying support versus demand balance. Moving on to slide 13. Taking the aforementioned factors into consideration, the overall supply outlook remains resilient. When we look at known new builds through 2025 to 2028 across the tanker segments and factor in scrapping potential and lowered utilization of aging vessels, the overall supply picture remains well balanced. Despite the order book for product hangars being approximately 22% as of February 2025, LR2s comprise over 50% of new tonnage expected in the next years. Historically, 70% of LR2 capacity has been absorbed into the dirty petroleum products trade. This statement is further supported by the age profile of Suez Maxis and VLCCs alone. Moving on to slide 14. Overall, we maintain a constructive outlook for the product anchor segment into 2025. We continue to observe an increasing average age of the global product anchor fleet, and this trend has significant implications as older vessels are underutilized due to customer preference for younger tonnage. Global oil demand also remains robust. For the full year 2024, global oil demand has increased by 0.87 million barrels per day, with a further increase of 1.1 million barrels per day to be expected for 2025. Additionally, refinery maintenance accumulated at the start of the year are expected to be lower in the next months, paving the way for higher refinery runs, This will likely result in increased production and export of refined products, boosting global demand for product anchors. Moving on to slide 15, Perry will now bring you through the key financials for the fourth quarter.