Hafnia Limited

Welcome to Hafnia's third quarter 2025 financial results presentation. We will begin shortly. You will be brought through today's presentation by Hafnir CEO, Michael Scove, CFO, Perry Van Echtelt, Soren Winter, VP Commercial, and Thomas Anderson, EVP, Head of Investor Relations. 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. We appreciate your joining in Hafnir's third quarter 2025 earnings call. My name is Michael Skov, CEO of Hafnir, and with me today is our CFO, Peri van Echtelt, our VP of Commercials, Søren Vinter, and our EVP and Head of Investor Relations, Thomas Andersen. Earlier today we released our Q3 2025 results, which are now available on our website. During this call, we will walk you through our quarterly performance, discuss key market developments and share updates on our financial position. We will also present our sustainability initiatives before opening the call for questions. Let's move to the next slide. Slide number two. Before we proceed, I would like to go through our Safe Harbor statement. The information discussed on this call is based on information we have today, which may include forward-looking statements that involve risks and uncertainties. Actual results may differ materially from these statements. Nothing presented on this call should be construed as an offer to buy or sell securities. Thank you for your attention. With that, let's begin with a review of our results for the quarter. Next slide, slide number four. The product anchor market started out this year on a softer note, but it strengthened significantly through the third quarter. Higher trading volumes and strong refinery margins drove this. Much of the growth came from increased export flows out of the Middle East and Asia, with clean petroleum products on water continuing to rise throughout the quarter. This strong backdrop supported the spot market, and I'm pleased to share that Hafnir delivered another excellent quarter. For Q3, we achieved $150.5 million in adjusted EBITDA and a net profit of $91.5 million, our best quarter so far this year. As part of our fleet renewal strategy, we also sold four older vessels, all built between 2010 and 2012. Finally, in September, we announced a preliminary agreement to acquire 14.45% of TORM shares from Oaktree. This was followed by a binding share purchase agreement, and we are now waiting for the appointment of a new independent board chair at TORM before we can complete the acquisition. Moving on to slide number five. Next, I'd like to give you a brief overview of Hafnir and highlight our key investment attributes. Hafnet is a global leader in the product and chemical tanker space. We operate one of the largest and most diversified fleets in the industry. As of the third quarter, we own and chartered in 126 vessels with an average fleet age of 9.6 years, significantly younger than the industry average. At the end of the quarter, our net asset value was approximately $3.4 billion, translating to $6.76 per share or 67.55 Norwegian kroner. Beyond our core fleet operations, we continue to build strength through our complementary business platforms. We commercially manage about 80 third-party vessels across eight pools, and our bunkering procurement platform supports both Hafnir's vessels and external partners, creating additional scale and efficiency benefits. Let's move to the next slide, which is slide number six. Another key investment attribute of Hafnir is our transparent and consistent dividend policy. We have delivered dividends consistently over the past several years, And our goal has always been to make them sustainable and predictable across the market cycle. Our net loan to value ratio improved from 24.1% in the second quarter to 20.5% supported by strong operational cash flows. Approximately $100 million was used to repurchase vessels on the sail and leaseback financings. In addition, vessel market values have also recorded a slight uptick compared to the previous quarter. In line with our dividend policy, we are declaring a payout ratio of 80% for the quarter. This corresponds to a total cash dividend of $73.2 million or $0.1470 per share. For shareholders receiving dividends in Norwegian kroner, the exchange rate will be based on the value date, which is two business days before the payment date. With this quarter, we now mark 15 consecutive quarters of dividend payments, underscoring our commitment to consistent shareholder returns and long-term value creation. Søren Vinter, our VP of Commercial, will now share the industry review and market outlook.

Thank you, Michael. Let me begin with a review of third quarter market conditions within the product tanker market segment, where Hafnir primarily operates, and then share our outlook for the months ahead. The product tanker market started 2025 on a softer note. but showed counter-cyclical strength throughout the third quarter, supported by higher trading activity and ton miles. Clean petroleum product volumes on water for 2025 continue to track above the four-year average, with Q3 showing an unseasonal increase compared to previous years. Importantly, the corresponding rise in daily loaded volumes suggests that total oil and water is being driven by higher export demand rather than longer voyage distances. Moving on to slide nine. While high clean petroleum product volumes usually correlate with stronger earnings, the earnings recovery this quarter was more modest, yet 18% stronger for MRs. We also saw a strong rebound in ton days during the third quarter, supported by tight gasoline and distillate supply in Europe, stemming from ongoing refinery closures. This dynamic has driven ton miles and supported strong trading margins out of the US and the Eastern Basin. Moving on to slide 10, on the supply side, Despite continued newbill deliveries in 2025, overall fleet growth has remained limited. This is primarily driven by continued vessel sanctions and the migration of LR2s into Afromax dirty trading. Year to date, roughly 88% of the coded LR2 newbills have migrated into the dirty market, supported by a stronger crude earnings environment. In effect, the crude segment has absorbed about 45% of the 2025 Code of New Build program, significantly minimizing increases in clean trading debt rate. Moving on to slide 11. Beyond the LR2 migration, sanctioned vessels also play a significant role in tightening fleet supply in 2025. The UK, UN, and OFAC have collectively sanctioned more than 400 tankers this year, with roughly 25% of them operating in product segments. This is supportive for product tankers, as it effectively reduces available supply and also limits crude cannibalization, contributing to a tighter overall supply-demand balance. EU's 19th sanctions package adds another 19 vessels to this list, with the new additions split evenly between dirty and clean trading. We estimate that approximately 280 additional vessels have engaged in trade with sanctioned regions, signaling the potential for further sanctions. The Dark Fleet refers to tonnage with questionable ownership and an older age profile. while the grey fleet is associated with more reputable ownership. Moving on to slide 12. Bringing together the topics of LR2 migration and vessel sanctions detailed in the previous two slides, overall clean petroleum product capacity growth in 2025 has been limited. Year-to-date, around 12 million coated deadweight has been delivered. yet only about 1.1 million deadweight has effectively entered clean trading. This translates to approximately 0.5% net growth in clean product tanker supply. Moving on to slide 13. Looking ahead, the supply outlook is less concerning than initially feared or reported. If we apply a 72.5% crude migration factor to future coded LR2 deliveries over the next three years, this implies roughly 11% fleet growth based on the current order book. However, nearly half of that growth is concentrated in 2026, driven by a heavier delivery schedule in the first quarter. Slide 14. Clean product cannibalization remained a real threat in Q3, with cannibalization volumes exceeding the 3-year average. Despite this, clean product earnings proved resilient throughout the quarter. On a positive note and looking ahead, the current strong earnings environment in the VLTC and Suezmax segments has reduced cannibalization volumes for November to nearly zero. This sets the stage for a robust outlook for the remainder of 2025 into Q1 2026. Moving on to slide 15. Apart from the factors we have discussed, the continued aging of vessels and potential scrapping also supports a positive supply outlook. Between 2025 and 2028, we expect around 114 million deadweight of new builds across handy to VLTC segments. Over the same period, potential scrapping could approximately be around 167 million deadweight based on typical scrapping ages. Looking further ahead, an additional 87 million deadweight could exit the fleet between 2029 and 3031. It is important to note that these estimates do not account for differences in utilization between new builds and older vessels. Slide 16. Inventory levels are an important indicator within the product tanker market. European diesel inventories have seen significant draws in 2025. With the winter season approaching, Europe will look to replenish inventory. The end of refinery turnarounds in the US Gulf, Far East and Middle East during November will free up additional export capacity to support the supply. As I'll explain in later slides, it's also worth noting that South America will rely on increased North American supply over the next two quarters, leaving the eastern hemisphere to cover the European import shortfall. This dynamic is expected to drive higher volumes and longer torn miles. Slide 17. With continued drawdowns and refinery turnarounds, refinery margins have been on the rise in 2025. This typically correlates with higher earnings, further supporting the underlying market strength over the first quarter of 2026. Slide 18. The longevity of strong refining margins and resulting transportation demand is set to continue in Q1 2026. Fundamentally, European supply and rising transportation volumes depend on sufficient oil availability and the pricing structure that supports underlying arbitrages. Forward arbitrage from the US Gulf and the east to Europe is trending higher for the remainder of 2025 into 2026. This supports forward trading volumes and underscores the real and sustained demand from Europe to cover for the winter season and replenish low inventories. Slide 19. Geopolitical tensions continue to influence the product anchor market. Following Ukraine's drone strikes on Russian refineries, clean petroleum product exports from Russia have declined significantly, while crude exports have correspondingly increased. This limits Russia's ability to supply clean petroleum products to South America and West Africa, prompting substitute barrels from the US Gulf and Europe. These shifts drive higher ton miles on the non-sanctioned fleet, pushing the overall utilization. We are already seeing a decline in South American imports from Russia, accompanied by corresponding increases in imports from the US Gulf. Moving on to slide 20. Further on geopolitical tensions. In early Q4, the Trump administration facilitated a peace plan between Israel and Hamas aimed at ending hostilities. While this could eventually lead to a gradual reopening of the Red Sea, we expect the process to take time. Our analysis suggests that the potential impact of a Red Sea reopening may be less than initially anticipated. With Red Sea transit's return to normal, Suez Canal traffic could regain the equivalent of roughly 180 MRs in transportation demand, while autonomous demand loss via the Cape of Good Hope are projected at around 230 MRs. The net effect on total arbitrage transportation volumes via the Suez Canal is about 43 MR equivalents. This implies a minimal negative market impact of approximately six MR units. Moving on to the next slide, where Perry, our CFO, now will bring you through the financial developments.

Thanks, Jørgen. If we move to the next page, page 22. We indeed had another strong quarter as market conditions strengthened, fueled by higher trading activity and firm refinery margins. For Q3, we reported adjusted EBITDA of $150.5 million and a net profit of $91.5 million, which is our best quarterly result of 2025 so far. Our fee-based business in the pools remained steady, contributing $7.1 million in fee income. And we maintained strong profitability metrics with an annualized return on equity of 15.9% and the return on invested capital of 12.8%. Moving on to the operating summary. We continue to generate strong operating cash flows supported by a robust balance sheet and further declining breakeven levels. For the quarter, TCE incomes stood at $247 million, with an average TCE of $26,040 per day. A meaningful portion of our fleet was built in 2015 and 2016, leading to a relatively high number of dry dockings. This quarter's performance also reflected the impact of several vessels undergoing dry docking. We recorded approximately 740 off-hire days in Q3, which is about 230 days above our initial expectations, primarily due to dry dock delays and two vessels undergoing special cargo tank recoating. Across the first three quarters of 2025, we have dry docked 32 vessels and expect to complete another 14 in the fourth quarter. While we still have several vessels scheduled for dry dock in the coming quarters, we do expect off-hire days to decline and taper down to around 440 in the fourth quarter. This positions as well for stronger utilizations and earnings momentum heading into 2016. And turning to the balance sheet, we made significant progress this quarter. Our net LTV ratio based on our 100% owned fleet improved from 24.1% at the end of Q2 to 20.5% supported by strong operational cash flows. Across 2025, We have also reduced our weighted average debt margins by more than 50 basis points, further strengthening our financial position by securing very attractive pricing on new financings. During the quarter, we have used $100 million of our excess liquidity alongside debt refinancing to repurchase 14 vessels that were under sale and leasebacks. Vessel market values remain stable, showing a slight uptick from the previous quarter. On the right, you can see our liquidity position. Following the signing of our $750 million revolving credit facility, we ended the quarter with over $630 million in total available liquidity, consisting of around $130 million in cash and $500 million in undrawn financing capacity. As mentioned earlier, we recently announced the agreement to acquire 14.45% of Torum shares, Let me clarify how this will be reflected in our net LTV calculation upon effectiveness of that transaction. In addition to broker valuations for our wholly owned vessels, we will incorporate the lower of the investment's market value or its purchase price. This ensures that the investment is reflected in our leverage metric, while also maintaining the integrity of our dividend policy, which is designed to balance our capital structure and our asset strength. Looking ahead, our solid financial position and effective cost structure supports an operational cash flow breakeven of below $13,000 per day for 2026. Given the current market environment, this positions us very well for another year of strong earnings. If we look for that on the next page. So we look towards the conclusion of Q4. As of the 14th of November, we have secured 71% of our Q4 earning days at an average rate of $25,610 per day. For 2026, we already have 15% of our earning days covered at an average rate of $24,506 per day, giving us a strong head start to the year ahead. If you look at that based on the Q4 covered rates and also the analyst consensus, 2025 points toward net profits for the full year in the range of $300 to $350 million. This positions us exceptionally well as we also move into 2026. And Michael, over to you for the next few slides.

Thank you for this. And let me now turn to Hafnir's sustainability strategy and goals. And we're on slide 27. As a global leader in the product tanker segment, we do recognize the critical role we play in shaping the maritime ecosystem. We hold ourselves to the highest operational and environmental standards with a clear commitment to creating a positive difference. Across the value chain, we are deepening collaboration with strategic partners, regulators, and key international bodies to co-develop solutions to the challenges our industry faces. These efforts ensure that Hafnir remains firmly positioned at the forefront of the energy transition, not just adapting, but leading the way forward. Moving to slide 28. Here we showcase some of the strategic initiatives we've been working on to strengthen our competitive edge. Take sea scale energy, for example. This joint venture creates powerful synergies with our existing operations and enables us to deliver reliable, scalable solutions across the maritime sector. In parallel, We're advancing our technological capabilities through our strategic investment in Complexio. Complexio leverages both structured and unstructured data to create a detailed operational landscape, enabling automation of recurring processes such as chartering, ship clearance, finance management, and contract negotiation. These initiatives reinforce Hafnir's position at the forefront of innovation in the maritime sector, ensuring we remain agile, efficient, and future ready. Slide 29. Looking ahead, Hafnir remains well positioned for the remainder of the year. With winter approaching, seasonal demand is expected to support the oil market driving higher earnings to increase ton miles activity and strong operational dynamics. I'm encouraged by the underlying market strength and proud that we've delivered solid results while maintaining our 80% dividend payout ratio. We will continue to exercise disciplined financial management and pursue strategic opportunities that enhance our competitive position. Before concluding, I want to stress an important concern. As Ukrainian ceasefire discussions progress, policymakers and the shipping industry must ensure that vessels from the dark fleet, often operating with poor safety standards, are not allowed back into mainstream trade. Doing so would undermine regulatory trust and create serious risks to people and the environment. With that, this concludes our presentation. I'd now like to open the call for questions.

We will begin our Q&A session now. Should you wish to ask questions, you can submit them via the chat function or use the raise hand function to be unmuted to ask your question verbally. Questions via the raise hand function will be addressed first before moving into the Q&A box. Okay, Frode, I see you have your hand up. Can you please unmute yourself?

Yes, thank you. Hey guys, first question is on this coverage slide you had. I noticed you had booked 67% of the LR2 fleet in 2026. So maybe you can shed some color on that. Have you booked What type of contracts have you booked and the duration? I see the rate here, like 30,000, basically.

Hi, Broder, CERN here. Yes, that's correct that we, during Q3 and into Q4, have covered more of our LR2 fleet for three years. You're talking four ships where three is three-year deals and one is a two-year deal. run about the numbers you're talking about.

Okay, that's good. I guess, coming back to Michael's point in his final remarks, I want to ask you about this Russian CPP exports decline we've seen, right? So you showed it in the slides, exports are down, you know, probably been good for use of MR liftings, right? But have you also seen like an offsetting effect from let's say shadow fleet coming back, let's say drifting back into the conventional fleet? What's your data showing?

Maybe more on the DPP side than on the actual CPP side. So probably on this CPP, you would say that the supply in South America has gone back to the conventional tonnage, adding a little bit more tonnage there. Whereby on the DPP's rating side, especially on the Afromaxis, you have seen some more influx of not sanctioned tonnage, of course, but the grey fleet entering into... into an already busy Afromex market on the dirtiest rate.

Okay, so for CPP, it's a positive event.

Yeah, you can say it certainly feels like a positive for now, and we don't seem to find a lot of competition from the Dark Fleet yet, at least.

Okay, that's it for me. Thank you very much. Thank you, Frodo.

Thank you, Frodo. So Omar, I can see you have your hand up. Can you unmute yourself, please?

Yep. Thank you. Thank you. Hi, guys. Thanks for the update. I did have just maybe a couple of questions and perhaps maybe first just on the do you mind revisiting that Red Sea slide? I thought that was quite interesting. You mentioned a reopening would perhaps not be as significant to fleet supply as initially thought. And just want to get a sense, or if you wouldn't mind just explaining a bit more, how you got to those figures, especially that part about the 43 cross-hemisphere regains. Thank you.

Yeah. Søren again, yeah. So, the analysis we have done is based on historic data on a general note. So, if you take pre-Babelman-Depp closing, volumes and anticipate that those volumes would come back to the market if if sue is reopened in the sense that middle east would then be the more competitive supplier into northwest europe and mediterranean again in the event of a reopening So what you're looking at is that we are taking the volumes that you would regain out of sewers or trading via sewers again, and we have offset the full gains that we have had for trading via the Cape of Good Hope and added the volume to come back to normal averages of east to west volumes, which then boils down to a limited impact on the market. What you can't see on that slide is what is that going to do to trade flows on a general note? Is that going to be a positive for the U.S. Gulf, which has been a big driver over Q3 for sure? And if you have more supply out of the Middle East, that's probably positive for the LR1s and LR2s, whereby there will be other trade flows out of the U.S. Gulf for the AMRs and probably more tuned towards the South American region.

OK, thank you that that's that's quite helpful and it may be just touching on that point in terms of just transiting and what compels say you or or maybe the industry to want to return. Obviously I think a big part of it is perhaps insurance premiums. Have you seen any kind of shift or change in insurance costs or what's being quoted to transit in the region?

Not really yet. The big, well, the big, I mean, at least the well-known owners on the clean side is not yet transiting. So there's not a lot of movement there. You have seen other parts of the fleet, for instance, some Middle Eastern traders that are descending there, they're turning through the Red Sea. So I think you would see a mild increase in the volumes that actually goes through the Red Sea today. But on an insurance and on a general willingness to try it out, not so much, to be honest.

Got it. Okay. Thank you. I'll turn it over. Thank you.

Thank you. So, Clement, can you unmute yourself, please?

Hi, good afternoon and thank you for taking my questions. I wanted to start by asking about the exercise of purchase options you pursued on vessels under sale on Lisbeck. Could you talk a bit about the effect you expect this to have on your all-in-cash break even for the vessels involved?

Hi, Clement. Good question. It's Perry here. I don't have the effect on the specific vessels we purchased. We had quite good and regular frequent purchase options on those leases. So as part of our refinancing, we took them out. Across the board, with all the refinancings that we've done since the summer, that has improved our cash flow break even quite significantly. I think for next year, that will bring us somewhere below the $13,000 a day. But we don't have that info on a per vessel basis. It's also less relevant, I guess.

Makes sense. The color is still helpful. And you've continued divesting the older end of the fleet in recent months. How are you thinking about potential fleet renewal or growth at current pricing? And secondly, should we consider the acquisition of term shares as a kind of fleet expansion? Or how do you view it?

Hi, it's Søren again.

You can say that our strategy over the past couple of years on the new build purchase side has always been linked to bigger projects with cover somewhat forward. And looking at new build prices now, that will probably be our strategy still. But Well, yeah, I guess it all boils down to better market conditions. I think we are probably not in a situation now where we would look at a big new build program at current levels.

Thanks for the call. That's all from me.

Thank you for taking my questions.

Thank you, Clément, for your questions. And I'm actually not seeing any more raise hand, raise hands. Actually, so Omar, so Clément, if you can take your hand down, if you finished, and then Omar, could you unmute yourself?

Yep. Hi. Can you hear me?

Yes. Yep.

Okay, thank you. Just wanted a follow-up on just the net LTV for Hafnia. At 3Q, obviously, a very nice drop from 24% to 20%. Obviously, pretty sizable, I guess, quarter over quarter. It seems that you're on pace to perhaps get below 20% at the end of the fourth quarter, which I guess presumably triggers you back into that 90% payout threshold. Do you forecast that happening, or do you take into account the pro forma acquisition of the TORM stake at that point?

Yeah. Hi, Omar. It's Perry. Good question. Net LTV in the NFQ3 is 20.5%. As we always do, we are consistent with our dividend policy and our dividend payout ratio. So, of course, that would depend on where values are in the quarter. As we've also announced earlier in September that when we include, once that deal closes, we include the TORM stake at market value or purchase price, the lower of the both, and then also including the debt. So that obviously will bring the net LTV all in all probably somewhere in the middle of that range.

Okay, thank you.

Thank you so much for that question. I don't see any more raised hands, so I'm actually going to move on to the chat and the Q&A. So we have a question in our chat, which I will direct to Perry regarding whether we plan on purchasing further shares in TORM.

Yeah, there's not so much to comment on. We've mentioned also in the earnings release that there's one more condition outstanding for the close of the stake that we've announced for 40.5% and can't really comment or add on questions or suggestions on further purchases.

Okay, thank you, Perry. Moving on to the next question. So we have someone asking that we mention in our detailed release that pool earnings for the week beginning 17th of November 2025, is it only the week's earnings or is it from the 1st of October to the 17th of November 2025? Thank you for the question.

That's for the week of starting November 17. So that week's earnings only.

Thank you, Thomas. I'm just giving it a few more seconds to see if we receive any more raised hands or any more questions in the Q&A or the chat. All right. Thank you, everyone. For today, we've come to the end of today's presentation. So thank you for attending Hafnia's third quarter through the 2025 financial results conference call. You can find more information available on our website at www.hafnia.com. Thank you, everyone.