TORM reports $59 million net profit in Q2 2025, raises earnings guidance amid stable freight rates and positive market sentiment.

Lacey - Operator - (00:00:56)

Hello and thank you for standing by. My name is Lacey and I will be your conference operator today. At this time I would like to welcome everyone to the TORM second quarter 2025 conference call. All lines have been placed on mute to prevent background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press Star followed by the number one on your telephone keypad and if you would like to withdraw your question, press Star one again. Thank you. I would now like to turn the conference over to Jacob Meltgaard, CEO. You may begin.

Jacob Meltgaard - Chief Executive Officer - (00:01:31)

Thank you very much and a warm welcome here to everyone joining us on TORM Q2 2025 conference call. Earlier this morning we did release our interim results for 2Q25. Please that again we can report market leading performance in the quarter we witnessed a continuation of the most stable operating environment established in the first quarter, offering a clear contrast to the freight rate volatility seen in the latter part of last year. Our TCE came in at US$208 million, broadly consistent with both the last quarter of 2024 and the first quarter of 2025. This translated into a net profit of US$59 million, leading to another quarter with attractive dividend distribution of US$0.40 per share. We also advanced our fleet optimization strategy by divesting one LR2 vessel and two MR vessels, all built in 2008. This aligns with our ongoing approach of phasing out older tonnage to maintain a modern, high quality and commercially attractive fleet. These well placed transactions underscore the strong condition and upkeep of our vessels and do reinforce our commitment to operating an efficient and competitive platform. Looking Ahead the macro environment continues to be fast moving and marked by geopolitical uncertainty, but market sentiment remains broadly positive. We have entered the third quarter with strong momentum supported by firming rates across our vessel segments and an encouraging degree of visibility into our upcoming fixtures. Despite the external challenges, both the underlying fundamentals and the forward curve for freight rates, they remain positive. Based on this and the rates we have already secured, we have raised our full year guidance to reflect a stronger earnings outlook for the remainder of this year. As always, we remain vigilant and agile and with that let us turn to the key drivers shaping the market and our positioning going forward. Please turn to slide number five. Let me just go into first. This is a snapshot of the market landscape and product Tanker rates have remained both stable and attractive across the board and here as illustrated in this graph benchmark earnings for AMR and LR2 vessels. They show resilience and with recent figures reflecting a healthy uptick. This stability is underpinned by increased trade flows and the limited net growth in CPP trading fleet. And here, please turn to slide 6. I'll elaborate on that. Trade volumes have surged recently. They reached a 16 month high at the start of Q3. This growth has been driven by increased east to west middle distillate flows. And for the past two quarters we've been pointing out that low trade volumes on this route have not been sustainable. With inventories in Northwest Europe falling into the lower end of the five year range. We have recently seen a surge in east to west middle distillate, further supported by strong exports from the United States. This has lifted ton miles again to levels well above what we saw before the Red Sea disruption. At the same time, crude cannibalization has normalized more at the historical levels. Looking further ahead, the product tanker market is expected to continue to be driven by geopolitical factors high uncertainty. But we expect market fundamentals to continue to support trade flows and vessel utilization. And please turn to slide 7. Since the start of this year, two refineries in northwest Europe have closed, with two more expected to close by the end of the year. These closures combined correspond to 6% of the region's refining capacity, leading to a lower local product supply and increased need for imported middle distillers in an environment where product supply is already tight. According to our calculations, if all this supply were replaced by imported diesel and jet from the Middle East Gulf, this would translate into an additional demand of 15 to 24 LR2 equivalents per year, depending on whether vessels transit the Red Sea or sail around the Cape of Good Hope. To put it into perspective, this corresponds to 6 to 10% of the current TPP trading. LR2 fleet refinery closes are not limited to Europe. In less than one year from now, two refineries with a combined 11% of the region's capacity will close on the US West Coast. This we expect to lead to increased need for gasoline and jet imports, which according to our calculations will translate into an additional demand of more than 25 Mr. Equivalents on a round trip basis if they all come from Asia. Please turn to Slide 8. Geopolitical developments remain a key driver in the market. In its latest sanctions package against Russia, the EU introduced a ban on third country petroleum products obtained from Russian crude oil from January next year, which mainly affects diesel imports from India and Turkey. We do not expect any significant effect on ton miles from this with alternative sources available from the same distance, but there will be a slight positive impact if imports are replaced by supplies from further away. While it is still unclear whether President Trump's threat of additional tariffs on India will force Indian refineries to shift away from Russian crude, potential reshuffling of crude flows with China taking more Russian oil and India more Middle east or Western oil is likely to be positive for larger crude tankers while negative for the Aframax segment. Nevertheless, we expect the demand lows for Aframaxaxes to be offset by a substantial share of sanctioned Aframaxes not returning to the mainstream trades. Clearly it is still highly uncertain what the US Administration next move visa with Russia is, but we do not foresee any reversal of EU sanctions anytime soon. Please turn to slide 9. Let's take a look at the tonnage supply side and as we pointed out earlier, the relatively high product tanker order book should be seen in combination with the fact that the average age of the fleet is the highest in two decades. In addition, a large share of especially older fleet is sanctioned which is expected to support exits from the market. This is especially the case for the combined LR2 Aframax fleet where every fourth vessel in the global fleet is under either OFEC, EU or UK sanctions. It is especially the OFAC sanctions that had a strong impact on feed utilization with our data showing that ton mile on vessels sanctioned since January has declined by 75%. Lower utilization on sanctioned Aframaxes has incentivized LR2s to move to dirty trades as a result of which we've seen a 2% decline in the CPP trading fleet over the past 12 months. This is while the nominal product sector fleet has grown by 4% driven by new building deliveries. Please turn to slide 10. Looking ahead, several factors will continue to shape the product tanker market including ongoing geopolitical uncertainty, additional EU sanctions against Russia, evolving US trade policy and continuing Red Sea disruption. In addition, returning crude output from OPEC is indirectly supporting our market. On the demand side, oil consumption remains robust and changes in the refinery landscape are increasing ton miles. On the supply side, increased new build deliveries need to be seen in combination with the increasing number of scrapping candidates alongside reduced trading on the Sanction fleet. This will influence tonnes availability and market balance. I'm certain that Tom is well positioned to maneuver in this environment through our conservative capital structure, the operational leverage and the integrated platform. So with that I'll hand it over to you. Kevin, you will walk us through the financials. Thank you, Jacob.

Kevin - (00:11:02)

Now please turn to slide 12 for an overview of the financials. In the second quarter, our TCE amounted to US$208million and based on this, we achieved $127million in EBITDA and US$59million in net profit. We averaged TCE rates of US$26772 per day, with LR2s above US$35,000, LR1 slightly above US$27,000 and MRs around US$23,000. Thus, freight rates during the quarter remained broadly in line with the previous two quarters, underpinned by solid market fundamentals. This stability provides a strong base as we progress through the year with our earnings continuing to reflect performance well above market rates. And now please move to slide 13, please. This slide illustrates our revenue progression quarter by quarter since Q2 2024. With this quarter's results, we now mark three consecutive quarters with stable freight rates and earnings, highlighting a period of sustained performance and consistent market conditions. Despite continued geopolitical uncertainty, underlying ton mile demand remains solid, though we stay alert to how quickly market dynamics can evolve. Against this backdrop, we deliver a satisfying result, Generating CCE of US$208million and EBITDA of US$127million. Based on a fleet wide range rate of US$26,672 per day. Adjusting for gain on sold vessels, EBITDA amounted to US$122million, thus at par with the US$126million realized in the previous quarter. With our current operational leverage, we are well positioned to benefit from any future improvement in freight rates. So for every $1,000 increase in daily rates, our quarterly EBITDA could rise by approximately US$8million based on around 8,000 earning days, highlighting the meaningful earning upside should the market strengthen further. Slide 14, please. Here we show the quarterly development in net profit and key share related ratios, which closely follow the trend in EBITDA. As a result, earnings per share for the second quarter amounted to 60 US cents. Our approach to shareholder return remains clear and consistent. We continue to distribute excess liquidity on a quarterly basis while maintaining a disciplined financial buffer to safeguard our balance sheet. So for the second quarter, this approach has led to a declared dividend of 40 US cents per share, representing a payout ratio of 67%. This aligns with our free cash flow after debt repayments and reflects both our solid earnings performance and our ongoing commitment to responsible capital allocation. And now Please turn to Slide 15. As illustrated on this slide following several quarters of steadily rising vessel values, broker valuations for our fleet were at $2.9 billion at the end of the quarter, reflecting both lower vessel valuation as well as our described divestment of vessels. Although vessel values were down around 7% across the fleet then it is worth noticing that this number is heavily influenced by older tonnage from 2010 to 2012, while newer tonnage has set up relatively well showing only low single digit declines. Turning to the center chart, our net interest bearing debt now stand at US$767million with a stable net loan to value of 27% consistent with the levels be waiting for the last couple of quarters and underscoring the strength of our conservative capital structure. So on the right side of the slide you can see our debt maturity profile and over the next 12 months we only have US$157million in borrowing, maturing just around 14% of our total debt, and we face no significant maturities until 2029, giving us ample runaway and financial stability. But to further strengthen our capital structure, Tom has secured commitments for up to US$857 million on the most attractive refinancing terms in our history. This refinancing package covers two existing syndicated loan facilities and our lease agreements. The new structure will be divided between term loans and revolving credit facilities, enhancing our liquidity and giving us greater financial flexibility. Thus, the package also extends the maturity profile with the new financing running into 2030. Our loan facilities are expected to be refinanced in Q3 2025, while the lease agreements will be refinanced on a rolling basis as buyback options are exercised with final completion expected before Q2 2026. Altogether, our solid financial foundation gives us flexibility to navigate current market conditions and to pursue value creating opportunities as they arise. And now Please turn to Slide 16 for the outlook. Our strong performance in the first half of the year sets a solid foundation for the remainder of the year. As of August 4th, we have secured 56% of our earnings days in the third quarter at an average of TCE of 30,617 per day across the fleet. For the full year 2025, we have fixed 66 of our earning days at an average TCE of US$27, 833 per day. These levels provide us with solid earnings visibility and reflect continued market strength across our business segments. While geopolitical volatility remains a factor, we are seeing improved sentiment in the market environment and on that basis we are confident in both increasing and narrowing our full year. Guidance range. We now forecast TCE earnings of US$800 to 950 million, compared to our previous guidance of US$700 to 900 million. And similarly, we raise our expectations for EBITDA for the year to US$475 to 625 million, up from 400 to 600 million US dollar previously. This revision reflects our secured coverage and the future market expectations, while acknowledging the potential for continued fluctuations. Overall, we remain well positioned to deliver strong results in 2025. So with this I will conclude my remarks and hand over the mic to the operator.

OPERATOR - (00:17:56)

At this time I would like to remind everyone in order to ask a question, press Star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q and A roster. Your first question comes from the line of John Chappell with Evercore isi. You may go ahead.

John Chappell - Analyst - (00:18:14)

Thank you. Good afternoon, Jacob, on page 13, the TCE fleetwide TCE EBITDA chart. The consistency over the last three quarters is really noticeable, especially for an industry that's notoriously volatile and especially given all the geopolitics and macro uncertainty that you mentioned in your prepared remarks. What do you think has caused this. Consistency over the last nine months or so? And does that restrict you at all with the things that you could do with Torm, whether it's positioning vessels or S and P activity or charter in, charter out? Does it kind of restrict some of your flexibility?

Jacob Meltgaard - Chief Executive Officer - (00:18:55)

Well, that's a good question. I think I agree with the fact that it is really a remarkable stability that we've seen, I would say, let's say over the last three quarters predominantly, but it really doesn't restrict us. I always see these markets as that we need to establish, I want to say, a clear view on where is the market kind of headed and what range we are in. And I think we've been range bound for some time here. And I think that as also in my prepared remarks that I think that we're in that I think there is some option of that things could change, the dynamic could change to the upside. Obviously, of course, if we look at for instance, the additional oil coming to market, the fact that trade routes will everything has been equal, still remains stretched and there's further closure of refineries in the parts of the world where we already have, you know, a need for import, I think that sort of the, the headwinds that we've seen, which have sort of put a cap on the market, could in the coming quarters change the dynamics. So that we have more tailwind. So I see it more from that perspective that this is really a solid, solid, I would say, foundation for creating more upside potential as the oil markets also retains that dynamic. I think especially with the opec. OPEC change in sort of turning on the taps.

John Chappell - Analyst - (00:20:41)

Okay, thank you. And then just to follow up, Kim, I think it needs to be asked, I understand you have a calculation for your dividend policy. The payout ratio thus far this year has been lower than it was last year. Now that you've completed this tremendous financing, do you think that the calculation, if we kind of look beyond the leases, maybe fourth quarter or first quarter next year becomes a bit more favorable in the magnitude of payout ratio?

Kim - (00:21:13)

Yes, I do. That is our expectation. So our expectation is that when we look into 2026, for several reasons, our cash flow break even will decrease notable. And, and with that you will also, you should expect, of course it depends on where we are in the markets, but you should expect the payout ratio to the dividend to be higher. But, but the payout ratio also too in itself behind. Yeah, I would expect we would expect that.

John Chappell - Analyst - (00:21:42)

Do you have any sense on what the magnet is it kind of 75 to 80, again, similar to what it was in 24?

Kim - (00:21:51)

Good question. But probably yes, I would, I would imagine that. Now I'm going out on a little limb here because I don't have a calculator before this meeting, John. But I would expect that 80 would be like 75. 80 would be a fine guy.

John Chappell - Analyst - (00:22:04)

Okay, great. Thanks, Kim. Thanks, Jacob.

Jacob Meltgaard - Chief Executive Officer - (00:22:07)

Yeah, thanks. Thanks, John.

OPERATOR - (00:22:10)

Your next question comes from the line of Omar Nogda with Jeffries. You may go ahead.

Omar Nogda - Analyst - (00:22:16)

Thank you. Hi. Hi Jacob and Kim, thanks for the update. Yeah, nice to hear kind of the thoughts of, you know, lower break even and a potential higher payout ratio as we look into next year. I wanted to maybe just ask about kind of what we're seeing here in the third quarter. Obviously some pretty good guidance in terms of your bookings, but you know, especially on the Mrs. Where you're showing 28,000, which is quite a bit above kind of peers, but also what you have been capturing the prior few quarters and which is interesting because the LR2s and LR1s are kind of flattish to slightly higher, but it's really the misses that have gone up. Can you just talk about what's driving that upside down and what can we expect from here for the rest of the year?

Jacob Meltgaard - Chief Executive Officer - (00:23:02)

To the extent you can say. Yeah, so I think at a granular basis what I've been thinking about, and I think it's the right question is, okay, what has been driving this? And really, as we look at the data points, the fact that CPP on the water now has going into the third quarter gone up to, you know, the highs that we've seen for more than a year is significant. In combination with that, if we, if we go back exactly 12 months, I think we were all sort of a bit puzzled by the fact that crude tank is predominantly Suez. But also some Vs were really turning their attention to the CPP market, taking away demand for about 8% or so. And now we are back to 1% of the trading, Suez and VLCC being in our market. So I think the combination of that really, you've seen a trading uptick sort of in general, you see these, the cannibalization, at least for now, having more or less evaporated from a very high, historically unusual high level. And that really just trickles down more into the MLS because you only have that many LR2s trading, as I alluded to it is a little fascinating that I think we have all been following the order book of LR2s, watching and thinking, okay, that's, that seems to be quite a hefty order book. But the fact is actually that even I think numbers is, let's say that there's 50 vessels that have been delivered over the last three quarters or so. The trading feed of Vellatus is the same sort of in broad strokes. So I think it's just this filtering down into that there's just more than more trade at a granular basis in the MRs and that we've also then been assisted by the fact that in the larger segments that TPP has simply not been moving on our sister vessels or the sister segment in to the extent that it was. So it's been very, I think the fact that it is so widespread demand is extremely positive because I think it demonstrates a very solid market. When you see that it's not like that we should count just okay, how many cargoes are there of NASA out of the 80 Eurasia? I mean, that will not tell you the dynamic and the strength of the market. It is actually a lot of progress of strength. And that's what in aggregate leads us to that we've got more CPP on the water now that at any point in time over the last 16 months. And it's really that underlying strength that translates into the Mr. Rates that you've seen. Thanks, Jacob. That's very helpful.

Omar Nogda - Analyst - (00:26:14)

To get a good lay of the land there. And so I guess maybe just with. That backdrop, a lot more cargo in the water, less cannibalization. So the fleet in general is seemingly tighter. You talked in the, in the presentation just about values having been softer. You're obviously very transaction oriented with the acquisitions and the sales. What are you seeing right now in terms of the S and P market? Are values finding a floor? Is there any potential for them to rise just given this improvement in rates? Any color you're able to share on that front?

Jacob Meltgaard - Chief Executive Officer - (00:26:48)

Yeah, I think it's a very good question. Our thinking is that in these markets the first thing that to observe is obviously spot rates drop. They can, they can. As we all understand, following the volatility and trend over the last three years. You know, flood rates are very volatile and they can change, you know, really fast. And that's what they actually did over the last year is that they kind of. Also from the slide that was referenced before on the ebitda, it seems as if actually rates have been stable over at least 3/4, whereas asset prices have been slowly coming down. And I think this is a little like you would expect also in let's say a real estate market or it's rare that you like, certainly get that all everybody puts the price down of their assets at the same time. It takes a little time to get the clearance prices. And I think we've reached, in our opinion we're sort of at that flexing point where rates have stabilized for a longer period. It has meant that asset price have also been creeping down. But that right now, if we sort of take a snapshot, I would argue that they're probably stabilizing around the prices that we've seen also reflected in our Q2 end of Q2 numbers. And that now it remains to be seen what happens over the course of this quarter and the next quarter. And I think that there is potential if freight rates, they start to climb up in a general sense that asset prices could either stay or go up from where they are now. That would be the logical. Okay, very interesting.

Omar Nogda - Analyst - (00:28:48)

Thank you, Jacob, again for that. I'll turn it back.

Jacob Meltgaard - Chief Executive Officer - (00:28:53)

Yeah, thanks again.

OPERATOR - (00:28:56)

If you would like to ask a question, press Star one on your telephone keypad. Your next question comes from the line of Srode Moradel with Clarkson Securities. You may go ahead.

Srode Moradel - Analyst - (00:29:08)

Thank you. Hi you guys. This is so the market. Just looking at this slide you provided. On page five or six, I think on the CPP somewhere else, it sounded like it was trade volumes driving that. Up. So the question is really have you seen any change to the miles component? I feel like a lot of the have been more like a regionalized trade for a while and we've basically been waiting for let's say the inter basin trade to pick up on the LR twos. Right. So are you seeing any change there?

Jacob Meltgaard - Chief Executive Officer - (00:29:53)

Yeah. So yes, trade volumes as it's rated exactly as you say on. On slide number six, I believe it is, has gone up the ton a mile on. This is reflected also in the fact that the incentive to bring middle distillates from especially Middle East Eastern hemisphere into the west has also increased in this period. So it means that everything has been equal. We'll both have an effect on. On volume, but also on the distances sales. So it is a combination of both because of the restructuring, you could say of middle distillers into the inventories in Northwest Europe. I think we were, if you followed our last couple of calls, I think we have been a little puzzled that sort of from a strategic point of view that the suppliers of middle distillates were not to a larger degree still maintaining their inventories at higher levels. But you know, towards the end of the second quarter, it was then clear that now you could no longer just eat out of inventory and that you needed to replenish. And that was done predominantly from Middle east and also US Golf, but also mainly driving up volumes and miles. Great.

Srode Moradel - Analyst - (00:31:30)

And then on the next slide, which was also great, the refinery closures. Right. Can you talk a bit more maybe you talked, you said it already. But what's the timeline here when one can expect this positive effect to kick in?

Jacob Meltgaard - Chief Executive Officer - (00:31:50)

Yeah, so we believe that at the end of 2025 already. So within this year we will see the European refiners be closing down. So they have been how do they. Moving along at a slow pace. But the decision has been made for them to finally close business and are no longer viable. So that will already be from the end of this year. Whereas in the US west coast, as I as I mentioned, that will be in about a year time from now. Okay. This one USA shows up. Is middle of next year expected? Yeah, yeah, mid next year. But it's obviously the greater picture around that, if I just may add a little comment, is that obviously that from a political standpoint it is the ambition to close the local refineries down. In for instance referring to Western Europe and also US West Coast. But it has just proven that those actions have sort of accelerated compared to how fast the transition on the demand for Exactly. The product that they're producing. So it may be that the consumption, let's say on the US west coast is slowly going down, but the pace of process is much faster than that. And that means that we will be called upon in the broader product tanker market to carry more cargoes, actually.

Srode Moradel - Analyst - (00:33:43)

Yeah, indeed. I guess my final question is on the. This Russian price cap change. Specifically. I guess. I mean there's a lot of LR2s that are trading into dirty trades, right, which has been positive. But then when the, the EU lowers the price cap, you might. The atomixes, right, that are trading legally Russian crude today will lose that compliance and then they have to move out of that trade and into the conventional market, which it would put downward pressure on mathematics crude rates probably. Do you see that as a threat. To that switching for LRT or not?

Jacob Meltgaard - Chief Executive Officer - (00:34:37)

Yeah, I think that it is. Clearly the jury's up on the real effect of this. I think that the fact that these vessels, especially if you look at the type of vessels that have been sanctioned, which in many cases also would be the vessels that you point to, whether they can easily both from sort of a commercial point of view, be accepted back in the trades that we operate in as number one, and whether they are also actually maintained in that is what I would probably argue that on the margin a lot of vessels will not easily come back. And I think quite a lot of vessels are actually not maintained to a standard where it makes sense for them to sort of be retrofitted into the standard of our type of customers. So obviously the jury's out. But it does seem to me as if when investments have been made by people into the gray feed or the dark feet and that they then subsequently get sanctions, they are not looking for a long term investment. They are looking for the short term gains of being in a trade that few people want to touch. And the. And sort of the operating earning is what they're looking at is not the maintenance of the vessel that is the main focus. So the jury's out. I think that it could be negative as you point to for mid sized vessels and more positive for VLCC as this trade goes on. But most likely there is quite a part of this, let's say crude trading, LR2 aframaxes of older vintage already sanctioned that will have a hard time coming back either for sort of commercial reasons or for, because of after a period of time that they have substandard.

Srode Moradel - Analyst - (00:37:00)

Okay, thank you guys, thanks.

Jacob Meltgaard - Chief Executive Officer - (00:37:04)

Thanks for the good questions.

OPERATOR - (00:37:07)

Your final question comes from the line of Clement Mullins with Value Investors Edge. You may go ahead.

Clement Mullins - Analyst - (00:37:14)

Hi, Good afternoon and thank you for taking my questions. I wanted to start by following up on John's question on the cash breakeven. Could you talk a bit about the average margin on the sale and leasebacks you're buying back relative to the margin on the new financing facilities?

Jacob Meltgaard - Chief Executive Officer - (00:37:33)

I think it is. I think you can actually find it in R20F. I would recommend you take the recent trend here for you can find both. You can find a full overview of our leasing arrangement. The reason why I'm saying that it is a split on the specific arrangements. And of course it's another cost, but it is a fixed rate there. So the comparison here is when you then look into the syndicate facilities we've made, that will also be published. We've not published it, but the rate is. It will also be visible in our upcoming 20th for 2025. But it is notably lower than what you can see that we have in our current syndicated facilities that are around 1.85, 1.9. So it's significantly lower than that.

Clement Mullins - Analyst - (00:38:20)

Makes sense. Thanks for the color. And you sold the 2008 Bill Thorn discoverer and the Torn Voyager. Could you disclose the selling price for modeling purposes?

Jacob Meltgaard - Chief Executive Officer - (00:38:32)

We have agreed not to disclose prices for those vessels with the. With the buyer of them. But we will not.

Clement Mullins - Analyst - (00:38:40)

All right. I had to try. Thank you for taking.

Jacob Meltgaard - Chief Executive Officer - (00:38:43)

That's just how it is.

Clement Mullins - Analyst - (00:38:45)

That's fair. Of course.

OPERATOR - (00:38:51)

Any more questions?

Jacob Meltgaard - Chief Executive Officer - (00:38:53)

That concludes today's question and answer session. I would now like to turn the call back over to Jacob Melsgaard for closing remarks. You may go ahead.

OPERATOR - (00:39:04)

Yes, thank you very much. And I just want to say thanks to all of you for being interested in soarm and for listening in today. Have a great day. Thank you. This concludes today's conference call. You may disconnect.