Operator
Thank you for standing by. My name is Angela and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2026 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the comment over to Mr. Jacob Melgaard, CEO. You may begin.
Thank you, and welcome to everyone joining us today. We started 2026 with a very strong first quarter, delivering results that demonstrate both the earnings power of our platform and the strength of our execution in a supportive freight market. This morning we released our Q1 2026 results and we are pleased with the performance. However, before I go into the details of the quarter, I would like to take a step back and briefly talk about TORM and the foundation that underpins these results and continues to differentiate us in the markets. Again, our performance was driven by a combination of strong freight rates, disciplined execution, and the one-tone platform. While we remain attentive to global developments, we continue to align ourselves with market changes and believe we have a unique ability to react quickly to movements in spot prices. This is something we are often asked about. The answer is that it represents a quantifiable advantage over our peers, what we refer to as the one-torn advantage. It is now embedded in the way we operate and is the capability our competitors would undoubtedly like to replicate. Importantly, this advantage is the result of a journey over many years, a journey that continues to evolve. We are able to track this across a range of performance indicators. For example, over a three-year period, our MR fleet generated TCE revenue that exceeded the peer average by approximately US$200 million, reflecting the strength and efficiency of our operating model through higher utilization, disciplined cost control, and strong commercial execution. This culture of operational excellence is supported by our centralized management platform that coordinates and accelerates our decision-making. This is good news for our investors because it means we are now extremely well-placed for the complex landscape ahead and we remain confident that the shifting sands of geopolitical uncertainty continue to present opportunities for us. Thus, it's no surprise to us that Tom's share are currently in focus among the investment community as a route to unlock value from this uncertainty. And now please to slide number four. As always, I'll start with the key financial outcomes for the quarter to give you a clear picture of how the business is developing. During the first quarter, we delivered TCE of US$286 million, representing a clear continuation of the positive earnings trajectory seen over recent quarters. This was significantly higher than the same quarter last year, driven by consistent freight rates throughout the period, which strengthened further towards the quarter end. These conditions reflect a value chain currently characterized by abnormal trade flows and structural inefficiencies, resulting in elevated margins, not only for tanker companies like us, but also for our customers who are capturing strong profitability across the trading and refining segments. That top-line performance translated into an EBITDA of US$201 million and a net profit of US$122 million, reflecting both the strength of the market environment and our ability to convert rates into earnings through disciplined commercial execution and operational leverage. Supported by the continued strength we see across our markets and the solid momentum entering the remainder of the year, we are therefore increasing our full year guidance to US$1.15 to $1.45 billion, underscoring our confidence in sustaining profitable growth. Also, we continued active fleet renewal, adding younger second-hand investors and committing further acquisitions while divesting older tonnage. after quarter-end, and we also agreed to acquire six MR resales with expected delivery of four in 2027 and two in 2028. These acquisitions further enhance fleet flexibility and earnings capacity while preserving a prudent age profile. As of quarter-end, our fleet consisted of 95 vessels. Once all the before-mentioned transactions are completed, the fleet will increase to 103 vessels on a fully delivered basis. Please turn to slide 5. Before moving to the broader market, let me briefly address our current operating status. Safety remains our highest priority. We currently have one vessel inside the Persian Gulf, and I'm pleased to say that the crew are doing well, morale is high, and provisions are not an issue. As we will describe on this call, the market impact has been significant, tightening effective supply and contributing to the sharp increase in freight rates. Bunker prices have also moved higher, although availability remains secure. Throughout this period, our approach has been clear and unchanged. We take a safety-first approach in all operating decisions. Please turn to slide 7. Following a strong close to 2025, product tanker markets entered the first quarter of 2026 with rates stabilizing at levels well above historical averages. This strength was supported by broader momentum in the crude tanker market, which benefited from record volumes of cargo on the water, as well as the return of Venezuelan exports to the compliant fleet, and generally more cautious use of sanctioned vessels globally. On top of this the development was further supported by the consolidation of the ownership in the VLCC segment. The outbreak of the U.S.-Israel-Iran war in late February and the subsequent closure of the Strait of Hormuz marked a further and unprecedented escalation in tanker rates. This is clearly reflected in our commercial performance with with Q2 average bookings to date above US$70,000 per day across vessel sizes. Taken together, these dynamics have created one of the strongest cross-segment market environments we've seen in several years, underpinned by both structural and event-driven factors. And kindly turn to the next slide, turn to slide 8, please. The closure of the Strait of Hormuz had an immediate and profound impact on global energy flows. Approximately 14% of global clean petroleum product volumes and around 30% of crude oil movements that would normally transit the strait were suddenly constrained. Combined, this corresponds to approximately 20% of global daily oil consumption. In scale and immediacy, this represents the largest oil supply disruption the market has ever experienced. On the clean product side, the impact was uneven. NAFTA and jet fuel were disproportionately affected, reflecting the Persian Gulf's central role in global exports, accounting for 37% of global NAFTA exports and 21% of jet fuel under normal conditions. Diesel and gasoline were relatively less exposed. As the next slide will show, only a fraction of these lost volumes have been replaced so far, underscoring how structural this shock has been. Please turn to slide 9. In crude markets, part of the lost Persian Gulf supply has been mitigated through pipeline redirection from Saudi Arabia and the UAE, alongside increased flows from the Atlantic Basin. However, reduced crude availability at Asian refineries has caused meaningful run cuts, which in turn has sharply reduced clean petroleum product exports from the region. By the end of April, global clean petroleum product rate was down by roughly 16% as incremental supply from Western markets proved insufficient to offset the loss of Middle Eastern and Asian export. Crude oil trade saw a decline of similar magnitude. Despite this contraction in traded volumes, product tender rates remained elevated. Some of this reflects longer replacement voyages and urgency premiums. But the more important explanation lies on the tonnish supply side, which I'll address on the next slide. And here please turn to the next slide to slide 10. The closure of the Stradermalmos caused significant vessel dislocation, with more than 200 crude and product centers stranded inside the Persian Gulf. This equates to roughly 3% of the global product center fleet and 6% of the crude fleet. As vessels were rerouted toward regions with replacement volumes, we saw higher ballast ratios and materially increased inefficiencies. In simple terms, ships spending more time sailing empty to reach their next cargo. In the MR segment, increased east-to-west balancing was partly offset by stronger west-to-east cargo flows as Asian product supply tightened. At the same time, we saw an unprecedented shift of LR2 vessels into crude trading, the so-called dirty ops. By the end of April, the number of L2s trading clean products had fallen by more than 50 vessels compared with the start of the year, despite the delivery of 27 new buildings. As a result, effective CPP trading feed capacity declined by around 4%, even before accounting for the vessels stranded in the Gulf. These turn to slide 11. It is however important to recognize that this migration of L2s into crude trading began well before the Straitable Moose closure. Since 2025, the Afromax and L2 segments have faced extensive vessel sanctioning largely linked to Russian crude trades. In 2025 alone, more than 200 Afromax and L2 vessels were sanctioned. This has created a growing disconnect between new building deliveries and effective fleet growth. Since the start of 2025, nominal product tanker capacity is up 8%, yet the capacity actually trading clean today is around 4% lower. The scale of sanctions is noticeable. One in four vessels in the combined AFROM-MAX LR2 segment is currently under US, EU or UK sanctions. This comes on top of an already balanced order book due to the higher share of older vessels. With 60% of the sanctions fleet older than 20 years, the prospect of these ships returning to the mainstream clean market, even if sanctions were lifted, appears increasingly limited. And now turn to slide 12. Let me frame this slide with one central point. What we are facing is not a return to normal, but a structural market reset. First, on timing. The duration and persistence of the closure of the Strait of Hormuz remain uncertain, despite recent diplomatic attempts to end the conflict. Currently, tanga transits through the Strait of Hormuz remain more than 95% below the pre-conflict levels. We don't know when transit will resume, and we are not speculating on the timing. That uncertainty is real, and we are managing the business responsibly with that reality in mind what is equally important however is what happens after reopening when transits resume the market does not simply switch back to where it was there will be tonished dislocation and significant vessel repositioning as assets re-enter trade lanes that have been disrupted for an extended period that creates friction in efficiency and volatility conditions where agile operators outperform. At the same time, depleted strategic and commercial inventories will need to be rebuilt, a multi-year process that supports sustained activity rather than a temporary outlet. The UAE's recent exit from OPEC enables higher production, which is likely to accelerate the replenishment of global oil stocks. It's also important to remember that tanker market strength was already evident before the trader promotes closure. Those fundamentals were paused, not erased. From our perspective, the key is readiness. We have deliberately built an agile business platform that allows us to react immediately so when the trade opens we are well positioned to benefit from the market reset please turn to slide 13. now to conclude on the market the tanker industry today is operating in an environment shaped by an unusually large and growing number of geopolitical factors trade routes cargo flows sanctions regimes and security considerations are all contributing to greater market inefficiency importantly it is not new but it has intensified since 2022 the number of geopolitical variables we are navigating has increased significantly adding friction and complexity to global energy transportation for the industry inefficiency translates into to longer voyages, dislocated torrents, and volatility. For well-positioned operators like us, it also creates opportunity, provided you have the scale, agility, and discipline to navigate it effectively. And with that, I'll now hand it over to Kim, who will walk us through the numbers.
Thank you, Jacob. Now please turn to slide 15 and let me walk you through some of the drivers behind our performance. The product anchor market entered 2026 on a strong footing and this momentum was sustained throughout the first quarter supporting another solid set of results for TORN. For the first quarter we delivered TCE of US$286 million translating into EVDA of US$201 million and a net profit of US$122 million. These results reflect firm freight markets across the quarter and our continued ability to consistently captured this across the field. On a field-wide basis, average TCE was US$34,937 per day, and by segment LR2 earnings exceeded US$41,000 per day, AMRs earned just under 33,000 per day, while LR1s came in around US$35,000 per day, i.e. up significantly compared to the freight rates we had a year ago. Our TC earnings were affected by timing issues related to IFRS 15. Under IFRS 15 we recognize freight revenue from when cargo is loaded until it is discharged, not from when the voyage is agreed and hence influenced by changes in balance patterns. It does not impact our underlying cash earnings or the economic performance of the vessels. Again, the realized earnings level highlight the continued strength of the underlying market, supported in part by very firm crude tanker rates, which again influence product tanker dynamics positively. With that overview in place, let me turn to slide 16, where we break down earnings down in more detail and walk through the underlying drivers. This slide illustrates our quarterly earnings development since the first quarter of 2025. and what stands out very clearly is the step up we see in the most recent quarter. For the Q1 results we delivered, a meaning uplift in earnings, continuing and accelerating the positive trajectory we have seen over recent quarters. This reflects the strength of the freight market and confirms that the supportive market conditions are translating directly into financial performance. For the quarter, we generated a TCE of $286 million dollars and EBDA of US$211 million, making this our strongest quarterly result since the second quarter of 2024. It is a clear validation of both the market environment and our ability to capitalize on it. The primary driver was firm freight rates supported by strong spillover from the crude tanker sector and continued geopolitical disruptions in the Middle East, which have introduced additional inefficiencies into the market. Importantly, given the inherent operational leverage in our business model, incremental rate improvements translate efficiently into higher earnings. This sets out a solid foundation as we move through the reminder of the year. Please turn to slide 17. On this slide, we show the quarterly development, net profit alongside earnings and dividends per share. Starting with earnings, net profit increased to US$122 million corresponding to earnings per share of US$1.21. Returning to free cash flow generation and capital returns, it is important to note that a combination of high freight rates and elevated bunker prices resulted in a net working capital increase of around US$30 million during the quarter. Against this backdrop, the Board has declared a dividend of US$0.7 per share, equivalent to a pay-up ratio of 58%. This reflects the free cash flow generated after accounting for the working capital build. Absent to this effect, the implied pay-up ratio would have been in the range of 80% to 85%. We believe this once again demonstrates that our capital return framework strikes the right balance remaining clear and disciplined while being firmly anchored in strong and sustainable underlying cash earnings generation. And now please turn to slide 18. As shown on this slide, broker valuations for our fleet stood at US$3.6 billion at the end of the quarter. This reflects a continued positive sentiment across the tanker asset market and results in an increase in our net asset value to US$3.1 billion. Importantly, average broker valuations for the fleet increased by 9.7% during the first quarter, with particularly strong appreciation seen in the LR2 and LR1 segments. This development is an acceleration of what we observed the previous quarter and further underlies both the improving market backdrop and the quality of our asset base. turning to the center chart you can see our net interest rate of debt which now stands at US$894 million and this corresponds to a net loan to value ratio of 25.1 percent keeping us comfortably within the range we have maintained for many quarters this highlights the strength of our conservative capital structure maintaining stable leverage at these levels provide us with significant financial flexibility allowing us to pursue value attractive opportunities as we have demonstrated this quarter while at the same time preserving balance sheet resilience through micro cycles finally on the right side you see our debt maturity profile we have u.s dollar 287 million in borrowings maturing over the next 12 months and beyond that maturities are modest and well distributed across the subsequent years overall our solid balance sheet positions as well to navigate current market conditions with confidence while preserving the ability to act decisively on attractive opportunities as they emerge and now please turn to slide 19 where i will walk you through our group for 2026. based on the strong start to the year and the earnings visibility we we now have in the near term, we are upgrading our full year 2026 guidance. For the full year, we now expect TCE of US$1.15 to 1.45 billion, up from our previous guidance range from US$850 to 1250 million. At the same time, we upgrade our EBDA guidance to US$800 million to 1.1 billion, compared with the previous US$500 to 900 million. market conditions have reached exceptionally strong levels in the second quarter supported by tight tonnage balance and continued trade dislocations as a result we have already secured 57 percent of our earning days in q2 at a feed wide average of tce us dollar 71 494 per day a significant share of this quarter is therefore fixed at very attractive rate levels providing a high degree of near-term earnings visibility this strong coverage gives us very a very solid foundation for the year and reflects the positive fraction we have seen across all data segments thus this upgrade reflects two main factors first the strong earnings performance delivered in the first quarter and second the very strong coverage we have secured for the second quarter at rate levels that are unprecedented for the product tanker market. For the uncovered days, we have, as usual, used the forward derivatives market as a And as always, the updated guidance remains subject to market volatility, geopolitical developments, and potential changes in trade patterns, particularly as we move into the second half of the year.
Operator
That said, we believe our upgraded guidance appropriately reflects both the strengths of the current market backdrop and the visibility we have today and with this i will hand it back to the operator thank you we will now begin the question and answer session if you have dialed in and would like to ask a question please press star 1 on your telephone keypad to raise your hand and join the queue if you would like to withdraw your question simply press star 1 again if you are called upon to ask your question and are listening by loudspeaker on your device please pick up your handset and ensure that your phone is not on mute when asking your question. And your first question comes from the line of John Chappell with Evercore ISI. Your line is now open.
Thank you. Good afternoon. Kim, I want to go back to the dividend slide. You mentioned it briefly, the 58% payout ratio, but would have been 83.5%.
Can you remind us what that difference was um and then if it's associated with the new builds how do we think about the payout ratio going forward is it closer to this 58 which was the lowest payout ratio since 3q22 or does it return something to that 80 percentage range that it's been for much of the last three years hi john thank you very much for that question uh what i tried to communicate was that uh when we saw the market rate increase during uh during march uh we will have uh dso's freight day freight days outstanding of around let's say 45 to 50 days so meaning so we book the the the cargo the fixing but we will get the liquidity those days later so i it means that we will not get liquidity in the same month of march we will get that booking in april as an example so in that sense we build up a networking capital and if you add the increase in bunker prices i.e the effect on our bunker inventory that in itself those two in itself equated to around 30 million us dollars and that was why i added it to to the earning or sorry to the dividend we paid out and if you if you add that you will get to the 80 to 85 percent so it has nothing to do per se with the the resales that we bought it is just a reflection of the network and cancel build up when markets react as they did over one month and then over a quarter and where we report so does that mean that there's a catch-up so to speak in the second quarter assuming rates stabilize or maybe even pull back a little bit from the highs is that networking capital then work in your favor whereas the second quarter or maybe some quarter in the second half the ratio is well over the 80 to kind of uh make that timing even out yeah exactly i think you used to think about it so say that things were steady now throughout the next quarter you would get it back would it increase for would rating rates increase further you would probably higher a bit more network encounter would decrease you would get it even more released so that that's
all okay yeah that's super important thank you for the clarification um and then jacob uh kind of strategic outlook you talked about the opportunities that you have you know if there is a normalization uh also just thinking about the strategy you obviously bought the resales um there's been a lot of time charter activity especially in the bigger ships lr2s um are you still kind of fully exposed to the spot market or do you think there's some opportunities at some of these elevated levels and maybe some charters and traders reaching out for some term to uh you know get some fixed cash flows for one one to five years yeah so we had done a few chatter outs one year
three year we've done some forward cover for next year on derivatives when markets were were a little higher that's an efficient way of us to sort of capture value protect the level but still have let's say the operational flexibility on our assets so we've been doing we've been doing that the way you describe it of course it's a trade-off between as you can see the elevated rate environment that we have currently and then and then the forward projection but but we like to do a little of of all in this in this environment so some a little shorter one year some a little longer three years and some somewhat forward you know 2020 covering 2027, already now on some derivatives trades.
One last one for me. Sorry if this is too many. Obviously, the resales make sense in the framework of modernizing the fleet. You've been pretty active in some older vessels' sales. And given the fact that older asset prices, at least on paper, seemed to be even higher, it was maybe a little surprising that some of those resales weren't offset with older vessel disposition. So is that just a function of trying to maintain as much leverage to the market as possible, or is the liquidity in the secondhand market for older vessels maybe not as robust as it's been recently?
Oh, I think definitely it's robust, but we've simply just done, yeah, done simple math. We feel that our balance sheet is in pristine shape as Kim alluded to, so I think we are of the opinion that the asset base we have have longevity and optionality and also the way the market behaves with quite high volatility, it means that that can be attractive earnings in many scenarios that we look at going forward. I think it's going to be volatile and chubby. You know, in many ways, we've seen that here over the first and second quarter, I think that will continue, but fundamentally, we believe that this is offering a lot of opportunity for our platform. But we do evaluate exactly as you described, John, you know, what is the better sort of net present value that we will get, selling an asset or keeping it with the rate environment that we predict? Thanks, Jacob. Thanks, Kim. Thank you.
Operator
Your next question comes from the line of Broad Morkedal with Clarkson Securities. Your line is now open.
Thank you. Hey, guys. I wanted to follow up on the acquisition of the six awards. I'm not sure if you talked about the price. um you know maybe you could talk about um the price level versus let's say older ships right so that's probably how you thought about it uh resale value in 2007 versus somewhat older um and uh yeah that's it we have come to the decision of uh of the purchase of the six
uh resale MRs is exactly as you point to that we evaluate uh what is the earning that we would be having on various assets you know and various age profiles in the coming years we then also compare it basically you could say there's three buckets that you could that you could invest in if you if you are looking to make an investment it would be existing ships on the water with, you know, whatever age profile that you could dream up. It would be resales with relatively early delivery, or it would be that you go to a shipyard and do complete new contracts, so new building contracts. And right now what we found was that we did find a kind of a gap where we saw the market being attractive from the pricing and timing of the delivery of these resales being better than paying let's say the same price for a deferred delivery out in three years out compared to having a resale three quarters out was just simply a better more attractive solution for us and also better than identifying vessels on the water where prices as also Jonathan pointed to have been creeping up as of late so it's it's simple math that has driven us to that this price point and delivery point is in our opinion the better of the three choices if you are looking at it and and and we found that this one also meet our return criteria for making uh the the risk adjusted return that we are looking for in any of our investments yeah interesting uh what kind of uh just returns are you talking about i mean i understand that on your comments here you basically are acquiring these ships that say uh probably less than 60 million right per ship and then a five-year-old ship today is probably similar level right so you're arguing that you get more modern better ships but the same price something like that right um yeah and then maybe you could tie it into the required mr rate to uh to get like a decent return on it sure yeah so i mean we don't disclose our forward thinking but the way we model is exactly the way you you more or less describe it we would of course put in yeah let's say financing our operating cost etc and at the end of the day we would then compare with our earning potential and I think to say that in our modeling we probably look at about five years out and then we'll look at sort of a residual risk basis exactly what you also describe what would be a five-year-old residual sort of market value at that point in time and what I then described is that in the hurdle on that return on that investor capital It's, of course, internal for us, but this way of making an investment exceeds our sort of hurdle for believing that that's a good investment. So we think it's a good investment for our shareholders and that is an asset that would be appreciated, obviously, by our customers at the time.
Yeah. Understood. Yeah, you probably have a $50 million investment. You probably only need like $23,000 per day overtime to get like a 10 to 12 percent return or something like that right um anyway shifting gears on the market i wanted to hear your thoughts on the drivers here are clearly been very very strong start to q2 right uh maybe you could talk a little bit about the trade flow uh adjustments right we've seen refineries closing down obviously in the middle east but also in asia and now u.s golf has come up and ramped up exports and clearly adding to ton miles but then again at the same time you've seen phrase rates come off the boil so to speak recently maybe you could talk a bit a little bit about how you think rates will develop now in the short term are you do you think like uh there's more normalization the race uh or could i let's say that's all final about them now yeah okay so as you point to then this sort of dislocation of of the sourcing for many buyers had led to longer term we've already discussed that that is that also
translated into higher margins for our customers it translated into higher freight rates for ourselves and the ecosystem of transportation and just recently we've seen that the i think our freight rate is driven by our customers and and basically by how the arbitrages And you had a period where the arbitrage west to east was wide open, obviously leading to that when the ARP is open, that customers in, let's say, in Asia, Australia, East Africa, these areas that would normally be looking towards the Middle East for their supply, they were bidding up cargoes that were available in the western hemisphere. this has come off a little uh right now there's been a period where our understanding is that the end users have been a little more reluctant i think they've been looking at the situation in the straight of a moose and sort of valuing hey you know if we get cargo out there it's going to come faster it's going to come cheaper so maybe you know let's just cool the jets a little so Margins have come in, less attracted, and of course then volumes come down because the sellers of the product will then have also competing areas, more local areas, that will also make a call on exactly the same tons of products. let's see what I think one of two would happen in the near term either the straight up moves actually opens and cargo volumes will increase and flow through the straight due to that if it doesn't I think the call on products from the western hemisphere to the eastern hemisphere will yet again increase margins will widen again and you'll see that trade that that is how I think that's the most likely that one of these two scenarios uh play out the current where there's no let's say called on products from either straight of most because it's impossible or from the west because the margins are not obviously sufficiently high i don't think that is a long-term trend okay interesting thanks for the good color that's it for me thank you very much your next question comes from the line of bendick folden from dance bank your line is now open yes thank you um i'll just turn to to your your guidance for the second quarter uh obviously
extremely strong but i want to know if there's any effects we should should be aware of here sort of um unpaid balance days anything like that that's quite sort of method or modeling on on the talker yeah spawn faster stress so we use the methodology here so so we take q1 and we take coverage that we have for q2 and then we have the as i said to the to the forward market to to take that as the benchmark so you should not sort of see it necessarily as this is uh how we foresee the markets month by month uh we very much on the the four freight markets see that we observe the market. Of course we have the Q1, Q2 but then the object stays based on I hope that clarifies it. So it's a guidance that we are obliged to present and update and we have to find this methodology and perhaps I should add that we do that and then we stress it with a plus minus uh tc around that uh for this quarter is plus minus 7500 it's very uh methodology uh of mathematically easy to uh to uh both explain and understand but that's how we do it uh so um play this in the model for that oh it makes sense and for for the second quarter specifically um utilization-wise i could be in like uh some ballasting or something like that
Yeah, so there's nothing that distracts the numbers as you point to, Benek. So the numbers for Q2 includes ballast when and if a vessel has had to have a longer ballast prior to the employment. So all of our numbers include the previous, just like included in the daily.
Operator
Thank you. You're welcome. there are no further questions i will now turn the call back over to jacob for closing remarks well thank you very much uh there has been very good questions thanks for listening in And this ends the 2021-2026 report for Tom.
