Operator
Hello and welcome to the TORM full year 2025 results 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, press star 1 on your telephone keypad. I would now like to turn the conference over to Jacob Melgaard, CEO. You may begin.
Thank you and welcome to everyone joining us here today. This morning we released our annual report for 2025 and we are satisfied with the results, which once again reflect our strong execution across the business. However, before I now turn to the results, I want to spend a little time talking about TORM and the foundation that enables these results and consistently differentiates TORM in the market. I want to talk about the key pillars of our business that have placed us in a strong position to date and that we believe will continue to do so in the future. We are immensely proud of what we have achieved here at TORM. Our ownership model and culture provides us with a clarity of purpose that streamlines our actions across the business. We are focused each and every day on staying one step ahead of other fleets to make the most of every opportunity. We believe our ability to deliver on this ambition for our shareholders is a distinct competitive advantage. Underpinning our strategic focus is the platform you will know as OneTorpe. We believe this is a point of difference that sets us apart. The model was originally built around a spot-oriented strategy to unite the business and accelerate decision-making and response time. It enables us to use real-time data and insights to share our deep expertise at the core of the business at a moment's notice. We are not complacent. Since its inception, we have continuously refined this model using the latest technology advanced analytics and proprietary data at our disposal to ensure we remain as alert and responsive as we possibly can be. In short, we can identify and capture attractive trading opportunities even in the most challenging markets. And, perhaps I should say, especially in challenging markets. Exactly the type of markets which now characterize the shipping industry even as we see comparatively fewer headwinds here into 2026. For our shareholders, this approach offers a very clear advantage. We believe an industry benchmark for unrivaled consistency, strategic optionality, and financial discipline that you can see once again in our numbers. And here, please turn to slide number four. here in the next two slides we show the key figures for the quarter and the full year as always i'll start with the quarterly numbers to give you a clear picture of how the business is developing in q4 tce came in at us dollar 251 million slightly above q3 supported by firm freight rates throughout the quarter this strong performance resulted in a net profit of us dollar 87 million which enables us to declare a dividend of 70 cents per share once again demonstrating how higher earnings translate directly into higher shareholder returns during the quarter we were active in the s p market we added two 2016 build lr2s and six mr vessels built between 2014 and 2018, while divesting one older 2008-built Ella II. Several of the vessels were delivered before year-end, bringing our fleet to 93 vessels, and after completing the remaining deliveries at the start of 2026, our fleet comprises 95 vessels. Importantly, our investments were exceptionally well-timed. Based on current broker valuations, the vessels we acquired have already been appreciated by a double-digit US dollar amount. This reflects not only the quality of the assets and a disciplined approach to capital allocation, but also a market that continuously turned more positive, supporting higher asset values across the product tanker space. Now turning to slide five, we show the full year numbers. These are strong results. A year ago, our TCE guidance was US$650-950 million, and we closed the year towards the high end with US$910 million. While not matching the all-time high in 2024, it remains a very satisfactory outcome. Freight rates strengthened from the first to the second half of the year and ended at attractive levels. In this environment, TORM achieved fleet-wide rates of US$28,703 per day, which we are very pleased with and which again demonstrates our ability to outperform the broader market. Net profit for the year tolled US$286 million, of which US$204 million is being returned to shareholders with that overview in place let us take take a step back and look at the broader market dynamics that shape the environment we operate in and here please turn to the next slide to slide 7 and after a softer but still historically strong 2025 product tanker freight rates have now have now returned to the average levels that were seen in the 2022-2024 market. Underlying demand for product tankers has remained steady, and the recent uplift in rates has been driven primarily by development elsewhere in the tanker complex. The crude market has moved into territory that, while not unprecedented, is extremely rare. RealtyC spot rates have surged to the US$200,000 per day range, a unique and record-breaking level, and with charterers reportedly fixing one-year deals above US$110,000 per day. This strength is spilling over into the rest of the market, first into SuezMax and AfroMax, and then further into clean product thinkers. If this momentum continues, we are potentially looking at a very interesting rate environment. At the same time, sanctions in the dirty AFROMAC segment have tightened vessel availability, triggering a large shift of LR2s from clean to dirty trade. This reduction in clean LR2 supply has further supported product tanker earnings. After several years of partial decoupling between segments, the product tanker market is once again being carried by the broader strength in crude. VFCCs, as mentioned in particular, continue to benefit from increased open production, renewed stock building demand from China, heightened geopolitical tensions involving Venezuela and Iran, and further consolidation in the segment. All these factors together have created one of the strongest cross-segment market backdrops we have seen in years. Please turn to slide 8. And here, let us have a look at the product tanker demand side. Seaborn volumes of clean petroleum bottles have been trending upwards in recent months. However, the overall impact of the Red Sea rerouting has been largely neutral due to lower trade volumes and a partial return to Red Sea transits. Trade volumes from the Middle East and Asia to Europe have started the year at 30% below pre-disruption levels, which is largely a result of lower flows from India amid introduction of an EU ban on imports of all products derived from Russian crude. At the same time, an increasing number of vessels have resumed transiting the Red Sea, with an on average 40% of the clean petroleum potter volumes on the Middle East Asia to Europe route traveling via the Red Sea in 2025. This is up from under 10% in 2024. As a result, we see limited downside risk from a potential full normalization of the the Red Sea transits, as much of this effect has already been unwound, and instead a likely rebound in clean petroleum trade volumes after the normalization of the transit would increase tonne miles. This is reinforced by the closure of 5% of the refining capacity in northwest Europe last year, which is driving higher import needs for middle distillers. Additional support comes from sustained strength in crude tanker waves, which limits the crude tanker cannibalization, and also from rising clean products on miles driven by refinery closures on the U.S. west coast. Currently turn to slide 9. Let's turn to now the supply dynamics. New building deliveries have increased here in 2025, but this has not translated into effective growth in the fleet trading clean products. In fact, since the start of 2024, nominal product tanker fleet capacity is up by 8%, yet the capacity actually trading clean today is 1% lower than it was at the beginning of 2024. This disconnect is primarily due to sanctions in AFRAMAX segment which had incentivized a significant shift of LR2 vessels into dirty trades. To illustrate this point, compared to the start of 2025, currently there are 20 fewer LR2 vessels transporting clean petroleum products and at the same time as 65 new buildings have been delivered to the LR2 fleet during the same period. The scale of the sanctions is notable. one in four vessels in the combined Afromax LR2 segment is currently under US, EU or UK sanctions. This comes on top of the fact that the order book is already balanced by the high share of overage vessels in this segment. Next slide please, slide 10. And here let me just elaborate a little on vessel sanctions. So most sanctioned vessels were added to the list last year. So in 2025 alone, more than 200 Afamaxanela-2 vessels were sanctioned. This is 3.5 times the number of new billing deliveries in the segment in 2025, and it is equivalent to almost the entire combined new billing program for a three-year period from 2025 to 2027. With 60% of these now sanctioned investors being older than 20 years, their likelihood of returning to the mainstream market, even if sanctions were listed, appears to be limited. And now turn to slide 11, please. Geopolitical developments continue to be a major driver of market dynamics, and in fact, the list of different geopolitical drivers has only gotten longer in the past four years. The growing number of policy interventions and geopolitical flashpoints increases uncertainty and associated inefficiencies. Beyond the policies directly affecting product tankers, developments in the crude tanker market, such as a potential tightening of sanctions against Iran, rising opic production, are also indirectly supportive for product tanker demand. We sincerely hope for a ceasefire between Ukraine and Russia. However, we see the likelihood of trade returning to pre-war levels as very low or non-existent in the foreseeable future, given the EU's clear determination to tighten sanctions. The EU ban on Russian crude oil and oil products has been by far the most significant sanction against Russia in terms of ton miles. And the new 20th sanction package the EU is working on is potentially adding a full maritime services ban to it, forcing an even larger share of Russian oil flows into the shadow fleet. This would likely further increase the inefficiencies of the fleet trading Russian oil. Please turn to the next slide, slide 12. And in summary, the key geopolitical forces continue to shape this year's market. While a potential normalization of red seed trenches is unlikely to weigh on the market, the EU's ban on Russian oil will continue to underpin longer trading distances. On the demand side, ongoing shifts in global refinery capacity continue to support ton-mile expansion. On the tonal supply side, the increase in new building deliveries will be balanced by a growing pool of scrapping candidates and reduced participation from sanctioned vessels, factors that will influence overall autonomous availability and market equilibrium. Against this backdrop, I'm confident that TORM is well-positioned to navigate an environment marked by uncertainty and supported by our solid capital structure, strong operational leverage and our fully integrated platform. So with that, I'll now hand it over to you, Kim, who will take us through the numbers.
Thank you, Jacob. Now please turn to slide 14 and let me walk you through some of the drivers behind our performance this quarter and for the full year. Starting with the market backdrop, the product anchor market stayed strong throughout the fourth quarter and that supported another solid result for us. For Q4, we delivered TCE of US$251 million, which translated into EBDA of US$156 million and net profit of US$87 million. Across the fleet, our average TCE came in at US$30,658 per day. Breaking that down, our LR2 earned above US$35,000, LR1s were above 31,000, and MRs were just under US$29,000 per day. For the long range vessels, these numbers were actually a bit better than we indicated in our Q3 coverage, reflecting continuous strong markets, held in part by very firm crude tanker rates. For the full year, we delivered TCE of US$910 million, EBDA of US$471 million, and net profit of US$286 million. These are solid numbers. As expected, earnings moderated from the exceptional levels of last year but they remain robust and importantly very much in line with the guidance we shared in november and turning to shareholder returns with a strong q4 earnings per share reached 88 cents and the board has declared a dividend of 70 cents per share bringing total dividends for the year to us dollar 2.12 per share we continue to believe that our capital return framework strikes the right balance clear disciplined and supported by robust cash earnings generation and with that overview in place let us move to side 15 where we break down the earnings in more details and talk through the underlying drivers side 15 shows our quarterly revenue progression since q4 2024 with this quarter's results we see a meaningful optics, building on the positive trajectory in freight rates and earnings we delivered over recent quarters. It's a clear indication of the favorable market environment we are operating in. For the quarter, we delivered TCE of US$ 251 million and EBDA of US$ 156 million, making our strongest quarterly performance this year. The underlying uplift is driven by firm freight rates supported by solid fundamentals and a positive spillover from the crew tanker segment as mentioned given our operational leverage we were well positioned to benefit from what we already see as very attractive freight rates please turn to slide 16. here we show the quarterly development in net profit and the key share related metrics for the course fourth quarter earnings per share came in at 88 cents our approach to shareholder returns remain clear disciplined and consistent we continue to distribute excess liquidity on a quarterly basis while maintaining a prudent financial buffer to safeguard the balance sheet for q4 this has resulted in a declared dividend of 70 shares cents per share corresponding to a payout ratio of 82 percent this is fully aligned with our fee free cash flow and debt after debt repayments and reflects both the strength of our earnings and our ongoing commitment to responsible capital allocation and now please turn to slide 17. As shown on this slide broker valuations for our fleet stood at US$3.2 billion at year end. This reflects a continued positive sentiment in the market and results in an NAV increase to US$2.6 billion importantly to know average broker valuations for the fleet increased by 4.2 during the quarter driven primarily by higher valuations for our lr2 vendors which saw the strongest appreciation this uplift further underscores the improving market backdrop and the quality of our asset base in the recent quarter or sorry in the sensor chart you can see our net interest bank debt which now stands at US$ 848 million corresponding to 29.4 in net LTV. The increase reflects the vessels acquired made during the quarter which naturally required incremental funding. Importantly even with this investment driven uptick our leverage ratio remains within range that we have maintained over recent quarters typically between between 25% to 30%, underscoring the strengths of our conservative capital structure. This stable leverage, sorry, this stable level continues to provide us with ample financial flexibility to pursue value-accreative opportunities while safeguarding balance sheet resilience across market cycles. On the right, you can see our debt maturity profile, we have US$135 million in borrowings maturing over the next 12 months, excluding these terminations that have already been refinanced. Beyond that, only modest amounts fall due in the following years. Overall, our solid balance sheet gives us sustainable financial flexibility to navigate current market conditions with confidence and to pursue value-creating opportunities as they emerge. Now please turn to slide 18. this time we have added a new slide to show what is actually what it actually means for the value creation when we consistently achieve rates above the market average the mi segment is our largest exposure and the segment where competitors also have meaningful scale making it the most representative benchmark for the product and the market we could of course perform a similar comparison for LR2 vessels however the benchmarking becomes less robust as many of our peers operate only a relative small LR2 fleet limiting the comparability and statistical relevance for such analysis that's it based on the data available a comparable calculation for the LR2 segment would probably brought to show the same picture as shown on slide 24 in the appendix we compare the rates we achieve with those of our peer group order after quarter and year after year we have consistently delivered rates well above the peer average and in most quarters even market leading this performance is a direct outcome of the one-time model that jacob discussed and which continues to differentiate us in the market but on this slide when we take the analysis a step further by quantifying what that actually means then holding everything else equal we calculate the premium tc by taking our spot tc relative to the p average multiplying it by our operating days and comparing that figure directly with our dividend in each quarter from 2022 to 2025. this provides a clear transparent view of the changeable financial value created by outperforming the market. Two examples illustrate the impact. In 2022, we returned US$381 million in dividends. Our premium TCE was US$38 million, around 10% of the total dividends paid. And in 2025, based on first three quarters, the premium reached US$49 million. Compared to our full-year dividend of $212 million, that represents 23% of the total. So the message is clear. Our strong rates have a material and measurable impact on our dividends returned to our shareholders. Across that period, which includes different market conditions, we have returned US$1.6 billion in cash dividends. And our analyses show that premium earnings from the MR fleet accounted for roughly 15% of the total dividends paid over the past four years. And now please turn to slide 20 for the outlook. We are stepping into 2026 from a clear position of strength and solid momentum across our In Q1, we have already secured 70% of our earnings days at an attractive average TCE of US$34,926 per day. This strong coverage provides a robust foundation for the year and reflects the positive traction we are seeing across all VESA segments. With the coverage already logged in and the encouraging market outlook ahead, we expect TCE earnings of US$850 million to 1.25 billion and EBDA of US$500 to 900 million. Both ranges are based on our midpoint internal forecast, after which we apply a defined range to reflect the uncertainty associated with the full-year outlook and the potential volatility in the market conditions as the year progresses. and with we are entering the year with confidence and real momentum behind us and with this I will conclude my remarks and hand it back to the operator.
Operator
Thank you. If you would like to ask a question please press star 1 on your telephone keypad. Please ensure your phone is not on mute when called upon. Thank you. Your first question comes from Froden Morkadal with Clarkson Securities. Your line is open.
great thank you hi guys uh first question i have is on the ebitda guidance or the revenue guidance if you could um you know i'm curious about uh what type of spot rate assumption you made there of course i understand there's a lot of moving parts in this type of guidance but uh you know uh let's say lr2 mr rates in in the high end what are what what's the implied rate if you if you can share that hi for i can tell you about our methodology that we use when when calculating
our guidance for the year so we take the coverage the fixed days we have already made for q1 And then we apply the unfixed days for the rest of the year with the forward curve that we see in the market for the remainder of that period. And then you get to a midpoint. And from that midpoint of TCE, you then deduct our normal cost and get to an EBDA. And depending on where the freight rates are, we stretch that with an interval. uh and as they are high right now you will see compared to last year that the the interval is slightly higher than we had a year ago that is due to both well they are set the higher rates freight rates but also more earning days of course so that's the methodology behind so we are basically building it on what we have achieved already and then the markets right for it so so is it is this ffa market or time charter rates you're looking at or it's a four freight rates at the river and can you can you just say like the midpoint is that
where roughly that curve today or when you made the guidance yeah it's around 30 400 across the fleet right okay that's the reference point um so yeah with this uh i wanted to discuss the how you see the strength in the crude markets uh impacting the products uh clearly you talked about the switching uh i'm curious to know if you think there's more to go there um i have noticed
that crude affirmatives are still trading with quite a significant differential to allow to spot rates so yeah curious to hear your views yeah uh obviously some will tell but i think clearly the strength that we are seeing across the crude segments is first and foremost having a direct one-to-one impact on the behavior of the lr2 fleet and lr2 owners so the incentive currently to switch from being participating as an lr2 in the cpp market and potentially moving into the crude market is a little dependent on whether you are in the western hemisphere or the eastern hemisphere but just as an example as you point to in the western hemisphere there's a clear financial incentive to switch over. I think we will see more of that as we showed in the graph. There is basically fewer vessels that are available due to the sanctions regime imposed especially by the UK and EU but also by OFAC. So that means that that the compliant requirements for our customers, whether it's in CPP or in dirty trade, is serviced by pure vessels, pure assets. And that is pushing rates higher as we speak. We see term rates rising and they are not to the extreme volatility that we see in the blcc segment but still significantly higher for a one-year charter today than what it was at the beginning of the year and i think this trend let's see how it plays out but i think it is here to stay so we're quite optimistic like the earning power in the in these segments to be honest i agree um i guess the the acquisition you made uh i think it was eight shifts right
uh in q4 that was um a pretty good timing uh i think we discussed it last time but maybe you could just discuss how you thought about the investment case at the time uh clearly it's been uh was a good idea to buy these ships uh and secondly what's your view now uh at this point in time of further opportunities to acquire ships yeah so so i think it it's like this for that we we did when we had the conversation i think also on this call in q4 i think we illustrated that we are looking at it quite methodically and and just saying what is the sweet spot in terms of
our expectation of the free cash flow that we can generate from an asset and what where's the asset and what we identified was these pockets of the we could buy some lr2s um and we did some here actually towards sort of mid mid-december bought a couple of chips and and clearly today the price of these assets and one of them is actually only delivering tomorrow is already up by 20 percent so if you isolate it out and just say yeah that's good timing but the backdrop of that is of course also that now when we have to sort of do our own uh thinking around potential other acquisition clearly with the with assets rising like this it gets harder to make the next acquisition so i think we we were fortunate about the timing on uh on these eight ships we actually had hoped to be very honest to to have the up the end a little on that uh in in terms of number of assets but they were simply not available at that point in time at attractive prices so i think we just had to regroup a little as the prices are moving quite fast and we just have to regroup and make sure we we still follow our methodology and not get carried away but i'm i'm optimistic that
we can maybe identify a few let's say some some other deals that that sort of fits the bill on our return requirements right interesting uh great works thank you guys may i just uh i need to answer your question you started a bit more precise than what we did just so it's clear how we do it on the guidance I just didn't have them in my head I have the numbers here so if you take Q1 we had covered 8,177 days with the 34,208 then we take the uncovered days that's 25,691 at 30,371 and then you do the math from there then you come to a total number of days, hovering days and an average TCE. And then you get to a TCE and you stress that.
Right. That's a good info. So on the stress test, do you have like a percentage plus minus or?
That's we derived it a few years ago, but the way we use it is plus minus TCE. And it depends on how much stress depends on what the actual TCE level is. The lower it is, the lower the stressors, the higher the stressors. So it depends on where you are on the actual TC levels.
Okay. Interesting. That's good. Thank you.
Operator
Thank you, Frodo. Your next question comes from Clement Mullins with Value Investors Edge. Your line is open.
Hi. Good afternoon, and thank you for taking my questions. I wanted to start by following up on Frodo's question on NAFRAs and LR2s. Could you talk a bit about the portion of your LR2 fleet that traded dirty throughout the quarter? And secondly, on the LR1 side, have you seen an increase in the proportion of vessels trading dirty over the past few months?
Yeah, thanks for those very precise questions. So I'll start from the back end of this. So we have not really seen that the dirty market has affected the LR1s in our fleet and in our case. And when we look at our investment on the spot, we basically have 10% to 20% of our LR2 trading spot dirty. And then we've got another 10% that is on Tumshara dirty.
That's helpful. Thank you. And you continue to outperform peers on the MR side with your chartering team doing an excellent job. Could you talk a bit about what portion of your administrative expenses is attributable to the chartering team versus kind of the corporate side? Any call you could provide would be really helpful.
Yeah, so we actually don't account like that. As I tried to illustrate also in the beginning, on the OneZone platform, we believe that it's not actually the chartering team that is the secret source it is actually the power of that you have an organization you know ranging from the employees on board or ship to the people doing the accounting and operations technical and of course also as you point to the chattering team but their success is not an isolated thing that has to do with with their ability it's the whole structure so we don't I don't have an answer. I don't know the number. It's not the way we think about it.
Yeah, makes sense. I have to try. I'll turn it over. Thank you for taking my questions.
Operator
There are no further questions at this time. I'll turn the call to Jacob Meltgard for closing remarks.
Yeah, thank you very much, everyone, for listening in on the annual report 2021 for 2025 obviously for for Tom thank you very much for listening and have a great day this concludes today's conference
