Half Year 2023 TORM PLC Earnings Call
However, this will coincide with a significant increase in recycling potential as the feed built in the 2000s is reaching their natural scrapping age.
Hello and welcome to the TORM PLC 2nd Quarter and 6 Months Ended 2023 Results 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 this time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, again press the star 1.
Consequently, the next sequence could even turn negative in the second half of this decade.
Please turn to slide 12.
Another aspect important to mention in connection with the recent pickup in the LR2 ordering is that giving the versatility of the LR2 fleet which can trade both clean and dirty products, the LR2 order book should be seen in connection with the dirty Aframax order book.
I will now turn the conference over to Andreas Abildgaard-Hein, Head of Investor Relations. Please go ahead.
Welcome to Tom's conference call. We are pleased to have you with us and have been looking forward to presenting to you the results for the second quarter of 2023. We will refer to the page numbers that we present during the call and at the end you can ask questions if you are attending the phone conference. If you are joining via webcast you have access to ask questions during the presentation as well. After this conference call you will be able to listen to a recording and as usual you can find our presentation and other relevant data on our website. Please turn to slide two. Before we start presenting the results I would like to draw your attention to the safe harbor statement.
The combined order group is currently at 11%, which compares with 5% of the combined feed reaching 25 years old during the same period. If we consider that this segment normally has a lower average grabbing age, which has historically been 21 years,
Please turn to slide 13. Now, to conclude my remarks on the product cycle market, we see that the main demand-inspired drivers on the product cycle market continue to be supported. The trade recalibration that already started last year and that has led to a step change towards higher average rate rates will continue to support the market also this year, with new large refineries ramping up in the Middle East being an important driver in this development. We are on track to reach the full trade recalibration effect, although we saw some fallback in the second quarter on lower trade volumes both into Europe and out of Russia.
Please turn to slide three. Today's presenters are as usual Executive Director and CEO Jacob Medford and CFO Kim Bell. Please turn to slide four. I will now hand over to Jacob. Thank you, Andreas, and good afternoon. Good morning to all. Thank you for connecting with us for our second quarter 2023 result presentation. Today we will present the strongest second quarter in our history. For more information, visit www.drsusan.com
quarter and an EBITDA result of $237 million.
And, as we also discussed, the positive demand side is complemented by a supportive supply side situation securing a low free growth for at least the next two to three years. With that, let me hand it over to Jukid. Thank you, Jakob. Please turn to slide 14. Focusing on our earnings development during the second quarter of 2023, we once again obtained strong performance, TCE increased to 308 million US dollars in the second quarter, which is higher than both the previous quarter and the same quarter last year. Sequential increase from the first quarter of 2023 is mainly due to unrealized profits Laurie.
adjusted for unrealized gains on FFA contracts of 37 million USD, our EBITDA result increased 23% to 199 million USD, while profit before tax increased 72% to 184 million USD compared to FFA.
to the same period last year. Return on invested capital was 33.9% in the second quarter before correcting for unrealized gains on financial instruments related to freight and bunker and our balance sheet remains strong with a net LTV ratio of 29%.
and available liquidity of $497 million. This morning, TOMS Board of Directors approved a dividend of $1.5 per share based on the second quarter and we expect to distribute around $126.6 million here in September .
For this our adjusted EBDA was $199 million. And over the past four quarters we have achieved an adjusted EBDA of a total of $923 million. During the same period, Tuomas declared dividends of a total of $578 million including $923
In the first half of the year we have taken delivery of all the seven LR1 vessels acquired in early January and the three MR vessels that we announced was acquired in March. We also sold and delivered one LR1 vessel with the fleet ending at 87 vessels at the end of June .
During the second quarter we entered into a collaboration with CPOC to participate in the tanker security program led by the US Maritime Administration. It means that three of our MR vessels will participate in the program and on the go re-flagging to the US.
Please turn to slide 15. If we look at our largest vessel class, the MR class, they have performed strongly, also when comparing to our peers. Including the latest four quarters, Tom has consistently outperformed our peers by an average rate of $33,862 per day, equaling a premium of TCE of $75 million. Needless to say, we are very pleased with this performance and see this as a validation of our business model and our once-on platform.
while continuing their regular operations on the Toms commercial management when not operating under the Tenga Security Program. We expect this agreement to contribute positively to our links.
As of 14th August we have covered 74% of the third quarter at 30,534 US dollars per day, which is a reflection of the slightly lower market rates that we saw in the latter part of the second quarter as a result of refinery maintenance, product stock draws and slightly lower demand for products.
consistent positioning of our vessels in the basins that give the highest turn. Please turn to slide 16. If we dive further into the details of our GT race, the average race for MS for the second quarter were $33,862 per day for ELAR-1s.
36,674 US dollars per day and for a lot who's 47 918 US dollars per day. The average across the fleet rate was 36,360 US dollars per day.
As I'll be explaining in a moment, we expect the markets to recover and we expect a stronger fourth quarter.
Now please turn to slide 5.
Based on our rates and coverage as of 14th August 2023 we had fixed a total of 74% of our earnings days at 30,534 USD per day in the third quarter across the feed.
Since the start of the Russian invasion of Ukraine and the consequent introduction of sanctions against Russian oil products, we've seen a step change in product tanker freight rates towards a higher average level as sanctions have led to a recalibration of freight flows towards longer distances.
This has also brought along a higher volatility level as the product tanker fleet has moved closer to the point of full utilization where even small changes in the underlying demand and supply are creating high volatility in freight rates.
will naturally have an impact in the earnings for the third quarter. Part of the mentioned coverage has been made with FFA contracts and as per 14th August 2023, the coverage for the coming quarters was 825 LR1 earnings days fixed at approximately 45,000 US dollars per day and 1,478 MR earnings days fixed on approximately 40,500 dollars per day on average. In the second quarter we have 7,398 earnings days and we expect to have 7,685 earnings days in the third quarter.
In this environment of increased volatility, being able to position our fleet towards the premium trades and regions is even more important. And this means that having access to the right customers and the right cargo combinations is essential.
We can see that we, with our one-tone integrated platform, continue to have strong support from our customers and we remain confident that we will have access to the cargos and trades that in turn enables us to position our fleet in the premium regions.
based on full effect of the vessels acquired during the second quarter and taking into account that some fire was sold and is expected to be delivered in the third quarter.
effect of the vessels acquired during the second quarter and taking into account that some fire was sold and is expected to be delivered in the third quarter. Please turn to slide 17.
Here, please turn to slide six.
When we look more closely at the main market drivers, the geopolitical conflict in Europe and the resulting EU ban on Russian oil products has been the most important demand driver side for one and a half year now.
We continue to evaluate our opportunities for fleet expansion and renewal. Thus, we have acquired and taken delivery of total of 10 secondhand vessels in the first quarter of this year. We continue to evaluate our opportunities for fleet expansion and renewal.
and has sold one business.
This means that as of 13 June 2023 the value of the 87 vessels that we had in our fleet reached 3.1 billion USD which is an increase of 875 million USD since the same time in 2022. The vessels acquired in the first half of this year alone have increased by 8% in value since we acquired them.
As a result, the composition of EU imports has undergone a significant change from being mainly short-haul to being predominantly long-haul.
This has translated into a 40% increase in EU import ton-mile during the post-sanction period compared to the same period a year ago.
The vessel value increase result in a net asset value of 2.5 billion USD at the end of June 2023, which is 1 billion USD higher than the same time last year.
And this is despite the fact that EU imports have been 15% lower year on year, which was a result of higher imports and product stockpiling ahead of the sanctions as well as the fact that EU oil demand has seen some weakness so far this year. Similarly, Russia has been successful in redirecting the market.
This is despite the fact that EU imports have been 15% lower year on year, which was a result of higher imports and product stockpiling ahead of the sanctions as well as the fact that EU oil demand has seen some weakness so far this year. Similarly, Russia has been successful in redirecting the market. Please turn to slide 8.
Since the end of the quarter, one vessel has been sold and is expected to be delivered in August . Hence, by the end of the third quarter, 2023, we expect to have 86 vessels in our fleet.
We've already seen the product tanker market rebounding here in the first half of the third quarter, with increased product flows out of almost all main exporting regions, encouraged by global complex refinery margins reaching record seasonal levels.
Consistent with our distribution policy, our distribution is derived from the liquidity available for distribution, adjusted for a minimum cash reserve of 1.8 million USD for 87 vessels, as well as cash reserved for future vessels acquisition and restricted cash. Over the past 12 months, Tom has utilized a strong market to strengthen our financial position, while at the same time paying out a total of 578 million USD, equivalent to 74% of the net profit generated in the period.
Underlying this development is the global oil demand scaling record highs, averaging an all-time high of 103 million bales per day in June .
And it is not only driven by China. Also, oil consumption in industrialized countries has returned to growth.
In the second quarter we completed the refinancing of bank and leasing facilities for 480 million US dollars and further secured a 73 million US dollar facility that can be used for additional second hand basic financing.
Subsequently, clean product volumes loaded on LRS and MR's globally have rebounded from the lower levels seen during the second quarter.
Subsequently, clean product volumes loaded on LRS and MRs globally have rebounded from the lower levels seen during the second quarter. Please turn to slide 9.
After the completion of the refinancing, total debt increased by 70 million USD, of which 50 million USD are related to purchase of the three secondhand MRBs that were delivered during the second quarter. Interest rate hedges cover 70% of the floating break debt at a rate of 1.4% over the coming five years and combined with our fixed debt.
Further supporting the product anchor market is the fact that since the start of this year of 2023, a considerable number of LR2 vessels have switched from clean to dirty trades. This has reduced the clean trading LR2 fleet by a net of 9%, with recent crude export costs in Russia and Russian crude trading above the G7 price cap. However, this factor is not likely to provide further support to the product anchor market in the coming months. As EFRMAX rates have weakened significantly, the
rate leasing 83% of our debt is fixed over the coming years. Please turn to slide 18.
Summing up, the performance we delivered in the second quarter was historically strong compared to the second quarter results in the past. It is a reflection of a continuous strong product-sanger market and the largest fleet in Tom's history that resulted in an increase of 54%.
Recent software markets have provided some with 74% coverage at 30,534 US dollars per day for the third quarter of 2023. Thus, we expect the delivery result in the third quarter to be slightly softer than in the second quarter. However, market fundamentals and dynamics are pointing towards a stronger fourth quarter where both seasonally increasing demand, lower product stocks and arbitrage spreads are supporting a stronger market. We are pleased that the strong earnings and balance sheet have allowed us for another quality dividend payout of 1,5 US dollars per share. And over the past year, the total dividend payment has reached.
$7 per share. All in all, our delivered results confirm some strong operating model consistently performs better compared to our peers. Thus, our MR feed has outperformed the peer average with $75 million over the past year. We attribute this once on platform and our dedicated.
We attribute this to our One Tom platform and our dedicated Tom employees. And with that, we will leave the operator with more questions. Thank you. If you have a question, please press star one on your telephone keypad. If you wish to remove yourself from the queue, simply press star one again. One moment please for your first question.
Your first question comes from the line of John Chappelle of Evercore ISI. Your line is open.
Thank you. Good afternoon. Jacob, first question for you, two-parter. On the one hand, you said that you have liquidity and you're going to continue to focus on fleet expansion. On the other hand, you said publicly that new buildings are too risky, just given the uncertainty over the next 25 years.
The question is, what's the sweet spot for you as you look to further fleet expansion? Is it kind of the 10 to 12 year olds that you've been buying recently? And secondly, you mentioned the order books up to 10%. Is there a risk that people have or other owners have too much short term focus and that's what's driving your book higher and aren't really focusing on
the risk associated with fuel propulsion, etc., you know, more than five years out. Thanks, John . Yeah, good question. So, number one.
If we were to have the luxury of identifying assets that we think could be a contributing process to the platform, I think currently it's unchanged. It's vessels that are probably in the, let's say, between.
2010 and 2015 around that. That feels like the sweet spot for us. We think that the market will be strong.
for at least a number of years and that would lead us in that direction.
Take your other point around the order book this video
Yes, it is gross. 10%. What is unusual?
It's not so much that it's 10%, but it is that it's spread out over such a long period, as I mentioned, annualized 2.8%. And I don't see.
here in the let's say initial three years that it's gonna change from from that.
investors or market players.
putting their money on solar towards the end of 26 into 27. And let's see what happens. I think the chip-back capacity in general is going to be a scarce commodity because there is less...
availability on the shipyard side. Spin restructuring is based on Asian shipyards and they are all across capacity.
And at the same time, you are going to.
I think for the foreseeable future you
tend to favor
more infrastructural type of projects like LNG, carriers that for sure is globally also needed.
vehicle to provide gas into areas, for instance in Europe where you have previously been dependent on gas from Russia.
So I think all in all, yes, I expect the order book to creep up, but I do expect it to be quite manageable when you consider what is happening then to the 18 feet here in the second half of the decade.
Okay, thank you for that.
Yeah, my second question has to do with the next six months, much shorter time frame. It feels like everything's set up for another seasonal recovery, whether it's the inventory draws, the refinery's opening, the IEA's sequential growth and demand, another Northern Hemisphere winter on a continent where...
I think there's more risk to diesel supplies this year than last year. What can go wrong with a seasonal recovery this year? Is it strictly the economy? Is it something related to China? Where can we not have the type of seasonal uplift that we've seen in the last couple of years in the fourth quarter and into the early part of next year? Yeah, that's a good question.
I would probably look towards, generally I would look towards weather.
There is some danger on the crude side that the transportation of crude continues to be subdued.
that the
platform access
have been faring really, really well. As you can see also from the various results of companies engaged in that. And it feels as if right now it is extensive a little on the crude.
transportation in the medium-sized vessels in the upper masses. If that continues, it would encourage people to try to penetrate the clean market. So I think the jury is out on that over the next couple of months.
I think that is one one to watch
China, I'm not so concerned because it's a crude story and right now we're not really seeing a lot of export of clean being available in the market for our type of vessels. That would actually be a tailwind. I think China can almost not be...
I want to say, supporting the product has made the market less than what they're doing now.
because there's very very little exports and I think that we are I think the potential for them
Opening up.
opening up for more exports given where their economy is.
is that seems like a more likely scenario than going the other direction.
That would not be a concern to me.
All right. That's good. Thank you for your thoughts, Jacob.
Thank you. Thanks for the question, Jim.
There are no further dial-in questions at this time. I will now turn the call back to Andreas for any online questions.
we have a few questions. First one is for you, Jacob.
Do we see a considerable challenge of augmenting the supply adequately in the near future due to the contraction of shipyard capacities?
Could you provide more detail on that?
I think that's a very good comment. We've already mentioned that more or less all capacity in the short to medium term have already been booked. What I would say is that they are capable of delivering a product into the product's income market.
So that means that you are looking at either tier two CPUs.
that could potentially maybe add a little to the order book, or you're looking at really long dated contracts delivery back end of 2026 or into 2027. So I think that the restructuring sort of the CPR scene is benefiting.
the product anchor because it was especially middle-sized Korean tip gas that 10 years ago were the big contributors to the order book. And those big guys have either
closed down or have turned their focus predominantly to other places. There's actually only very few CPRs left that are focused on product and goods, which is significantly different than if we dial the clock back 10 years. So that's number one. And number two is, how do we get the data to the right place? And number three is, how do we get the data to the right place? And number four is, how do we get the data to the right place?
that there is a need, as I mentioned also under the previous call, to still buildNow I'll even a joke with these five minutes...
that there is a need, as I mentioned also under the previous call, to still build infrastructural projects.
which I personally think the L&D market has been, and there is a strong demand
personally think the L&D market as being and there is a strong demand from both producers of gas
in the Middle East and also the importers for instance in Europe to actually get control of deliveries also in 2026-2027. I think there will be more contracting into the processing model but the fact that there is basically less
supply to go to, less opportunities of CPLAs that can build it and that you are competing currently. We take consolidation, the door is always open at home for consolidation. I think the fact is that we are doing really well. I can see that our peers in the market are also...
and benefiting from these strong currents. So I think even though that I could, I would say, have an open invitation for consultation, I can, hand around, say that there is no active dialogue. And I think in the current environment, that most odds andatzms decline and meet some realverse concerns
investors are pretty heavy with the positions that they have. That's my instinct. So I don't expect a lot of activity on that.
If you look at disposal, we are obviously utilizing our vessels for as long. We have the luxury in terms that we got a one-tone platform. So we are not discriminating against the HVAC. We are looking at what gives us all time.
the highest return on our invested capital. And that includes vessels that are between 15 and 20. But if you look at it, then historically I think the average age of assets that we have been selling are somewhere in the very high teens. So it seems logical that when and if we dispose of assets...
is in that age bracket. So I would expect over time that there will be further disposal of vessels in that age range. That seems totally plausible.
Thank you. Then we have one more question for you, Jacob. Are you mostly committed to spot markets and hedge with FFAs? Yes, that has been at least the way we have played the market since, let's say, first quarter of last year when we saw the market have a step change. We think that there is a value to be had in being open to the spot market with this high volatility. Just as an example, we are experiencing that
exactly let's say two months ago in the middle of June , the spot market for our MR's in the US Gulf would be hovering around earning of 20,000 and today as we speak it's probably closer to 50,000.
to sort of close down that optionality of being able to also have these spikes in the market. I think we benefit as a company and our shareholders benefit from still being able to be open to that. And then we...
from time to time to hash. When in it we think that the value on FFA is significantly close to where we think the model will be, then we will utilize that. Could we do TCR, I think clearly if some of us are…
top tier clients came to us and requested tonnage for a longer period. Of course we are willing to do that at a price also.
Thank you.
Your staffing cost has increased significantly since one year ago.
Is this something you can put some more details on and do you expect the DNA to stay around at the current level? Thank you very much for that question and well well spotted If we take the DNA at many cost in general
That is one of the common KPIs we have across the One-to-one platform. Every employee has that as a KPI.
Meaning that we are in some super focused on maintaining the strict, how strict. So we are very comfortable with the calculations that we're doing. Obviously, we have a significant number of us in our fleet today that are over 15 years and we also have experience.
the previous lessons, having them.
operating efficiently in our feet when they are over-fitting. So the way we see it is actually that it is quite dependent on the general maintenance of the individual vessel.
So I don't think you can like put a one-to-one on say on every vessel is going to be X or Y. But what we see is that in order to pass what is called the cap one.
requirements when you are 15 years old, there is an extra associated cost, a capex of between half a million to one million dollars, that is dependent to that. But of course, you are also extending the useful life towards
the general market, the same market as the vessel that is below 15 years by doing it. And so far we've been very pleased with the results that we get out of it on the OneSong platform. I don't think that it can be easily replicated. So I don't think that what I'm explaining here necessarily fits.
one-to-one with other operational platforms.
But all in all, the NPV for us is making this additional investment.
have made sense.
Thank you very much. There are no further questions so this concludes the earnings conference call regarding the results for the second quarter and first half year of 2023. Thank you for participating.
You may now all disconnect.