Q3 2023 TORM PLC Earnings Call
Thank you for standing by my name is Danica and I'll be your conference operator today at this time I would like to welcome everyone to the charm plc nine months and third quarter 2023 results conference call. All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll 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 you would like to withdraw your question Press Star one again, thank you.
I'd now like to turn the call over to Andreas a Bill Guard Heine. Please go ahead.
Right.
Welcome to <unk> conference call.
We are pleased to have you with US today, we will present the results for the third quarter and first nine months of 2023.
We will refer to the page numbers during the presentation.
During the call you can ask questions via the webcast.
We will address at the end of the conference. If you are joining via phone conference you can ask a lot of questions at the end. After this conference call, we will be able to listen to a recording and as usual you can find our presentation 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 our safe Harbor statement.
Please turn to slide three.
Today's presenters are as usual executive director and CEO, Jacob <unk> and CFO Kimberly.
Please turn to the cycle.
I will now handle what you Jacob.
Well, thank you Andreas and good afternoon. Good morning to all thank you for connecting with US for our third quarter 2023 result presentation.
We are pleased to present, yet another quarter with healthy financial performance, our salt in the first nine months of 2023, well historically strong despite temporary softness in the third quarter, which was related to a decline in freight rates over the summer.
We realized a TCE of $244 million in the third quarter, and then EBITDA up 178 million U S dollars.
The decline in earnings in the third quarter is as I mentioned, there was sort of a temporary drop in frankly over the summer across all vessel types and why does the product stocks in the third quarter of last year were being replenished before the sanctioning of Washington.
This year, we still see that stocks are being drawn down to very low levels.
If we look at our own fleet and capacity available, earning days increased 9% to 7658 as we have grown the fleet by net eight vessels to 86 vessels in total over the past 12 months.
<unk> Board of Directors has approved a dividend of 146 U S. Dollars. This year based on our strong balance sheet corresponding to a payout ratio of 99%.
The distribution is in line with our distribution policy.
The product tanker market has in general remains strong, but volatile here in the third quarter and freight rates were negatively impacted by seasonal refinery maintenance and Star Wars.
I'll explain later, we expect a strong ending to the year end and a market recovery and we have already now cover 64% of Q4 of this year at 38822 U S dollars per day.
In the third quarter, we sold and delivered one <unk> vessel, which reduced the feet to 86 vessels at the end of September.
After the third quarter, we've been active with respect to optimizing the theater, therefore spend a few minutes on our recent trades and here. Please turn to slide five.
As mentioned, we have been active in here in the first nine months of the year, we acquired 10 vessels and divested poor vessels in total.
Now since the end of September we have acquired for fuel efficient vessels built in 2015 and 2016.
This deal will be financed by a 50% cash consideration of 75 million, new installers and 50% by issuance of $2 six to 8 million new shares based unless you're a price of 28 U S dollars.
Since the end of September we have also acquired eight two vessels built in 2010 to 2012.
This deal will be financed by a 60% cash consideration of $239 million and 40% by issuance of $5 5 million new shares based on a share price of 37 to U S dollars adjusted for the Q3 dividend of $1 46.
U S dollars.
Together with the 781 vessels, we acquired earlier this year. We in total have added 15, LR vessels to our fleet, adding approximately 7% to our average deadweight ton.
This is in line with our belief that the expected changes to the refinery landscape will support the LR market.
Once again, we managed to use our shares to add vessels to the fleet.
Yeah.
Since the end of September we have also divested two older vessels and one <unk> vessel and now on a fully delivered basis to all of them will have a fleet of 93 vessels.
Please turn to slide six.
The purpose of our <unk> platform is to ensure that the fleet has the highest possible trade ability. We believe that we do this best with our own integrated commercial and technical management, where people vessels and systems work together in search.
For or possible synergies in our view.
<unk> performance is obtained by savings such high quality standards for vessels.
Our older that any customer with charter them at any time and in any.
Geography.
It's extremely important to offset customers will not deselect 12 vessel because of quality or safety related reasons.
When this high quality is obtained optional vessel positioning is key the ones on platform is set up for predicting in which basin. The market are optimal for the coming period by.
By maximizing and optimizing the ability for our customers we can obtain superior earnings.
In addition, the onetime platform also work on minimizing resource leakage.
Across the fleet monitoring and information sharing we constantly look for reducing the resources. We spent both for the benefit of the environment and for lowering cost.
Vessel does not run optimally we want to know.
Rather than later in short.
We all have a common goal with no conflicts of interest and no income sharing and then once on platform will continue to optimize and improve whilst driving for best in class return on invested capital for the benefit of our shareholders.
Please turn to slide seven.
Taking a look at the development in the product tanker market tier since the start of the Russia, Ukraine raw and the introduction of sanctions against Russia, we see a steep change in the product tanker freight rates towards a higher average level of sanctions and led to a recalibration of trade flows.
Loss longer distances.
This has also brought along a high volatility level at 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.
In recent weeks another devastating geopolitical conflict in the Middle East has shaken the world.
So far the impact on the product tanker market has been marginal and more indirect by the oil price volatility.
A potential escalation of the Israel Hamas conflict to our broader region could have a more significant impact.
On top of the geopolitical factors there are of course.
Also all the drivers that have affected the market such as refinery maintenance and timber export ban in Russia just to mention a few.
The impact of these S. Nevertheless, been smaller and up temporary in nature.
Although some other factors that have supported the market such as delays and restrictions on the number of tranches at the Panama Canal will stay in place for at least another three four months continuing to reshape the trade flows.
Please turn to slide eight.
That uptake.
Closer look at the sanctions against Russia, which had been the main market driver for more than one and a half P&L.
Since the EU introduced sanctions against Russian oil products the ton mile associated with EU imports have increased by 41% as the EU now predominantly imports from longer haul regions.
And this is in spite of the fact that EU imports.
<unk> had been 10% lower driven by weaker macroeconomic situation and recently also on relatively mild temperatures.
Similarly, Russia has been successful in redirecting its clean products to markets in North and West Africa, Turkey, Brazil, Middle East and Asia, and thereby utilizing a larger part of the global product tanker fleet, and thus impacting tonne mile demand.
Please turn to the next slide please turn to slide nine.
I already mentioned that EU imports after the introduction of sanctions have been lower than usual and partly it has also been a result of the stock building a hit of the sanctions, which meant that a portion of demand was supplied by stockpiles instead of imports.
After months of start drawing northwest Europe is entering the first winter season, without Russia supplies with decent stockpiles close to 14 years.
The need to replenish stocks not least for energy security purposes will likely keep tailwind to the product tanker market demand over the coming months.
On the other hand, the product exports from the Middle East and India has been reasonably limited by maintenance at some of the key exporting refineries, which is expected to have peaked in October.
The current rate level, even without these refineries illustrates the fundamental strength of the product tanker market.
What is also important to mention here is that we have seen a number of new refineries coming online in the middle East. This year, however, because of several startup issues. The incremental production from these new refineries has been limited. This means that the full impact of the new refining capacity on the <unk>.
Product tanker market will first be seen in the coming months. When these refineries reached their full utilization and full export potential.
Currently turn to slide 10.
The new refining capacity coming online in the Middle East has been one part of the refinery dislocation story.
The other part is refinery closures that we've seen in the recent years, mostly taking place in net importing regions.
As an example of the impact of the final close we have seen.
A good example, here is Australia, and New Zealand, where our recent refinery closures have led to a 60% increase in the region's clean oil product imports.
What makes it more important is that imports to Australia, and New Zealand are traveling 20% longer distances than what is global average and vessels returning to exporting regions empty that means there is no triangulation possibilities, hence the regions increased need for imports is an important.
Contributor to highest one mile demand for product tankers.
Please turn to slide 11.
Yeah. When we look we will look at the supply side drive us and after yes up subsequent new building activity the product tanker ordering and Cps has picked up this year and currently the order book stands at 11% of the fleet is almost double the order book to feed ratio from end of last year.
However, what is important to mention here is that the current order book is spread across three and a half years translating into a 3% growth rate on an annualized basis in fact for the coming calendar year 2024, we expect fee growth at below 1%, which compares with.
On an average growth of 4% per year for the past 10 years.
Furthermore, if we compare the order book for product tankers with the share of fleet at above 20 years old we see that the fee growth will be relatively balanced and the aging product tanker fleet means that the net fleet growth could even turn negative in the second half of this decade.
And other aspect important to mentioned is that the recent pickup in the new building activity has largely concentrated around a two segment.
Given the versatility of the electric fleet, we can trade, both clean and dirty products yellow two order book should be seen in connection with the Dirty Aframax order book the.
The combined order book is currently at 7%, which compares with 12% of the combined feed being candidates for recycling.
Slide 12 please.
So with my remarks here on the product tanker market, we expect the main demand and supply drivers on the product tanker market to continue to be supportive.
The trade Recalibration effect that has led to a step change towards higher freight rates has according to our calculations added seven percentage points to the ton mile. Since end 2021, even with weaker EU imports and without the new refining capacity in the middle East having reached full utilization.
<unk> Recalibration has been accompanied by other drivers such as demand growth and refinery dislocation, we had added 3% to four percentage points to the ton mile over the past seven quarters.
At the same time net fee growth has been limited to 2% per year, leading to the very positive demand supply growth balance we have experienced with.
With sanctions against Russia expected to remain in place coupled with low net fee growth. We do expect the market balance next year to stay positive.
Now I'll hand, it over to my colleague Kevin.
Thank you Jacob please turn to slide 13.
Our earnings development during the third quarter 223, once again showed a strong performance and for the first nine months of 2023 was the strongest in Chongqing story TCE was $244 million in the third quarter impacted by temporary lower freight rates over the summer.
While the third quarter last year was.
Exceptionally strong through the stockpiling prior to the implementation of Russian sanctions. This year, we have had strong a strong quarter. Despite stock loss, our EBITDA for the third quarter was 108 million U S dollars and included unrealized losses on its a very agreements of minus eight $4 million after adjusting for this our adjusted <unk>.
EBITDA was $187 million.
And over the four past quarters, we have achieved a total EBITDA of $881 million.
During the fourth quarter, Tom has declared dividends of a total of $583 million, including the dividend announced earlier today, while also reducing our leverage and increasing the fleet from 78 to 86 vessels as Jacob alluded to.
Please turn to slide 14.
If we dive into the details of our TCE rates the average rates for EMR in the third quarter was $33632 per day, while our once 30 to $5 $641 per day, and <unk> $35054 per day.
Average across the fee rate was $33000 per day.
Based on our rates and coverage for as of six November 2023, we have purchased a total of 64% of our earning days at $38822 per day in the fourth quarter across the fleet.
With a high coverage for Q4, and the average rate significantly higher than the Q3 average across mission class, we expect an increase in rates in the fourth quarter compared to the third quarter.
Part of the mentioned coverage has been made with FFA contracts and during the third quarter, Tom entered into two <unk> contracts of 24 months, each with rates of $43000 per day.
In the third quarter, we had 7658, earning days and we expect to have 7494 early days in the fourth quarter based on a full effect of the vessels. So during the third quarter and taking into account that Trump is many Tom history from Kansas, and Tom <unk> and Tom Arena was sold and I expect it to be delivered to the new owners in.
Fourth quarter, and therefore, EMR business and <unk> business, we acquired and are expected to be delivered in the fourth quarter. This year and the first quarter of next year.
Please turn to slide 15.
As Jacob mentioned, we continue to evaluate our opportunities for fleet expansion and renewal. Thus we have acquired ensuring delivery of a total of 10 secondhand vessels in the first nine months of this year just as we have shown two vessels. Excluding the recent published transactions. This means that as of 30 September 2023.
Of the Asics business that we have in our fleet of pad in our fleet.
$3 billion and $55 million, which is an increase of 421 million U S. Dollar since the same time in 2022.
The visual value increase resulted in a net asset value of $2 5 billion U S dollars at the end of June.
The end of the.
The quota, which is $444 million higher than the same time last year.
Over the past 12 months, we have used our strong markets to strengthen our financial position while at the same time paying out a total of $583 million equivalent to 85% of the net profit generated in the same period.
Please turn to slide 16.
A couple of years back we set our targets for important sustainability kpis with respect to safety diversity on climate.
<unk> taken a view of the stages, Tom reached a level of $2 six accidents per 1 million working hours and while we always strive for zero accidents. The level is below our 2030 target.
With respect to women in leadership positions onshore Tom has been a pin on a stable level for a number of years. Despite that saum has lost diversity within nationality et cetera, Tom will focus even further on gender diversity in leadership to meet the 2030 target of 35% of women in leadership in 2013.
In 2020 through we also set our target to meet Imo's 2030 target already in 2025 and our most recent update we have almost reached the targets with a reduction of 39%.
The one's home platform will continue its efforts to be ahead of the curve.
Please turn to slide 17.
Summing up our results in the first nine months of 2023, where historically strong with a Q3 that was also strong despite drawing on products stockpiles. The results reflected our continued strong product tanker market. Our group performance and was it just published largest Cleveland freedom from history of 93 vessels on a fully delivered.
<unk> market.
Market fundamentals and dynamics are pointing towards a strong fourth quarter, which is also evidenced by our coverage for the fourth quarter of 63% at 33802 <unk> tons per day.
We are pleased that strong earnings and balance sheet have allowed for another high quarterly dividend payout this quarter of $1 $46 per share and $7 one.
<unk> per share over the past four quarters all in all our delivered results confirm that trumps operating model consistently performed strongly also compared to peers, resulting in a superior return on invested capital and high dividend payout. We achieved this through our <unk> platform and our dedicated Tony Please.
With that we will let the operator for.
Two questions.
Great. Thank you 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.
Your first question comes from the line of Jon Chappell with Evercore. Please go ahead.
Thank you and good afternoon.
Jacob I wanted to start with slide nine because I think it's probably the most important.
For the next few months at least.
Noticing the same from an inventory drawdown perspective.
I think maybe some people forget the Russian sanctions didn't kick in until February of this year, which means that Europe had.
Exposure to Russia, and diesel all through last winter and took advantage of that as you noted.
When do you think you start to see maybe a little bit more.
Our sense of urgency.
As it relates to preparing for the winter warm winter last year, maybe that can't be repeated this year inventories of 2014 year lows have you started to already see a pickup as the refineries have come back or do you think in a couple more weeks with maybe one coal blocks to whether there is a bit more of an urgency and even a greater pickup in the momentum of rigs.
Yeah. Thanks, John Jacob here, So no I actually don't think that we have started to.
Good to see.
Anything noticeable about.
Creating.
Or having this sense of urgency.
I think we as a company believe.
That it is.
That it would be like team from sort of LNG insecurity and just.
The fact that you really I think as the society don't want too many bottleneck so in that sense.
A little surprised that we're not seeing any.
Any sort of general trend in that people are starting to.
<unk> two stockpiles because of course the lead time.
Any further draws to need time to fill up is different this year and then what you could expect last year just simply.
From from from a logistical point of view, so, but I don't think we've seen it yet it's going to be very very interesting to follow over the next.
Couple of weeks and months Middle East refineries are coming back from maintenance as we speak so I would expect it to actually translate into further volumes of especially diesel coming from middle east into Europe over the coming weeks and months.
But we have not seen it yet.
Okay Thats good to understand and also the.
Reaching out proactively and the time to get it there also means that once it starts it sounds like the momentum would be pretty strong.
From a corporate perspective seeing these vessel sales of the 20 year old ships makes complete sense, even the MSR purchase makes sense, but as far as the LR twos 2010 to 2012 ships. Those are be 13 14 years next year can.
Can you just help us understand the thought process behind maybe buying still some older tonnage and as you mentioned in your <unk> strategy. The willingness of charters to continue to use ships that are at 15 years or older.
Is that what we are experiencing is that especially for the larger vessels that that asset class in general have a longer.
Production life, because you can switch between clean and crude.
The services will will age. So we are very comfortable with that the assets that we have acquired we will actually be meaningfully contributing to the platform for a considerable number of years and do not see for this particular asset a 15 year.
As a particular interesting point.
For these assets.
Okay.
Alright, Thank you for your time Jacob.
Youre welcome.
Our next question comes from.
<unk> <unk> from Clarksons <unk> Securities. Please go ahead.
Yes.
Thank you.
Just wanted to touch on contract coverage you entered into a couple of two year time charters.
Four four.
You are allowed to.
How are you thinking around the balance between.
Exposure in time charters going forward and sort of.
Our structure you would like on homebuilding <unk> to be.
Confidence in entering them.
Yes.
Yes, and Jacob.
Well I think that it's going to be really up to how we see the market when we when we stroke.
The deal for a couple of charters out.
Well, we think that the rates we obtained.
Meaningful for that period, when we compare to our thinking about what we would get in the spot. So it felt it felt like the right thing to do for the in this particular on these particular assets at the time, we don't have a particular.
Wish for.
Our balance between spot and period, we believe in the market.
But of course, when and if there are opportunities like the one that you mentioned here and we will.
And we will be constructive tool to look at that one of the vessels that we have acquired have a similar.
Term contract.
So we will have at least then we will have three which are very very much in line and similar so I think it will depend on how the market evolves. When his term rates sufficiently high we can look at locking in them, but at the same time.
Don't see any constraints on keeping our vessels spot.
Okay, perfect and if I could.
I have one more question.
With regards to just lease renewal and expansion do you have any targets youre working towards.
With regards to average fleet age or focus we touch.
Yeah.
We don't I mean, we don't want to be.
Taking any particular view on size I think as we mentioned also on previous.
Quarterly results, our thinking is that the current size gives us the flexibility to both opt out of certain assets. As we have also done we've sold seven seven vessels. This year and then we have the flexibility to also look at incremental.
Acquisitions, where our preferences for the cash share based transactions is we've just done so I think it will be rather opportunistic that you will see us offloading assets.
As they sold on our platform is coming through the end of their useful life and at the same time.
Habits, we engaged in dialogue.
On vessel transactions that.
In the.
Sort of in the sweet spot that we think which is the structure itself being.
The considerable.
Cash component versus a considerable stock component when we when we look at acquisitions, but there's not a.
No.
Kirkuk with their size, we have I think we have a lot of flexibility to go down or go up as the case may be with our integrated platform.
Perfect. That's good color. Thank you.
Thank you.
Okay.
Okay. Thank you I'm going to hand, it back to Andreas. Please proceed.
Thank you we have a.
Questions from the from the webcast one for you Jacob.
<unk> attempted to bring down are there sure.
Tom in mass this year can you comment on the wish to reduce their state control and if theyre somehow require too.
Yes.
I think it is a good is probably a good question I have.
In the company, we have no knowledge.
The intent or the strategies.
Our sales and so I think you will see.
Unfortunately part of that you need to direct it to the shareholders.
Until then we have a question for you can you comment on how you will finance.
Emma and elect to acquisitions made recently.
I'll do that thank you for the question.
<unk>.
Before <unk> vessels.
Financing them.
Via one of our long term relationship banks.
Very.
Stronger competitive tubes, so what have you about that.
And regarding the <unk> it will be.
We have full commercial no support from from.
<unk> <unk> to the deal and.
We know that at least three of them will be financed through banks to our bank and the others. We are considering.
Bank financing alternatives.
That is the tubular side.
Thank you and we have one more question.
The webcast here can you give some color around how earmarked proceeds will develop in Q4 to Q1 with respect to the divestments and make decisions quickly.
Yes, thanks, very much that's all very good questions.
We have written it in our Q3.
The report so there's full transparency on page five.
By the end of the third quarter.
On the distribution you can see we have $74.
$5 million senior Mark receipts and in the note 10, and we have described then when we take all these transactions into account, we will have $184 million earmarked proceeds.
Hope that answer your question.
In regards to the Epocrates.
Okay.
Thank you and then we just got one more question with regards to financial policy, how are you balancing dividends and leverage going forward.
Yes, I can just take a stab at Esso, though our distribution policy is very clear and you've seen the results of that over the last quarters. There is currently no.
No ambition to raise that sort of that means that.
Dividends.
Would that be.
Deriving from the operating cash flow and that once you have a certain threshold of cash on account, then we will be dividends or distributions.
And on leverage we are comfortable with the current levels. We think we can even increase leverage.
A little.
In the current environment, but basically you should expect more of the same.
Thank you we have no further questions. So this concludes the earnings conference call regarding the results for the third quarter and first nine months of 2023. Thank you for participating.
Yeah.
Thank you everyone for joining you may now disconnect.
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