Ladies and gentlemen, thank you for standing by. And welcome to TORM’s Annual Report 2020. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Finn Petersen. Please go ahead.

Thank you for dialing in and welcome to TORM’s conference call regarding the results of fourth quarter 2020. My name is Finn Bjarke Petersen and I am the Investor Relations Manager in TORM. As usual, we will refer to the slides as we speak and at the end of the presentation, we will open up for questions. Please turn to slide two. Before commencing, I’d like to draw your attention to our Safe Harbor statement. Please turn to slide three. With me today, I have Executive Director and CEO, Jacob Meldgaard; and CFO, Kim Balle. I will now hand over the call to you Jacob.

Well, thank you, Finn, and please turn to slide four. First and foremost, good afternoon. Thank you all for dialing in. I’m truly happy to be here today as we published a strong result here for 2020 and not least because we this morning have also announced the acquisition of eight MR from Team Tankers in a party share based transaction, which we view as attractive. 2020 has indeed been a special year also for the product tankers impacted by the global pandemic and the related close downs. The product tanker market came for this year we would be dividing into a brilliant first half and not so flattering second half. Consequently, the year ended at loss making freight rate levels. Here in the fourth quarter isolated the product tanker fleet realized an average TCE rate of $12,863 per day, and for the full year 2020, the number was $19,800 per day. In the fourth quarter, we realized an adjusted net profit of minus $24 million versus a profit of $27 million for the fourth quarter in 2019. However, due to the already mentioned strong first half of the year, we realized an adjusted net profit of $122 million for the full year 2020 versus $51 million in 2019. Our return on invested capital adjusted for non-recurring items was 9.3% and we have over the years distributed a total of $71 million in dividends to our shareholders. In parallel with us having the continued focus on commercial and also financial optimization, TORM has over the past years had a continued focus on our responsibility in terms of the environment, our social engagement and our corporate governance combined known as the ESG. We have, as well as our stakeholders experience an increased focus on ESG for period and to accommodate this,…

Thank you, Jacob. Please turn to slide 15. With our spot-based profile, TORM has significant leverage to increase in the underlying product tanker rates already by the end of 2020 we have seen a relatively large covered by the first half of 2021 after taken for the current week markets. We are significantly more exposed to cater for a stronger market towards the end of the year. To illustrate this, as a 31st December, 2020, a $1,000 increase in the spot rates for the first quarter of 2021 would translate into an increase in profit before tax of around US$3.5 million and in the fourth quarter of ‘21, the corresponding number was $6 million. As Jacob mentioned the acquisition of the eight MR vessels has further operational leverage. Please turn to slide 16. Before the acquisition of the eight MR vessels from Team Tankers, we have -- we had about 27,000 open earning days annually. With the additional vessels our earning capacity will increase to close to $30,000 days annually. And during Q1 2021, we have further derisked our earnings downside in the current week market by lifting the coverage to 85% operating days for Q1 ‘21 by 23rd February at a weighted average level just below $13,000 per day. Please turn to slide 17. To balance out operational leverage a key focus for TORM is to maintain a solid capital structure, the conservative leverage, combined with our strong operational performance that has generated a solid cash flow, this conservatism has enabled us to execute on our ongoing fleet renewal program, while at the same time returning a significant portion to shareholders in form of dividends. In 2020, this was illustrated through stock returning $63 million from our earnings during the first six months of the year. We believe that…

[Operator Instructions] We have a first question from the line of Jon Chappell from Evercore.

Thank you. Good afternoon, everybody.

Good morning, Jon.

Two questions today. Let me start with Kim on the topic that you were just discussing. So with the liquidity, the CapEx commitments, even this new acquisition announced this morning and your debt amortization schedule, it does seem like you still have spread liquidity to be opportunistic. But given maybe the tale of two halves for the market this year and the depths of the downturn today. I’m just wondering how you think about your actual firepower today, whether it would be to acquire additional ships or stock or et cetera. What do you think the true spending power of the company is today when we’re still bouncing along the bottom of the market and then maybe in 12 months time assuming Jacobs presentation on the market plays out and we’re in a much stronger underlying market, how do you think about the leverage to continue to invest at this part of the cycle?

Thank you, Jonathan. That’s a very good question. First of all, I think, the transaction today demonstrates that we are in the market, as we’ve also talked about all through 2020. So when the opportunities are there, we are also there and we are quite happy that is a party share based transaction. I also mentioned it is cash neutral as such. So while having a leverage of around 50% and with the markets we are looking into, we’re still there. We still have the conservative capital structure. Of course, we constantly evaluate and test and we have a policy on our capital transformation. So we actually find that should anything arise we’re still in the market for opportunities and has also post set and demonstrated with a presentation, with the coverage and the increased or you can say de-coverage by the end of the year, we are firm believer are in that the market will at the post-COVID-19 or after we have seen the rollout of the vaccines, we are looking into much broader markets, so we are definitely still there. So I think we should…

Got it. Thank you.

… instead of putting a number on how much it’s more our leverage, I would be guided by.

Right. That makes sense. And my second one, Jacob, for you, maybe a little bit of a multi-parter, but just trying to tie everything together. So another acquisition of vessels that were built between seven and 12 the two MRs from the last call it were 2010. I understand that’s probably the sweet spot from a return perspective, just given the age of those vessels, the limited debt associated with those from a return perspective, it probably looks much better than a new building or a -- or even a prompt ship today. However, you rolled out the ESG report today and as we start to think about the next stages of decarbonisation for everything that we’re to understand you would obviously know a lot better than maybe the older ships are less efficient when it comes to that. So can you just help us tie together balancing returns on capital versus thinking about the next stage of evolution the company when you’re investing in assets across the different age spectrum?

Yeah. Excellent follow. Thanks for that, Jon. And obviously, in management and with apart, this is exactly the balancing act that we are constantly discussing. So I think it’s clear, at least in our calculations that currently if you were to clear a deal sort of the sweet spot, whether it’s 10 years or just around, that’s probably the age group where on paper at least you get most value for your books and that return on capital, as you point to, in our opinion, with the current pricing makes the most sense. Then I think we see those two things in terms of then these vessels, the suitability to the platform. One is, how does it fit with our customer needs. So these assets for a longer period actually be something that is meaningful on the platform. And they’re at least up until now we’ve seen that we can split our assets, I would say, up to somewhere between 17 years to 20 years and we get a superior return from that. That may obviously changed over time. But that’s at least how we see that that seems to be a model that is working well for us. Last year, we sold eight vessels. The average age of those eight were actually by coincidence just 17.5. So I think that’s kind of we’re still playing that up that we need to live up to the quality and safety needs of clients and then provide the right tools for the job and we need to combine that, first and foremost, with the economic return to our shareholders and to our owners. Now, the last piece in the puzzle is ESG. This about efficiency, yes, clearly, some efficiency derived from the simple fact of technology on ships becoming better over time.…

Got it. Very helpful.

That was a long answer to a simple question, but I hope it put some granularity on.

I don’t know the question was that simple? That was a thorough answer to an important question. Thank you.

Thanks.

Thank you for your question. We have another question from line of Anders Wennberg from Catella. Please go ahead. Your line is open.

Hello. I’m Anders here. And I just wonder about the acquisition. Why are you partly paying with share given that your stock is trading below net asset value and you have 25% discount or something like that in net asset value? Can you elaborate a little bit on that why is that not producing?

Yeah. Thanks for that. Yeah. Well, we actually issue the specific number of shares and if you go back to our announcement it’s about 6 million shares and they are not issued at the current price in the market. If you turn to slide five, you’ll see that the net contribution with the share price is $132 million. If you take the value of the obviously cash, it is cash on cash and then you take the new share -- TORM shares issued, then it comes $132 versus a valuation of $148. So we have this discount in the share regions embedded in the number of shares that we have negotiated.

Okay. Thanks.

Thank you. We have a next question from the line of Ulrik Bak from SEB. Please go ahead.

Yes. Hello, Jacob, Kim and Finn. Thank you for taking my question. And now that the bunker spread has increased between high and low sulfur, has that impacted your view on scrubber investments? I know you have a large share of your fleet which has scrubber investing -- installed already, but with the widening of the spread, has that changed your view? And also if you can touch upon the day rates delta between your scrubber fitted and non-scrubber fitted vessels at the moment?

Yes. Thanks a lot for that question. No. So taking a step back then, we have looked upon this scrubber program. We have where we made a total investment of about $100 million. We may look upon that as being a strategic move that was something that we actually decided upon a couple of years ago that it would be the right thing for us to balance this strategically and we’ve come up to 50 vessels in our fleet, where we do have a scrubber. And then, as you point to, I think, since the introduction of scrubber and high sulfur versus low sulfur in the early part of 2000, we’ve seen, first, a high spread more than $200, close to $300 in the beginning phase, then end of last year, it came down to $50 to $70 depending on the geographical location of the world, and now, again, we’re back above $100 and it seems to be a tendency to rising. But we did not made the decisions around this based upon the daily spot spread. We’ve made a strategic choice. Currently, we are very happy with this investment program and I don’t have any particular plans strategically to reopen that at this time. That may, of course, change, if and when we saw that these spreads would go further up. We have -- by virtue of having our own production we have a short lead time to getting a further scrubber program and further installations. But there is no plan for that right now. And on your point about earning, well, then, I think, it’s clear that on larger vessels, I think the daily spread is, let’s say, around $3,000 currently between scrubber and non-scrubber and it’s somewhere between $1,500 and $2,000 in this small segment in the MR.

Okay. Thank you. That’s very clear. And then my second question is about scrapping which has been very low historic compared to, yeah, the historical average this year so far. And that’s despite having a low rate environment, fairly high scrap prices and also an aging fleet. So, what is your view regarding the scrapping tendency and what might be the trigger point for owners to increase the scrapping?

Yeah. So, we are communicating throughout that we see the current average scrapping age, which is somewhere 24, 25 for this type of the scrapping size that we do not see that that would materially change even in a down market. So we are still modeling. We have is that when you talk about scrapping that our models scrapped the vessels on average when they’re around 24, 25 and we have not lowered the averages scrapping age, which would, of course, in turn take away capacity from the market. But from our experience, what happens is that, when the vessels are taken out of, how can I say, the global trading market at the age of, let’s say, around 20, then these vessels are utilized in different segments more as storage or as very local trade vessels. So they only disappear from our list once they are at around the age of 24, 25. So we are not taking a sort of a hockey stick on this, which would, of course, be beneficial to the market, but we are not of the opinion that that is a realistic scenario.

Okay. Very clear. Thank you. No further questions for me.

Thank you for your question. [Operator Instructions] There are no further questions at the moment.

We have one question from the web, regarding our coverage of LR2s and MRs in the second quarter, as well as in the first quarter, which levels are you fixed in the second quarter is the answer -- the question?

Yeah. We can definitely touch upon that. So as I already alluded to, we took a strategic decision to come into the year with significantly higher cover than what is usual for our platform. And for the LRs, we have a cover -- a high cover for LRs in Q2, which is at freight levels that are above what we have declared today for Q1 in our announcement. In the MR segment, we have less cover. But again, the cover we have is above the Q1 quoted levels that we came up with today.

Thank you very much. And there’s no further question. So this ends today’s call and thank you all for participating and we’re looking forward to see you again here to telling you about the Q1 later this year.

That’s concludes the conference for today. Thank you for participating. You may all disconnect.