Operator:

Good day and thank you for standing by and welcome to TORM’s First Quarter Results. 2021 Conference Call. Currently all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Morten Agdrup Morten Agdrup: Thank you all for dialing in here and welcome to TORM’s conference call regarding the results of first quarter 2021. My name Morten Agdrup, Head of Corporate Finance and Strategy; IR@torm. As usual, we will refer to the slides as we go along and 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 usual Safe Harbor statement. Slide three, please. The results for will today will be presented by Executive Director and CEO, Jacob Meldgaard; and CFO, Kim Balle. I will now hand over the call to you Jacob. Jacob Meldgaard: Good afternoon to all. Thanks for dialing in. I'm happy to be here today. We published our results for the first quarter of 2021 and I'm of course also quite pleased because we this morning have announced the acquisition of three LR two vessels. The first quarter of 2021 was impacted by the continued market downturn and the COVID-19 pandemic, which lowered the global demand for all products. For TORM. The quarter ended with an EBITDA of $19 million and lost before tax of $21 million. As a consequence we turn on invested capital was negative at 2.7%, which of course is on satisfactory part. Our part Tanker feed realized an average TCE rate of almost $13,500 per day. And in the largest segment, the MR segment, the achieved rates were just below $13,000 per day. Now looking into here the second quarter, we've secured bookings at almost $15,000 per day. And we are looking into a stronger result than realized in the first quarter with now 78% of all earning days already covered. During the quarter, and as we previously announced, we purchased eight LR2 in a party share based transaction and adding to this feed increase we've today announced the purchase of three modern [indiscernible] vessels for a total consideration of $121 million. Lastly, we have after the quarter ended also sold one older MR vessel. So these S&P transactions are all part of our coverage and S&P strategy that we've pursued over the last year and I will elaborate on here on the following slide. So please turn to slide five. 2021 is a special year also for product tankers impacted by the global pandemic and the related close downs. The product in the market was divided into a brilliant first half and you have to not so flattering second half ended at loss-making freight rate levels. As I mentioned, the downturn from the second half of 2020 have so far continued here into 2021. During this period, we have actually managed our market exposure. So first in the Salem purchase market, we capitalized the strong market during the second quarter of 2020 and sold seven older vessels. This decreased our market exposure through the market downturn that followed. Over the recent months during this market downturn, we've decided to take on additional exposure through the purchase of eight MR vessels and most recently, these three LR2 vessels. The total of 11 vessels will all be delivered during the second and the third quarter of 2021. Now, in terms of employment strategy and coverage, we also conducted a number of activities in the anticipation of a market downturn. We increased our coverage from the second quarter of 2020 onwards. This was done through users of both TimeStar employments and freight derivatives, especially for the first half of 2021. We decided to take additional cover. And as of today, we have covered almost the entire feed for the remaining second quarter. The cover runs off over the year down to around 50% here in the third quarter, 20% in the fourth quarter. Similarly for the MR vessels, we've covered 71% of the days here remaining in second quarter, which will reduce gradually to 22% coverage for the third and 10% coverage for the fourth quarter. The increased spot exposure. And the delivery of the 11 versus will add to our operational leverage and support of future performance. Now, let me turn to some of the drivers in the underlying product and co-market, and here, please turn to slide six. Now more than a year into the COVID-19 breakout and global pandemic, the product tanker market continues to be affected by local breakouts and lockdowns. This year started with renewed lockdowns, especially in Europe, but also in parts of Asia due to a second wave of COVID-19 cases and the emergence of new more transmissible variants of the virus. This has resulted in a temporary reversal in oil demand recovery and strengthened the short-term headwinds for the product tanker market, which was further aggravated by the very weak crude tank, a market leading to increase crude cannibalization and Ella cleanups. The extremely cold weather in United States, nevertheless, resulted in increased transatlantic flows as well as long mode each vessel’s, with LR2 spot rate benchmarks temporarily above $20,000 per day. Since then several countries in Europe have started to open up again while in the U S we're seeing really good progress in vaccination rates, which has already started to show in all demand figures as well. Unfortunately, we have recently seen a dramatic increase in COVID-19 cases in India, which of course has made us increasingly concerned with the health of our colleagues in India, and which is causing operational challenges for the stripping industry as a whole. I'll touch upon this a little later in the presentation, but for now, please, to turn to slide seven, as we've been emphasizing for some time now, the developments on the products and the market are to a large extent explainable by moments in product stockpiles and the inflection point on the product in the market will most likely be reached once the current stock drawing phase ends. It's difficult to estimate the exact timing, but the inflection point is expected to be reached once more people get vaccinated, countries reopened and the demand recovery gains momentum. Slide eight, please, as already mentioned, renewed lockdowns have negatively effected all demand recovery in recent months, especially Europe was hard hit in the beginning of the year where we’ve seen the oil demand declining compared to the levels seen at the end of last year. Nevertheless, we remain confident that with accelerating vaccine rollers, the virus gets on the control and the effected countries can reopen leading to a wider recovery in the macro-economic activity and all demand. And indeed, if we look at the recent developments in the U.S., the vaccination rate has shown strong progress and latest all demand indicators show improvements towards the pre COVID-19 levels. It is most likely that there will be a difference in how fast, different regions will progress with vaccinations and many developing countries might lag behind here. But I think that we can assume that Europe will reach some sort of immunity over the summer and together with China, where all the man is already back and above pre COVID-19 levels, as well as United States, these regions together cover as much as half of the global oil demand. Please turn to slide nine. Since the end of the third quarter last year, India has seen significant improvements in oil demand. However, recently we have seen a dramatic increase in COVID-19 cases in the country, which is indeed a very concerning development with respect to our colleagues in India, as well as the country's toll population. The situation in India is also causing operational challenges, as several countries have imposed restrictions on shifts that have made portholes in India. And as a consequence, some chief operators are no longer willing to call Indian ports. We are of course, carefully monitoring the development, but we do expect to be able of pulling maintaining operations. Also through this difficult period. From the oil product trait perspective, the current situation in India will likely not be a negative factor judging from India's mobility indicators, new restrictions in several regions will have a significant effect on the country's demand for transport fuels and taking into account the country status as a net product export, we will potentially see increasing flows of surplus products from the country in the coming months. Please turn to slide 10 and here let me come back to the United States. I think it's a, it's an example of a country where vaccinations have shown a significant progress. We've seen improvements in the U S all demand indicators along with the fact that almost 60% of the adult population in the country has commenced vaccinations demand for core products, such as gasoline and diesel has shown significant improvements since beginning of the year with diesel demand actually already above seasonal pre COVID-19 levels. While gasoline demand has climbed from 14% below the 2019 levels at the start of the year to currently around five, 6% below the 2019 level jet fuel demand is still well below pre COVID-19 levels, but even here, flat traveler figures show significant improvements. With these demand improvements and taking into account refinery capacity removals in the United States East coast in recent years, we are already seeing signs of higher import needs to the region ahead of the summer driving season. And with the recent cyber attack on the colonial pipeline near-term imports to the U S East coast are likely to get an extra boost. Please turn to slide 11. If we look at the latest flooring stores and on-shore inventory data, we can see that floating stores is more or less back to what we consider a normal level and global on-shore product inventory have come down from the peak excess level since seen last summer. As a result of the refinery outages in the U.S. Gulf in connection with the extremely cold weather in February part of stocks there even fell to below normal seasonal levels here in March. This suggests that most of the stock drawing is behind us, meaning less headwinds for the part of tanker market. Once the demand recovery gains momentum Please turn to slide 12. You look at the more medium to long-term market drivers. The COVID-19 pandemic has accelerated the pace of refinery closures with more than 2 million barrels per day of refining capacity having closed down and another 1 million barrel per day, potentially at risk of closure. Most of this capacity is located in regions, which already allow importers of refined all products, such as Europe, U.S. West coast, U.S. East coast, Australia, New Zealand, and also South Africa. To illustrate the significance of the mentioned refinery closures, refineries closing down, or at risk account for 7% of the total refining capacity in the world's largest diesel importing region, Europe, 12% of the U.S. West coast and 28% of the U.S. East coast capacity for Australia and New Zealand. The figures are even more significant. Two out of four refiners in Australia are closing down and the sole remaining refinery in New Zealand is most likely to be closed down as well. At the same time, approximately 5 million barrels per day of new capacity is scheduled to come online, mainly in the Middle East and China, the regions that already today are large exporters of oil products. Both these developments are positive for trade flows and per ton mile in the post COVID-19 world. There are only a few projects which are less positive for trade, most notably the large scale and gold refinery in Nigeria. Slide 13, please. The positive outlook for the demand for product tankers in the next three to five years coincides with the supply side, which is at the most supportive for the last 25 years. The order book to fleet ratio of product tanker has remained 7% for sometime now, is historically low level. The reason record high new building ordering in the container segment has filled up shipyards capacity and made it more difficult to order product tankers with delivery before 2024, which is further supporting the case of a quite modest fleet growth in the next two to three years. As a consequence, we expect fleet growth in the next two, three years at around 2% a year only half the pace seen in the past five years To conclude our remarks on the product tanker market, TORM expects to see volatility in the market in the short-term related to the COVID-19 and its impact on the global oil markets and economic activity. Aside from the COVID-19 effects, we see that a number of key market drivers for the next three to five years remain positive, such as, as mentioned the refinery dislocation and the low order book, which will provide underlying support to product tenders over the longer term. Following the market dynamics I believe TORM is well-positioned to form maneuver utilized potential opportunities in the current low market environment through our strong capital structure. I further believe we're well positioned to utilize the coming market strengths through our operation leverage and our integrated platform. Please turn to Slide 14, looking at TORM's commercial performance. I'm pleased that we, again here in the first quarter of 2021 in our largest segment, the MRs have outperformed the peer group average. In the first quarter of 2021, we achieved rates just below $13,000 per day, compared to a peer average of $10,337 per day. This translates into additional earnings of $12 million. In general, I'm very satisfied that TORM’s operational platform continues to deliver competitive TCE earnings. Slide 15, please. A key design factor for delivering this above-average TCE is driven by our continued focus on positioning of our vessels in the basins with the highest earning potential at any given time. In the first quarter, we had a slight over weight west of Suez with the general market actually being at relative similar levels across these main basins when we look at the full quarter. Now I'll hand it over to you, Kim, for a further elaboration on our operational leverage, the cost structure and not least the dependency. Kim? Kim Balle: Thank you, Jacob. Please turn to Slide 16. With our spot based profile, TORM has significant leverage to utilize an increase in the underlying product tanker rates. As of March 31, 2021, we had just about 14,000 open earning days in 2021 and almost 30,000 open earning days in 2022. Adding our, just published LR2 purchases to these numbers, the earning days will increase with around 1,000 on an annualized basis. For the nearer term, we have, as Jacob has mentioned, however, deliberately taking increased coverage over the last year in anticipation of a continued downturn in the market. And for the second quarter, you have covered 78% at almost $15,000 per day. Please turn to Slide 17. As part of our coverage strategy, we use a combination of freight rate derivatives and physical contracts. These freight derivatives have the advantage of providing flexibility in relation to precise timing and size of coverage entering 2020 and throughout the first quarter of 2021. We have benefited from the use of derivatives with a total realized amount of $12.2 million. However, the market value development is booked in TORM’s TCE, and we have over time seen fluctuations in our result as driven by changes in the unrealized element of these derivatives. To amplify by the end of March, 2021, the unrealized element of TORM freight derivatives had a negative market value of $7 million us dollars. The value then increased during April resulting in a positive impact of $5.7 million, which was then booked in our TCE during April. Please turn to Slide 18. I would now like to review our financial position in terms of key metrics, such as net asset value and loan to value. Vessel values have decreased slightly during the first quarter, by round 2% with a positive momentum towards the end of the quarter and into the second quarter. The value of TORM’s vessels including new buildings and committed secondhand purchases was just around $1.7 billion by the end of the quarter. Outstanding gross debt amounted to $858 million as per 31st of March, 2021. Finally, as per March 31, 2021, we had outstanding committed CapEx of $210 million related to our new building program and MR vessel purchase. This includes an non-cash element of $55 million. So our cash position was $117 million. The net asset value is estimated at $788 million as per March 31, 2021. And this corresponds to $10.60 or DKK67.1 per share. And just before commencing this call, TORM’s share was trading at just below DKK53. I'm pleased that our strong balance sheet has provided us with the strategic flexibility to increase our fleet over the past month with a total of 11 secondhand vessel purchases. On the following slides, I'll give some insights into our liquidity position, CapEx commitments and our debt profile. Please, turn to Slide 19. As of March 31, 2021, TORM had available liquidity of $329 million. Cash totaled $117 million. And we had undrawn credit facilities of $212 million, including the committed and expected financing related to the LR2 purchase. And the two additional sale and leaseback agreements. Total pro forma available liquidity was $446 million. The total cash CapEx commitments relating to our new buildings and the MRs secondhand vessel purchases were $155 million as per March 31, 2021. This excludes the share-based payment related to the MR purchase, including the purchase of the three LR2s, the total pro forma CapEx commitment stands at $276 million with some strongly liquidity profile. The CapEx commitments are fully funded and very manageable. Please turn to Slide 20. After having finalized the refinancing last year, we have eliminated all major refinancing until 2026, which provide us with financial and strategic flexibility to pursue value enhancing opportunities in the market. As displayed, we do not have any major repayments until after 2025. With that, I will let the operator open up for questions. Operator: [Operator Instructions] Our first question comes from the line of Jon Chappell from Evercore. Your line is now open. Jon Chappell: Good afternoon everyone. Kim, if I could start with you, the liquidity situation seems fantastic. There's no big debt amortization coming up. You seem to be getting debt financing for all the purchases that you've made, and you have a very optimistic view on the market. I'm just curious why continuing to do sale and leasebacks, which would be higher cost debt by definition. It's just one thing to do it for the third LR2 you're buying, but then you're adding two more ships from the existing fleet from what I understand. Is there a reason that sale and leasebacks are still necessary given the outlook for the market and your liquidity situation? Is this the bank financing not available of the size that you need? I'm just trying to understand the, maybe the difference there. Kim Balle: Thank you, Jon, for the question, it is very good question. We have a group of relationship financing institutions, banks, as well as different leasing partners. So as such, we are trying to make – using our partnerships, but also establishing a very diversified funding platform. So as you can see, we have with the LR2s financed through DSF and then further via a sale and leaseback scheme. So it is basically to build up a diverse platform of different funding sources with the pros and cons there on each of those. Jon Chappell: And just correct me if I'm wrong, but you're adding two more ships as part of the sale and leaseback for the third LR2. Kim Balle: Yes, that's correct. We had the opportunity to – yes, basically to first of all, we had the opportunity to – on pretty good commercial terms to add the two further vessels. And then, on sort of a liquidity and a balance sheet – from a liquidity and balance sheet perspective, we like to be conservative. So having that opportunity, we just added those also as I said on quite decent terms. Jon Chappell: Okay. And then the second thing I would ask about, and thanks for clarifying the freight derivatives, when we see something like 112% for the second quarter, LR2 days are covered, you'd start to scratch ahead a little bit. Just curious on the, your nimbleness and flexibility around that. I mean, it sounds like the majority of them will roll-off in the second half of the year, where you have a far more optimistic view about the market, despite some choppiness, maybe for the rest of the second quarter. If you get to early part of June, mid-June, and you think this may be delayed, the recovery may be delayed for another quarter or two for whatever the case may be. Do you have the ability to kind of step up those derivatives or those kind of optimally timed when the market was really at a trough and the opportunity to re-up on those has kind of passed. Jacob Meldgaard: Yes. So, I think to your point on – if it is so that there is a delay in the expected recovery, then it will be too later. So we, we pay – our base case is that the fundamental recovery for the product in the market would coincide, as I mentioned with the rollout of vaccinations and reopening of societies at large. And that is all the course of the second half. The exact timing could be later than, July 1. Clearly but we are willing to take that risk right now. And I think that if you stood end of June and you had second thoughts about this, that's probably going to be too late as you point to the positions we have now we'll take some time ago. It's not new positions, obviously. Jon Chappell: Yes, that makes sense. All right. Thank you, Jacob. Thanks Kim. Jacob Meldgaard: Thanks for the question. Operator: Okay. Our next question comes from the line of Ulrik Bak from SEB. Your line is now open. Ulrik Bak: Hi, Jacob and Kim, also a few questions from my side. Firstly, in terms of your capital allocation, how do you internally evaluate how many vessels and how much debt to take onto your balance sheet? Because you have now been acquiring eight vessels in March and additional three now. So what is the, yes, the capital allocation strategy. Kim Balle: Okay. Just to clarify, perhaps, and thank you for the question Ulrik. When we did the first eight, the Team Tanker’s transaction that really didn't – we really need any liquidity to purchase those. Those were partly a share based transaction 60/40. So that is quite, quite nice transaction, well-structured we found and we really like those kinds of structures certainly. So for that no liquidity needed, and of course, in this case with the three LR2s different scenario where we needed some liquidity and we’ve put that in place with a financing as we have displayed. So of course it depends on the specific structure that we are looking into. Ulrik Bak: Okay. But what would you still be in the market to purchase additional tonnage or is, or do have is your fleet big enough for the upcoming recovery as you alluded to? Jacob Meldgaard: So I think as Kim pointed, it will depend on the deal. So there's, now over the course of this year, we've done two different type of structures. One where basically this cash neutral and where the LTV, that came with the Team Tankers were in-line with our own LTV. So that's not really moving the needle on an aggregate basis when you have 60% debt, 40% issuance of shares. It's different with the deal we have announced today. Here you are levering up, you are utilizing cash. And so the next deal you could say, well, if we, if we were to look at a new project, you would have to evaluate what type of structure it has. And I would lean towards that the next year would have to be more or less fully funded, i.e. not taking away more cash until at least we are into a recovery. Ulrik Bak: That's very clear. Thank you so much. Operator: Okay. [Operator Instructions] Okay, sir. No further questions at the moment. Please continue. Jacob Meldgaard: Okay. Thank you. We don't have any questions from the web either. So we hereby end the conference call. Thank you all for listening in and have a good day. Thank you. Operator: Okay. That does conclude our conference for today. Thank you for participating. You may all disconnect.