Hello, and welcome to the TORM plc Second Quarter and Six Months Ended 2023 Results Call. All line have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session [Operator Instructions] I will now turn the conference over to Andreas Abildgaard-Hein, Head of Investor Relations. Please go ahead.

Welcome to TORM'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're attending the phone conference. If you are joining via webcast, you can have access -- 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 presentations and other relevant data on our website. Please turn to Slide 2. Before we start presenting the results, I would like to draw your attention to the safe harbor statement. Please turn to Slide 3. Today's presenters are as usual, Executive Director and CEO, Jacob Meldgaard; and CFO, Kim Balle. Please turn to Slide 4. 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, a quarter that continues the performance from the first quarter of this year. We realized a TCE of $308 million in the second quarter and an EBITDA result of $237 million. Adjusted for unrealized gains on FFA contracts of $37 million, our EBITDA result increased 23% to $199 million while profit before tax increased 72% to $184 million compared 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, TORM's 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. 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 Seabulk to participate in the tanker security program led by the U.S. Maritime administration. It means that three of our MR vessels will participate in the program and undergo reflagging to the U.S., while continuing their regular operations under TORM's commercial management when not operating under the tanker security program. We expect this agreement to contribute positively to our earnings. As of 14th August, we have covered…

Thank you, Jacob. 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 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 from financial instruments related to freight and bunker of $37 million. Our EBITDA for the second quarter was $237 million including these unrealized gains. After adjusting for this, our adjusted EBITDA was $199 million. And over the past four quarters, we have achieved an adjusted EBITDA of a total of 920 or sorry, $[ 933 million ]. During the same period, TORM has declared dividends of a total of $578 million, including the dividend announced earlier today, while also increasing the fleet from 81 to 87 vessels and reducing our financial leverage. 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, TORM has consistently outperformed our peers with 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 One Torm platform prediction models consistent positioning of our vessels in the basins that give the highest earning. Please turn to Slide 16. If we dive further into the details of our TCE rates, the average rate for MRs for the second quarter were $33,862 per day; for LR1s $36,674 per day; and for LR2s $47,918 per day. The average across the fleet rate was $36,360 per day. Based on our…

Thank you. [Operator Instructions] Your first question comes from the line of Jon Chappell 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 the newbuildings are too risky just given the uncertainty over the next 25 years. So 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 book is 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 the order book higher and aren't really focusing on the risk associated with fuel propulsion, et cetera, more than five years out.

Thanks, Jon. Yes, good question. So number one, if we were to have the luxury of identifying assets that we think could be contributing positively to the platform, I think currently, yes, it's unchanged. It's vessels that are probably in the -- built, 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. If we then take your other point around the order book having grown, as I mentioned, 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 going to change from that. So really, we are looking at the investors or market players putting their money on [indiscernible] towards the end of 2026 to 2027. And let's see what happens. I think the shipyard capacity in general is going to be scarce commodity because there is less availability on the shipyard side. There has been restructuring, especially on Asian shipyards having gone down in their overall gross capacity. And at the same time, you are going to -- I think for the foreseeable future, you are going to see that shipyards tend to favor more infrastructure type of projects like LNG carriers that, for sure, is globally also needed sort of 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 aging fleet here in the second half of the decade.

Okay. Thank you for that. [Multiple Speakers] Yes. My second question has to do with the next six months, much shorter time frame. It feels like everything is set up for another seasonal recovery, whether it's the inventory draws, the refineries opening, the IA's sequential growth in 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 the 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?

Yes, that's a good question. I would probably look towards -- generally, I would look towards whether there is some danger on the crude side, the transportation of crude continues to be subdued that Aframaxes have been faring really, really well, as you can see also from the various results of companies engaged in there. And it feels as if right now, it is a standstill a little on the crude transportation in the medium-sized vessels in the Aframaxes. If that continues, it would encourage people to try to penetrate the key market. So I think the jury is out on that over the next couple of months. I think that is 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 the 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 tanker market less than what they're doing now because there is very, very little exports. And I think that we are -- I think the potential for them opening up for more exports given where the economy is, is -- that seems like a more likely scenario than going the other direction. So that would not be a concern to me.

That’s good. Thank you for your thoughts, Jacob.

Thank you. Thanks for the questions, Jon.

There are no further dial-in questions at this time. I will now turn the call back to Andreas for any online questions.

Thank you. 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?

Yes, 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, shipyards that are capable of delivering a product into the product tanker market. So that means that you are looking at either Tier 2 shipyards 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 the restructuring sort of the shipyards seen is benefiting the product tankers because it was especially middle-sized Korean shipyards that 10 years ago were the big contributors to the order book. And those shipyards have either closed down or have turned their focus predominantly to other places. There's actually only very few shipyards left that are focused on product tankers, which is significantly different than if we turn the -- dial the clock back 10 years. So that's number one. And number two is that there is a need, as I mentioned also, under the previous quota to still build infrastructure projects, which I personally think the LNG market has been, 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. So I think there will be more contracting into the product tanker market, but the fact that there is basically less supply to go to, less opportunities of shipyards that can build it and that you are competing currently for the available capacity in sort of the high end of the shipbuilding market. That does give me some comfort to that we will see a rising order book but it's not going to be -- it can simply not explode in the medium term.

Thank you. And we have a few questions I will combine here. But how do you look at consolidation in the current market environment? Are you currently looking at opportunities? And then also you have been in the market for selling some older vessels, 15 to 20 years, will you continue to sell in that age range?

Yes. Okay. So they are very different questions, obviously. But if we take consolidation, the door is always open at Torm for consolidation. I think the fact is that we are doing really well. I can see that, of course, our peers in the market are also benefiting from these strong consol. So I think even though that I could, I would say, have an open invitation for consolidation, I can and I say that there is no active dialogue. And I think in the current environment that most investors are pretty happy 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, well, we are obviously utilizing our vessels for as long. We have the luxury in Torm that we've got a One Torm platform. So we are not discriminating against age. We are looking at what gives us over 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, it's in that age bracket. So I would expect over time that there will be further disposals of vessels in that age range. That seems totally plausible.

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 value to be had in being open to the spot market with this high volatility. Just as an example, we're experiencing that exactly, let's say, two months ago, in the middle of June, the spot market for our MRs in the U.S. Gulf would be hovering around earning of 20,000. And today, as we speak, it's probably closer to 50,000. And I think 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, do hedge when and if we think that the value on FFAs is significantly close to where we think the market will be then we will utilize that. Could we do [indiscernible] I think, clearly, if some of our clients, our 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. And a question for you, Kim. 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 G&A to stay around at the current level?

Thank you very much for that question. Well spotted if we take SG&A admin cost in general, that is one of the common KPIs we have across the One Torm platform. So every employee has that as a KPI meaning that we are in TORM super focused on maintaining stricter -- have a strict cost focus. So the underlying SG&A level is very much under control. We have key KPIs on it, and we want to maintain it more or less at the levels we've had for quite a while. But as we published in conjunction with the January report, the Board of Directors have decided at that point in time that they wanted to grant an LTIP program for selected employees in TORM, a retention program running over 3.5 years. And when you have a program like that, you need to provision for that in your accounts, and we've done that over the 3.5 years. So you will see that the SG&A is higher in the coming period, but it is noncash and it is a provision for that retention program, and that will expire in 2026. It is a one-off program so. But well spotted. Thank you very much.

Yes. One more question for you, Jacob. There's a widespread conversation regarding challenges post 15 years, yet how substantial are the expenses associated with extending a ship's service life.

Yes. So we are very comfortable with the calculations that we are doing. Obviously, we have a significant number of vessels in our fleet today that are over 15 years, and we also have experience with previous vessels having them operating efficiently in our fleet when they are over 15. 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 and say on every vessel, it's going to be X or Y. But what we see is that in order to pass what is called the CAP 1 requirements when you are 15 years old, there is an extra associated cost, a CapEx of between $0.5 million to $1 million that can be dependent to that. But of course, you are also extending the useful life towards the general market, the same market of a 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 One Torm 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 of making this additional investment at 15 years 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.