TORM plc (TRMD) Q3 2025 Earnings Report, Transcript and Summary

Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the TORM Third Quarter 2025 Results Conference Call. [Operator Instructions] Thank you. I would like to turn the call over to Jacob Meldgaard, CEO. Please go ahead.

Yes. Thank you, and also welcome to everyone joining us here today from me. This morning, we released our interim results for the third quarter of 2025, delivering another strong set of numbers that underscore TORM's ability to generate market-leading performance. In Q3, we continued to operate in a relatively stable market environment despite ongoing geopolitical tensions. Freight rates firmed compared to the first half of the year, driving a TCE of USD 236 million, above the levels achieved in the previous quarters. This, in turn, resulted in a net profit of USD 78 million, enabling us to declare a dividend of USD 0.62 per share, clearly reflecting how stronger earnings translate into higher shareholder returns. Also, we advanced our fleet optimization strategy with the acquisition of 5 vessels: 4 2014-built MRs and 1 2010-built LR2, while divesting a 2007-built MR. We also agreed a 3-year time charter for the 2009-built MR vessel, TORM Lilly, to a European refiner at a daily rate of USD 22,234, thus above the prevailing market rate for such vintage. These transactions support our ongoing focus on maintaining a modern, high-quality and commercially attractive fleet. Looking ahead, while the macro environment remains dynamic and shaped by geopolitical uncertainty, market sentiment is broadly positive. We entered the final months of the year with solid momentum, supported by firm rates across all vessel segments and good visibility on our upcoming fixtures. Based on this and the coverage we have already secured, we further increased the midpoint of our guidance and narrowed the range to reflect a high level of transparency on earnings with relatively few uncovered days for the remainder of 2025. As always, we remain disciplined and agile in our execution. And with that, let's turn to the key market drivers and how we are positioned for the quarters ahead. Here, please turn to Slide 5. And let's start with a snapshot of the market landscape. Product tanker rates have remained both stable and attractive across the board. While recent figures reflect the onset of refinery maintenance season in the Atlantic and the Middle East, benchmark earnings for our MR and LR2 vessels continue to show resilience. This overall rate stability is supported by consistent demand and limited growth in the CPP trading fleet. Let's turn to Slide 6. As we've noted for some time, the low levels of East to West trade volumes observed earlier this year were unsustainable. Indeed, in the third quarter, trade volumes increased significantly, driven by higher middle distillate flows from East to West, supported by transatlantic movements. This lifted ton-miles well above the levels seen before the Red Sea disruption, while crude cannibalization stabilized at historically normal levels. At the start of the fourth quarter, trade flows have eased slightly as refineries in the West and the Middle East undergo seasonal maintenance. However, as maintenance concludes, trade flows are expected to resume, further supported by refinery closures in the West, which increase the need to source products from alternative locations. Please turn to Slide 7 to elaborate on that. And since the start of this year, 2 refineries in Northwest Europe have closed with 2 more scheduled to shut by end year. Together, these closures represent 6% of the region's refining capacity, reducing local product supply and increasing reliance on imported middle distillates in an already tight market. If this supply were fully replaced by imports from the Middle East Gulf, an additional 15 to 24 LR2 equivalents per year would be required, depending on whether vessels transit the Red Sea or sail around the Cape of Good Hope. To put this in perspective, this represents 6% to 10% of the current CPP trading LR2 fleet. Beyond Europe, 2 refineries on the U.S. West Coast, representing 11% of the region's capacity, are expected to close within the next 6 months. This will likely drive increased demand for gasoline and jet fuel imports, translating into a need for more than 25 MR equivalents on a round-trip basis if sourced from Asia. And here, I kindly ask you to turn to Slide 8. Geopolitical developments continue to be a key market driver. Since our last quarterly call, several new measures have emerged. While the duration of these measures remain uncertain, inefficiencies caused by the Red Sea disruption and sanctions on Russia continue to support the tanker market. Earlier this year, OPEC+ began unwinding production cuts, but the impact on crude tanker rates only became apparent at the end of the third quarter. We expect the positive effect of strong VLCC rates on product tankers to become more visible once the refinery maintenance season concludes. Sanctions against Russia have intensified in recent months. The EU import ban on third-country petroleum products derived from Russian crude, effective January next year, is not expected to significantly affect product tanker ton-miles as alternative sources are available at similar distances or could slightly increase demand if imports are sourced from further away. Meanwhile, intensified drone attacks on Russian refineries have reduced Russian clean petroleum product flows, boosting flows from the U.S. Gulf. Recent OPEC sanctions on Rosneft and Lukoil may further lower Russian crude export. While the direct loss of Russian barrels is limited to the sanctioned fleet, replacement barrels from other regions would provide additional demand support for the conventional crude tanker fleet in an already strong rate environment, indirectly benefiting the product tanker market. Regarding U.S.-China reciprocal port fees, these are now off the table for another 12 months. While such measures could have added inefficiencies to the broader tanker market, TORM would have seen limited impact due to exemptions and the flexibility of our fleet. Finally, IMO's postponement of the Net-Zero Framework in October does not affect the market today, but signals that oil will continue to play a role in the maritime industry for the foreseeable future. Please turn to Slide 9. Let me turn to the tonnage supply side. This year's higher nominal fleet growth has been largely absorbed by a significant shift of LR2s into dirty trades as OFAC sanctions continue to limit the productivity of sanctioned Aframaxes. Over the past year, nearly 50 newbuild LR2s have joined the fleet, yet the number of LR2s trading clean has declined by around 10 vessels. As a result, total clean product tanker capacity has fallen by roughly 1% despite a 5% increase in the nominal product tanker fleet. Looking ahead, the relatively high order book for the next 2 to 3 years should be viewed in the context of an aging fleet. The average age is now at a 2-decade high, and the share of vessels approaching scrapping age is almost equivalent to the current order book. Furthermore, a significant portion of the older fleet remains under sanctions, which is expected to accelerate exits from the market. This is particularly evident in the combined LR2 Aframax segment, where 1 in 4 vessels globally is under OPEC, EU or U.K. sanctions. Kindly turn to Slide 10. To summarize, the key factors shaping the market this year are expected to continue into next year, including ongoing geopolitical uncertainty, the Red Sea disruption and sanctions on Russia. In addition, higher crude output from OPEC is indirectly supporting the product tanker market. On the demand side, oil consumption remains solid, and structural changes in the global refinery landscape continue to support ton-mile growth. On the supply side, a wave of newbuild deliveries will be offset by an increasing number of scrapping candidates and reduced trading activity among sanctioned vessels, factors that will influence overall tonnage availability and market balance. I'm confident that TORM is well positioned to navigate this environment of elevated uncertainty, supported by our strong capital structure, operational leverage and fully integrated platform. And with that, I will now hand it over to Kim, who will walk us through the financials.

Thank you, Jacob. And please turn to Slide 12 for an overview of the financials. In the third quarter, we generated TCE revenues of USD 236 million, resulting in an EBITDA of USD 152 million and a net profit of USD 78 million. On a fleet-wide basis, we achieved TCE rates of USD 31,012 per day. And breaking it down by vessel class, LR2s earned well above $38,000, LR1s around $29,500 and MRs exceeded USD 28,000 per day. Compared to previous quarters, freight rates have strengthened, supported by solid market fundamentals. Once again, the rates we secured reflect our continued outperformance relative to the broader market. And now, move to Slide 13, please. This slide shows our quarterly revenue progression since Q3 2024. With this quarter's results, we see meaningful uptick, adding to the stable freight rates and earnings of prior quarters. This further highlights the favorable market conditions we are operating in. We delivered a satisfactory result with TCE of $236 million and an EBITDA of USD 152 million, USD 25 million higher than previous quarter. This improvement reflects a USD 4,340 per day increase in fleet-wide TCE rates. Given our current operational leverage, we are well positioned to benefit from the already very attractive freight rates. Please turn to Slide 14. Here, we present the quarterly development in net profit and key share-related metrics, which closely track the trend in EBITDA. So, for the third quarter, earnings per share came in at USD 0.79. Our approach to shareholder returns remain clear and consistent. We continue to distribute excess liquidity on a quarterly basis, while maintaining a prudent financial buffer to protect our balance sheet. For Q3, this has resulted in a declared dividend of USD 0.62 per share, representing a payout ratio of 78%. This aligns with our free cash flow after debt repayments and reflect both our strong earnings and our ongoing commitments to responsible capital allocation. Please turn to Slide 15. As shown here, broker valuation for our fleet stood at USD 2.9 billion at quarter-end. This reflects generally stable vessel values with a slightly positive sentiment, amongst other factors, resulting in a NAV increase of approximately USD 100 million to USD 2.4 billion. In the central chart, you will see our net interest-bearing debt now stands at USD 690 million, corresponding to around 24%, roughly the same level as the last -- at the same time last year, underscoring the strength of our conservative capital structure. On the right, our debt maturity profile shows that only USD 122 million in borrowings will mature over the next 12 months and that we will have no significant maturities until 2029. This provides us with ample financial runway and stability. As we mentioned in August, we have secured an attractive refinancing package to replace 2 syndicated loan facilities and our lease agreements. To date, TORM has repurchased 13 out of 22 leaseback vessels, and 2 additional purchase options have been exercised with 1 vessel expected in Q4 2025 and the other in Q1 2026. The remaining vessels are scheduled for repurchase during 2026. Altogether, our strong financial position gives us the flexibility to navigate current market conditions and pursue value-creating opportunities. And now, please turn to Slide 16 for the outlook. Our strong performance in the first 3 quarters provides a solid foundation for the remaining part of the year. As of 31st October, we have secured 55% of our Q4 earnings days at an average of TCE $30,156 per day. For the full year 2025, 89% of our earning days are fixed at an average TCE of USD 28,281 per day. These levels provide solid earnings visibility and reflects continued market strength across our business segments. While geopolitical volatility remains a factor, market sentiment is firm. On this basis, we are confident in increasing the midpoint of our TCE guidance by USD 25 million to USD 900 million, while further narrowing our full year guidance. Thus, we now expect TCE earnings of between USD 875 million to USD 925 million compared to our previous range of USD 800 million to USD 950 million. Similarly, we increased the midpoint and narrowed our EBITDA guidance to USD 540 million to USD 590 million compared to the prior range of USD 475 million to USD 625 million. This revision reflects both our secured coverage and current market expectation, while acknowledging the potential for continued fluctuations. And with that, I will conclude my remarks and hand it back to the operator.

[Operator Instructions] Your first question comes from the line of Frode Morkedal with Clarksons.

Yes. I just read trade wins where you talked about 2009-built MR charter out for 3 years at $22,000 per day, which is like a fantastic rate, given the age, right? Basically, 3.5x EBITDA, as I see it. So the question is really how do you manage to pull that off and how repeatable is it to charter out for such long duration for that type of age?

Yes. Well, thank you for noticing. I did also mention it in the remarks here. I think there are 2 things. One is being able to be able to charter out ships that are, in this case, more than 15 years of age, and then, how many opportunities are there. We take it the first point first, and I think the point about having an integrated platform, really our customers, I would argue, is not really age-focused in their dealings with us because we have a platform where all our assets are living up to the same standards. If you come to human behavior, safety, et cetera, it's exactly the same people on board a vessel that is, let's say, straight out of the yard or one that is built in 2009. And also on efficiency, all the things that we do to make it a TORM vessel when we own and control it is the same across the fleet. So I think my point being, I don't see this as unique because our customers will look at TORM delivering the same type of service for any of our vessels. Then to your question, how many are there, we are -- I mean, this is a European refinery [ A1 ]. Will there be more? Time will tell. We are in negotiations on several of our ships on longer duration. And clearly, with the market that we are experiencing right now, it is so that we are in more frequent dialogue with customers around longer-term deals than what we were 6 months ago. But it is quite a game of that we're only going to do this if it makes financial sense. We don't need to take the cover because of, obviously, the financial strength on the balance sheet that Kim, I think, went through in detail.

Interesting. I mean, yes, for sure. I mean, 30% cash return on such a deal certainly means ship value should increase, right? Which brings me to the next question really is about -- you also announced the 4 MRs, so you're buying ships -- and 1 LR2, I guess. You also sold older ships. Just like broadly speaking, how is your thought process when you made those decisions? Are you looking at some type of return hurdle, cash breakeven or maybe the time charter opportunities? Yes.

Yes, good question. I think the answer is all of the above. So we don't only look at one metric, but of course, it needs to qualify for the -- our internal hurdle for what we deem to be a proper IRR and also return on invested capital, given that we are in volatile markets and we are spot operation. Of course, it needs to pass on that parameter when we look at asset acquisitions. But I think, again, I'll make the same point here. So probably, I'm a little repetitive. But I think we are also -- we have the benefit of that when we make investment analysis, we are not sticky on vessel age or the vessel segment. What we are really sticking on is that it meets the return requirements, the hurdles that we have set for ourselves because we are in a business that is volatile. So of course, we need to have a decent return in order for us to utilize our capital against the asset. But the luxury we have because of the platform that I also described about the charter opportunities is so that I feel very comfortable that our organization can generate maximum value out of whether it's an MR built in -- 5 years of age or 10 or 15, or whether it's one of the other segments. And that, of course, offers me more investment opportunities to study and look at IRRs and ultimately return on invested capital from not only one angle and not only one particular type of ship because we really had the ability with our integrated platform to accommodate all of this. So obviously, coming to your point, the 4 -- actually 5 vessels we've acquired, they, in our opinion, all of them individually meet the return hurdles that we have, whereas if we looked at the one that we sold, that was an asset where we could see that it was -- actually, the NPV of that sale was better than maintaining it in our fleet and operating it. It was not that we could not do it, but we had an offer that was better than what our business plan would dictate that you could get.

Interesting. Can you remind us, I guess, on how the One TORM platform actually works [ as part of ] this? I guess, [indiscernible] intelligence, I don't know, cargo opportunities, positioning, essentially why that translates into the higher TCE than arguably peers are getting?

Yes, very happy to. So basically, I think you should look a little away from the fact that we are chartering the ships and start by looking at the ships themselves where we have an integrated platform where we hire all of our seafarers. So we can dictate which seafarers are on what ships at what time. We can, of course, dictate the quality, but also the focus area and incentivize these to work for the same thing as I just described, i.e., the return on invested capital at the end because they are not motivated by a particular ownership structure inside of a ship management company. They are all integrated. So I think it starts on both the ships and it also starts with all the technicalities that we can apply on the ships. If we take over a ship, we will probably add 20 different investments that is physically changing the ships from what they are today into the type of vessels with the fuel efficiency that we would like to have. And then, it's sort of the broader picture of that we see, of course, ultimately that it is the dialogue with the customers that dictates the price. But before you get to that, there's a whole company that is working towards enabling the chartering team to get the best rates. And I think in that sense, it is different than the business models that we see in other companies where you are more of a steel owner, but where you outsource control of various functions. We actually have everything in-house. And the discipline we can create by that is that we actually have common KPIs. Everybody in the organization is driven by the same KPIs. I think that is the secret sauce in this. And then, underneath the hood, there's, of course, many other things you also point to. You need to be in the right markets at the right time. You need to be really clever about how you position your fleet and think forward. And of course, we use tools in order to inform us about what do we believe is the best position that you can come in to maximize earning over a longer period. And I'm happy that you -- I think we really recognize that the value of the platform is that we are delivering TCE earnings ultimately that exceeds our peers.

[Operator Instructions] And your next question comes from the line of Omar Nokta with Jefferies.

Good update. Obviously, very strong figures. I just had a couple of questions. Maybe just in terms of capital deployment, you bought the 4 MRs, the LR2. Those ships are somewhat older, but it looks like perhaps maybe they're in that sweet spot of return on investment. But I just want to get a sense from you, is this -- does this mark maybe a difference in how you're going to start deploying capital? Do you think going younger makes sense? Or is this the right age profile where we are in the cycle, and I guess, maybe where TORM is in its life cycle? Is this the right age to be going after at this point?

Yes. I think coming back to the right age is the age where you get the highest return on invested capital. We are not concerned about the age of these assets. Then we would obviously not have looked that way. So yes, I think it's absolutely the right thing. Could it be that we could supplement with younger tonnage? Yes. When and if the price curve gives us the opportunity to buy the right type of assets that are younger, we will absolutely look that way also, Omar. But for now, I feel very comfortable with the choices that we have made, and then we are very open for business on any potential addition to our fleet.

Okay. Very good. And then, second question I have is on the dividend. It looks like you bumped the payout ratio from, say, 70% up to 78%. I know it's not a meaningful change, but it's noticeable. Anything you're willing to share in terms of how you think about dividends going forward from here? Do you want to keep it in that 70% to 78% range? Do you think it's more on the higher end going forward? Anything you're willing to share?

Yes. Thank you for that question, Omar. We were asked the same question last time, you remember that? And if we'll go [indiscernible], and I think we were supposed to say, yes, we'll get there. [ Lovely ], we are there already this quarter. That's not how we have designed our distribution policy. It's not designed to hit a PE or payout ratio. It's designed to distribute free liquidity we generate throughout the quarter. But of course, it is correlated to our cash flow breakeven levels. And as they go down -- and I'm just taking the net working capital impact out of the equation. But all that being equal, of course, as our cash flow breakeven decreases, the ability to pay out more, of course, increases likewise. So hopefully, we will look into some coming quarters where we can keep it at this level. Also, I think I alluded to last time potentially higher, but let's just call it these levels is very satisfactory. But it's not an aim we have on a payout ratio. It is the free liquidity we're generating that we are -- that is the outset of when we propose dividends to our Board and then they decide from that.

Okay. That's helpful. And then, last question, just in terms of the reported interest expense was a bit higher than the prior few quarters. I'm just wondering, is that an accounting treatment? Is that timing of a coupon payment?

No, it's the refinancing. So it's the account treatment of the refinance and the upfront -- or the fees that are generated there. So you're just [indiscernible].

Yes. Okay. So it smooths out kind of back to a more normalized level in 4Q?

Definitely, we can have a talk about that, Omar, if you want some more details on that, but that's the accounting effect.

[Operator Instructions] And at this time, there are no further questions. I will now turn the call back over to Jacob for closing remarks.

Yes. Thank you, everyone, for listening to the Q3 2025 report from TORM. Have a great day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.