Hafnia - Earnings Call - Q3 2025

Transcript

Speaker 1

Hello, everybody, and welcome to this Q3 presentation of Hafnia. My name is Würtherbohl. I'm with HA[guess], and I'll be today's moderator. With me today, I'm happy to introduce to you Perry Van Echtelt, the CFO, and Søren Steenberg, Head of Asset Management. Welcome to you. Nice to see you.

Søren Steenberg Jensen (EVP and Head of Asset Management)

Thank you very much.

For the audience.

Perry Van Echtelt (CFO)

Thank you very much.

Thank you. Yeah, nice to see you. We'll take about 30 minutes of your time to walk you through Q3, many, many interesting events, and of course, a lot of discussion about geopolitics, but we'll get back to that. We'll do it in two parts. Basically, Perry will cover a lot of the financial stuff, and then Søren will cover some of the market stuff. Please, if you have any questions, put them in the chat. We'll make sure that they are all taken one by one. Perry, over to you, and perhaps a brief introduction of Hafnia. We always start with that. Please.

Yeah, thank you very much. For the ones that haven't been in these calls before, a quick update and introduction on Hafnia. Hafnia is a 15-year-old company. We are a shipping company that is active in the product tank and the chemical markets. We have a fleet of 117 owned vessels and nine long-term time chartered in, so that brings our fleet to 126 ships across the various segments, from handy size to MR, LR1, and LR2. In the MR and handy sizes, we have a mix of product tankers and chemical tankers. It's one of the most diversified fleets that's around. We have a very modern fleet with an average age of 9.6 years across the owned vessels. It's a global commercial platform, so we operate globally.

We have an in-house dedicated technical management team that is managing roughly half of the fleet, and the rest is externally managed, which gives us a good balance and good benchmarking on how we operate our ships. In addition to the ownership of our vessels, we also run an adjacent business, which is the commercial pools, where ship owners that want to tap in basically into the scale that we have join our pools. We run a total of eight commercial pools where we have 80 ships, so in total, well over 200 ships that we run globally across these segments. Also, in the bunkering space, we are very active.

We started out with our own bunkering team that provided bunkering services for our own fleet, then for the pools, and it has grown quite rapidly, and that led in May this year to join up forces with Cargill and creating the Seascale Energy Bunkering joint venture. Next to that, we're quite active also on innovation, but we'll talk a little bit later when Søren is going through that. A worldwide business with strong scale towards our clients. Therefore, we can also operate a low-cost business. If we look at an OpEx and G&A combined, an industry-low business in terms of cost. We also have a strong focus on shareholder distributions. That means that if you see the middle right part of this page, we connect the strength of the balance sheet to the payout ratio in terms of how much we pay on a quarterly basis in dividends.

We started out when we did an IPO in Oslo in 2019, and by now, we're listed both on the Oslo Stock Exchange and the New York Stock Exchange. Depending on where we are in terms of loan-to-value, being the debt that we have on the 100% owned ships versus the market value of those ships defines how much we're paying in terms of dividends. We're currently in the bracket of 20%-30%. That means that 80% of our net profit is distributed to our shareholders. It's a very clear and transparent way for investors and analysts to take a perspective on the earnings and the dividend capacity of the company. We've paid dividends over the last 15 quarters and $1.16 per share for 2024. A little bit more on strategy. I said we're a relatively young company, but we have a very active mindset towards strategy.

We can do transactions where growth makes sense for the business, whether it is acquiring ships, doing new buildings, or doing joint ventures or M&A. Just as an example, on the right side here on the page, in 2018, we set up a joint venture called Vista together with CSSC, where we now own 10 vessels, six LR1s that we ordered in 2017, but also four dual-fuel LNG vessels that we have on longer-term time charter. The acquisitions in 2022 were even more transformational for Hafnia. We acquired Chemical Tankers, Inc., which is a fleet of 32 chemical tankers in the handy and MR sizes, where Oaktree was the dominant shareholder, and we did a transaction there on basically a NAV-to-NAV shares where they became a shareholder.

At the same time, we acquired 12 LR1s from Scorpio, and that also at the start of a quite strong market in the years after was an important strategic transaction to us. Looking at what we did after was another new-build transaction together with Socatra from France called Ecomar, where we have four methanol dual-fuel MR vessels. Three of them have already been delivered. The next one will be delivered in early next year. The Seascale joint venture I had already mentioned. That's a quick introduction on Hafnia. We can. Yeah.[crosstalk]

Thank you, Perry. I think let's go into Q3 a little bit.

Yeah.

This slide as the starting point, please.

Yes, thank you. We have a bit more on financials later. We can get into it, but I think the key is here. Q3 highlights, we released financial results yesterday. Typically, Q3, if you look at seasonality in product tankers, Q3 is a weaker quarter because it's basically in between what was coming out of the summer heading up towards a stronger winter market. Typically, Q3 is the weaker quarter. Q4, Q1 in the winter, the strongest, with basically a flow-out into Q2 as well. We saw this quarter that for various reasons, there was a strong market. There were more ton miles in the market. There were more vessels that had been sanctioned in the fleet, leading to tighter supply. That led to a TCE income of $247 million. We have also the fee business that I mentioned.

That is where we have a fixed fee per day and a percentage of the TCE realized $7 million of other operating income. That leads to an adjusted EBITDA of $150.5 million and close to $410 million for the first three quarters of the year. Boiling down to net profit, we made a profit of $91.5 or $18 per share. Given the dividend policy that I just explained, that means that we pay out 80% of net profit, being $73.2 million or $14.7 per share. Sorry, too.

Yeah, Perry, just, of course, you're also very important.

I'm losing.

Yeah, let's give two just a minute to come back online.

Yeah. Otherwise, just to complete on what we have here, we also, as part of our modernization of our fleet, we sold four older MRs. Three of them will be delivered and recognized in the fourth quarter, and one was recognized in the current quarter. Too, are you?

Yeah, yeah. I'm back. It was the TORM thing you did in September. Maybe you can just explain a little bit about that. I think there will be many questions about that, please.

Yeah, I can imagine that there are questions on that. There's also, I have to say to start off that there is a limit what we can say about it. Indeed, in September, we announced that we came to a preliminary agreement with Oaktree to buy 14.1 million TORM shares. That soon resulted in a binding purchase agreement. There are a few conditions that are outstanding that need to be fulfilled. The last one being the appointment of a new independent board chair, and then we can close that transaction. We can't really comment on when that is going to happen. The reason for that transaction in itself was we deem it as TORM is a well-run company. There was an opportunity to buy this stake.

As I alluded to earlier in the introduction, we continue to look at transactions that make sense for the company and especially also for the shareholders, which led to us ultimately concluding that transaction.

Just talk, I'll just change to this slide because it also has implications for your LTV and stuff like that. Maybe you can explain how you're thinking about your LTV in this because you could assume that you went to the 90% level if you're not including the TORM shares. Am I right about that?

Yes, absolutely. That is why also after the announcement of the intended share purchase, we updated our dividend policy, where we focus on the debt on our 100% owned vessels against the market value. That also means that with a substantial investment like this, which is basically also exposure to the product tanker market, we decided to include the financial investment of TORM in the net LTV calculation. That means that we take either the purchase price or, if it will be lower, the market value of that stake being added to the fair market value of the fleet. Obviously, also our debt goes up because we use our available resources in terms of cash and financing to calculate that. You are absolutely right that once that transaction concludes, that would impact our LTV going up.

Yeah, because I heard some confusion yesterday about this. Some analysts may be confusing that you could go to the 90% level in Q4, but in reality, it's more likely that you stay in the 80% level.

Yeah, that indeed will be depending on when it closes. As we want to be very transparent on our distribution to shareholders, we updated that dividend policy early when we announced that transaction to make sure that everybody knows how we're taking that into account in terms of the dividend policy.

Although I respect that you cannot comment entirely, what is the next here? You're talking about a sort of potential they need to announce a new chairman, as I understand it, in TORM for you to proceed with closing of this. Is that what we are waiting for?

Yes, that's the outstanding condition to the transaction. Otherwise, I think it's created attention to put it that way. Analysts and media have taken their perspective on what that would mean.

Okay, cool. Being in the financials section, we also have to touch upon your coverage for Q4, but also into Q1 perhaps. Could you elaborate a little bit about that?

Yeah, so we announced as of mid-November, so the 14th of November, that we had booked 71% of our bookings, which is basically in line with where we are in the quarter. That also means we probably talk a little bit more about the market going forward, but that shows an improvement of rates. If we look at where the market is now, we are close to the $26,040-$25,600 in terms of what we have booked for the quarter so far. Q3, I haven't mentioned that yet. That was quite impacted by our dry docking schedule. We have a lot of ships, especially the chemical tankers that were delivered from new in 2015. That means that we have quite a few ships that go for their dry docking in this year. We have over 40 ships. The bulk of that has already happened.

The chemical tankers are a bit more complicated depending on whether a recoating is necessary or not. Therefore, we had 230 extra dry docking days in the quarter. If you look at the graph on the right side, you will see that tapering off in the current quarter and further reduces in 2026. We still have, I think, 28 ships that go into dry dock, but these dry docks are shorter than what you would typically see for the chemical tankers, which you can see in the red or burgundy part of this graph.

Just to make sure, Perry, this is really common. This is normal levels of coverage, but also your dry docking plans for 2026 has not changed overall.

No, every five years, you do a special survey in terms of dry docking for the vessels that is necessary. There is not really something that you can plan away from that. This is all following the age of the vessels and the dry docking schedule that they require.

Perhaps a few words on this one also with the analyst consensus and the optimism that you see in the market about the winter market. Perhaps a few words on this.

Yeah, if you look at we always put this page in our investor presentation. It's not necessarily a forecast, but we show basically the bandwidth of what we see in the market of what we have already covered. The bottom part of the right side of this page shows EBITDA and income if you would just extrapolate what we had already booked for the quarter. The top end of the side is the analyst consensus, where they also take in probably, well, they take in their own rates and perspective on profitability and perhaps also a little bit more on the end run of the quarter in the year.

Yeah, I think this is an excellent slide, actually. People can get an overview of what is the expectations in the market. It is very easy to understand. If you have any questions to this, let us know. With that, Perry, I think we'll conclude the finance section and maybe talk to you, Søren, a little bit about the current turmoil in the geopolitics. Maybe starting off with explaining a little bit about, I think there are four themes. Basically, we read in the papers that the Red Sea is opening up again. Maybe we can start by that and give a few comments on that from your side, please.

Søren Steenberg Jensen (EVP and Head of Asset Management)

Yeah, the Red Sea, of course, has not been completely closed. There is still a lot of traffic going through, but predominantly through, especially tankers where we have the ultra flammable explosive cargoes that we sail with, it has been a no-go. Generally, there are more people looking into this now. We hear some of the container owners are looking into it, although not doing it yet. Generally, we are waiting for a more, I would say, long-term truth or long-term proof that essentially that our crew are safe to sail through on the ships. I think that when we see a pickup, that would, if and when, that would most likely be started by bulk of traffic and container traffic. As we see that they are transiting safely, then we will consider whether there is a possibility for the tankers.

I don't think tankers will be a first mover when you start seeing traffic returning to the Red Sea.

Søren, perhaps just expanding on this, will this be an advantage for Hafnia or will it be neutral or a disadvantage?

Yeah, we have a slide on this in the deck. Generally, I think that a lot of people think it will be a disadvantage. I think initially when the Red Sea closed, we saw a lot of traffic being redirected via the Good Hope. That added a lot of cost to the delivered barrel in the Western Hemisphere, which over the next coming months and quarters basically meant that we saw the volume reduce simply because especially the US have been very strong at picking up and being the more competitive barrel. What we essentially saw was that the Western Hemisphere became more of an eternal market where the U.S. Gulf supplied Europe and West Africa and South America. That has also been part of some of the other dynamics that we have seen that has strengthened that area.

Overall, when it comes to East-West traffic, i.e., cargoes going from the Middle East and India to the Western Hemisphere, it actually net meant that we saw less traffic going that way. We lost a lot of arbitrage barrels because they were not competitive. What we are arguing is that if we see the current traffic that is going via the Good Hope now going back to the Red Sea, we would have lost some capacity. If we actually add the barrels, the trading barrels that we lost, we are almost back at a net zero.

For us, we think if there is a negative impact on the market, it would most likely only be a sentiment that because it's expected to have a negative influence, whereas from a trading perspective, the math shows that it should resume to a relatively normal market without big impact. As I said, there's a slide later on where we've illustrated that.

Yeah, yeah. While at that, I think we have two other things that's really on people's agenda or investors' agenda, and that is, of course, PCNU, Kareem, and the large shadow fleet of the Russian that is used for producing or transporting Russian oil. Could you comment on Hafnia's position on that? I know it's difficult, but I think it's on investors' minds anyway.

Yeah, I would say between the Red Sea and Ukraine and now Venezuela entering the picture as well, it's not exactly easy to do these projections. Generally, we have about 61 million dead weight of over 20-year-old tonnage that are still sailing with Russian oil, which essentially in a normal world would have no license to trade. They are overage, and we do expect that on a normalization, they would exit. We also have to take into consideration that Europe will most likely not return to a picture where we become fully dependent on Russian diesel again or gas. Some of that will have to sail longer distances because Europe is not going to be the almost exclusive importer of that. I think there will be a new mix that we will see simply from energy security policies as well.

A combination of ships that will permanently exit the market with longer trading distances as Europe will try to secure some of their imports from the Middle East and the U.S. and not be totally dependent on Russia. I think that the one thing we can say is we do not expect it to return to where it was before the war, and some of the dynamics will probably dampen the effect of some of the barrels sailing a shorter distance from Russia into Europe.

Okay. Touching upon Venezuela, that's a new thing. It hasn't been a theme for quite some time, but what's the status on that scene from the Hafnia perspective?

The status is, let's wait and see. I think that Venezuela was down to a very few compatriot countries that they traded with, and we simply have to wait and see if this rattling with the sables ends up having an effect. Of course, they have picked up. If you go back two, three years, the volumes that everybody was saying that they were being smothered slowly, lack of spare parts, lack of technology, lack of expertise meant that their export volumes were severely down. They have actually recovered meaningfully over the last two, three years. They certainly have barrels to be a factor.

Okay. Perhaps touching upon the winter market, because normally we get a strong market into this month, can you perhaps touch upon that? I think we see some sign of it is actually quite strong. Maybe you can talk us through your thinking about the winter market coming up.

Absolutely, which is very much sort of a continuation of the factors that actually made Q3 uncharacteristically strong. One of them is, of course, if we look at the fleet addition, a lot of people, analysts estimated that we would see a 5% addition this year. We all knew that the new build list was very, very heavy on the LR2 side. You can say historically from 2017 up till today, about 70%-75%, it is actually 72.5% precisely, ends up going into Aframax trade.

What we have seen is that with the dirty markets having improved a lot over the last couple of months, but also during the year with a lot of older Aframax aging severely, we have almost seen 88% going into dirty trades, which means that when we did this material, we were down to about 0.5% fleet addition into product tankers in 2025. By the end of, you can say, yesterday, we were probably at zero because it looks like the remaining units are also continuing that trend for the rest of the year. One was the fleet addition. We almost saw zero fleet addition. At the same time, what we talked about earlier, we have seen a very strong Western Hemisphere market that has also been fueled by refinery closures.

We have seen Imingham, we have seen Gelsenkirchen, we saw one in Scotland as well. Europe continues to close down refineries, and those barrels have to be supplied from the Middle East or the US. This year, especially the US have supplied a lot of that. We also saw towards the end of the quarter and into Q4 here, we also saw the Dakota refinery basically having to shut down their refining column for five-six weeks. That also meant that US had to supply West Africa. It meant that we had a very tight tonnage situation in the Western Hemisphere. Actually, when we look into Q1, we see very strong crack splits still supporting that trend. Of course, US could not supply all this.

Although the Far Eastern Hemisphere initially in Q3 looked like the ARP was supporting more a Far Eastern supply out of the Middle East, because of these shortcomings in Europe, they actually started sending more and more cargoes to the West, which also meant longer voyages and higher demand for tonnage. Lastly, maybe just an addition to the dirty fleet scenario is that we came from historically always having sort of a 5-3-4-5% cannibalization from the dirty fleet. Of course, with the high earnings that they are looking at now, they are drawing in all the new builds or new build equivalents into their segment, but also means that we have seen hardly any cannibalization into the CVP segments. All in all, a little bit of a perfect storm, you can say.

That sounds good for earnings. Let's take a few questions here in the end that we haven't covered. The order book, there's a question from the audience here. Why has the order book fallen in Q3? Is scrapping increasing?

I don't think scrapping is increasing in any sort of very significant levels. I think why the order book has fallen.

I don't know if it's, but that's at least the question. Let's just continue.

I think I would assume that it's the fact that a lot of these have gone into dirty so far as in products. We have seen very little fleet addition.

Yes. Disposals of older vessels. I guess your average fleet is pretty young compared to competitors, but can you share with us this thinking about your fleet renewal schemes?

Yeah, so I think, I mean, it has been on our strategy since 2023 to life extend vessels. I think a combination of what to build when we had arguably more pressure or interest, I would say, into alternative fuels. If we look back a year, a year and a half ago, that has tapered off. Also because already back in 2024, we saw some of the highest prices out of the shipyards, almost historically high, close to. I think that we said, okay, we are opportunity driven. We are not going to go out and order a large bunch of vessels in a very high cycle. Rather focus on extending the life of the quality tonnage that we have and then maybe buy ourselves a little bit more time for some more opportunities to arise. Those opportunities may not be new builds.

They could also be resales. It could be fleet purchases. It could be M&A, as you can see from history, used to mix and match where we find pockets of opportunities. That being said, I think we have to look at all of them because we could potentially enter a scenario where we're a little bit between a rock and a hard place that the fleet is getting older and there's continued high activity at the shipyards. Prices are not falling meaningfully before we see the fleet aging even further. Yeah, so an interesting place to be.

An interesting place to be. Perry and Søren, thank you very much for being with us today. I hope that people got an impression of where Hafnia is today. If you have any more questions or things you want to share, please call us or the investor relations in Hafnia. Thank you very much. Thank you for now.

Thank you for having us.