TORM - Q4 2025

Transcript

Operator (participant)

Hello, welcome to the TORM full year 2025 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, press star one on your telephone keypad. I would now like to turn the conference over to Jacob Meldgaard, CEO. You may begin.

Jacob Meldgaard (CEO)

Thank you, and welcome to everyone joining us here today. This morning, we released our annual report for 2025, and we are satisfied with the results, which once again reflect our strong execution across the business. However, before I now turn to the results, I want to spend a little time talking about TORM and the foundation that enables these results and consistently differentiates TORM in the market. I want to talk about the key pillars of our business that have placed us in a strong position to date, and that we believe will continue to do so in the future. We are immensely proud of what we have achieved here at TORM. Our ownership model and culture provides us with a clarity of purpose that streamlines our actions across the business.

We are focused each and every day on staying one step ahead of other fleets to make the most of every opportunity. We believe our ability to deliver on this ambition for our shareholders is a distinct competitive advantage. Underpinning our strategic focus is the platform you will know as One TORM. We believe this is a point of difference that sets us apart. The model was originally built around a spot-oriented strategy to unite the business and accelerate decision-making and response time. It enables us to use real-time data and insights to share our deep expertise at the core of the business at a moment's notice. We are not complacent. Since its inception, we have continuously refined this model using the latest technology, advanced analytics, and proprietary data at our disposal to ensure we remain as alert and responsive as we possibly can be.

In short, we can identify and capture attractive trading opportunities, even in the most challenging markets, and perhaps, I should say, especially in challenging markets. Exactly the type of markets which now characterize the shipping industry, even as we see comparatively fewer headwinds here into 2026. For our shareholders, this approach offers a very clear advantage. We believe an industry benchmark for unrivaled consistency, strategic optionality, and financial discipline that you can see once again in our numbers. Here, please turn to slide number four. Here in the next two slides, we show the key figures for the quarter and the full year. As always, I'll start with the quarterly numbers to give you a clear picture of how the business is developing. In Q4, TCE came in at $251 million, slightly above Q3, supported by firm freight rates throughout the quarter.

This strong performance resulted in a net profit of $87 million, which enables us to declare a dividend of $0.70 per share, once again demonstrating how higher earnings translate directly into higher shareholder returns. During the quarter, we were active in the S&P market. We added two 2016-built LR2s and six MR vessels built between 2014 and 2018, while divesting one older 2008-built LR2. Several of the vessels were delivered before year-end, bringing our fleet to 93 vessels, and after completing the remaining deliveries at the start of 2026, our fleet comprises 95 vessels. Importantly, our investments were exceptionally well-timed. Based on current broker valuations, the vessels we acquired have already been appreciated by a double-digit U.S. dollar amount.

This reflects not only the quality of the assets and our disciplined approach to capital allocation, but also a market that has continuously turned more positive, supporting higher asset values across the product tanker space. Turning to slide five, we show the full year numbers. These are strong results. A year ago, our TCE guidance was $650 million-$950 million, and we closed the year towards the high end with $910 million. While not matching the all-time high in 2024, it remains a very satisfactory outcome. Freight rates strengthened from the first to the second half of the year and ended at attractive levels.

In this environment, TORM achieved fleet-wide rates of $28,703 per day, which we are very pleased with and which again demonstrates our ability to outperform the broader market. Net profit for the year totaled $286 million, of which $204 million is being returned to shareholders. With that overview in place, let us take a step back and look at the broader market dynamics that shape the environment we operate in. Here, please turn to the next slide, to slide seven. After a softer but still historically strong 2025, product tanker freight rates have now returned to the average levels that were seen in the 2022-2024 market.

Underlying demand for product tankers has remained steady, and the recent uplift in rates has been driven primarily by developments elsewhere in the tanker complex. The crude market has moved into a territory that, while not unprecedented, is extremely rare. VLCC spot rates have surged to the U.S. dollar $200,000 per day range, a unique and record-breaking level, and with charterers reportedly fixing one-year deals above U.S. dollar $110,000 per day. This strength is spilling over into the rest of the market, first into Suezmax and Aframax, and then further into clean product tankers. If this momentum continues, we are potentially looking at a very interesting rate environment ahead. At the same time, sanctions in the dirty Aframax segment have tightened vessel availability, triggering a large shift of LR2s from clean to dirty trade.

This reduction in clean LR2 supply has further supported product tanker earnings. After several years of partial decoupling between segments, the product tanker market is once again being carried by the broader strength in crude. VLCCs, as mentioned in particular, continue to benefit from increased OPEC production, renewed stock building demand from China, heightened geopolitical tensions involving Venezuela and Iran, and further consolidation in the segment. All these factors together have created one of the strongest cross-segment market backdrops we have seen in years. Please turn to slide eight. Here, let us have a look at the product tanker demand side. Seaborne volumes of clean petroleum products have been trending upwards in recent months. However, the overall impact of the Red Sea rerouting has been largely neutral due to lower trade volumes and a partial return to Red Sea transits.

Trade volumes from the Middle East and Asia to Europe have started the year at 30% below pre-disruption levels, which is largely a result of lower flows from India amid introduction of an EU ban on imports of oil products derived from Russian crude. At the same time, an increasing number of vessels have resumed transiting the Red Sea, with an on average, 40% of the clean petroleum product volumes on the Middle East, Asia to Europe route, traveling via the Red Sea in 2025. This is up from under 10% in 2024. As a result, we see limited downside risk from a potential full normalization of the Red Sea transits, as much of this effect has already been unwound, and instead, a likely rebound in clean petroleum trade volumes after the normalization of the transit would increase ton-miles.

This is reinforced by the closure of 5% of the refining capacity in Northwest Europe last year, which is driving higher import needs for middle distillates. Additional support comes from sustained strength in crude tanker rates, which limits the crude tanker cannibalization and also from rising clean product ton-miles, driven by refinery closures on the U.S. West Coast. Kindly turn to slide nine. Let's turn to now the supply dynamics. New building deliveries have increased here in 2025. This has not translated into effective growth in the fleet trading clean products. In fact, since the start of 2024, nominal product tanker fleet capacity is up by 8%, yet the capacity actually trading clean today is 1% lower than it was at the beginning of 2024.

This disconnect is primarily due to sanctions in the Aframax segment, which have incentivized a significant shift of LR2 vessels into dirty trades. To illustrate this point, compared to the start of 2025, currently, there are 20 fewer LR2 vessels transporting clean petroleum products, and at the same time, as 65 new buildings have been delivered to the LR2 fleet during the same period. The scale of the sanctions is notable. One in four vessels in the combined Aframax LR2 segment is currently under U.S., EU, or U.K. sanctions. This comes on top of the fact that the order book is already balanced by the high share of OAH vessels in this segment. Next slide, please. Slide 10. Here, let me just elaborate a little on the vessel sanctions. Most sanctions vessels were added to the list last year.

In 2025 alone, more than 200 Aframax and LR2 vessels were sanctioned. This is 3.5 times the number of new building deliveries in the segment in 2025, and it is equivalent to almost the entire combined new building program for a 3-year period from 2025 to 2027. With 60% of these now-sanctioned vessels being older than 20 years, their likelihood of returning to the mainstream market, even if sanctions were lifted, appears to be limited. Now, turn to slide 11, please. Geopolitical developments continue to be a major driver of market dynamics, and in fact, the list of different geopolitical drivers has only gotten longer in the past 4 years. The growing number of policy interventions and geopolitical flashpoints increases uncertainty and associated inefficiencies.

Beyond the policies directly affecting product tankers, developments in the crude tanker market, such as a potential tightening of sanctions against Iran, rising OPEC production, are also indirectly supportive for product tanker demand. We sincerely hope for a ceasefire between Ukraine and Russia. However, we see the likelihood of trade returning to pre-war levels as very low or non-existent in the foreseeable future, given the EU's clear determination to tighten sanctions. The EU ban on Russian crude oil and oil products has been by far the most significant sanction against Russia in term of ton-miles, and the new 28th sanction package the EU is working on is potentially adding a full maritime services ban to it, forcing an even larger share of Russian oil flows into the shadow fleet. This would likely further increase the inefficiencies of the fleet trading Russian oil.

Please turn to the next slide 12. In summary, the key geopolitical forces continue to shape this year's market. While a potential normalization of Red Sea trenches is unlikely to weigh on the market, the EU's ban on Russian oil will continue to underpin longer trading distances. On the demand side, ongoing shifts in global refining capacity continue to support ton-mile expansion. On the ton supply side, the increase in new building deliveries will be balanced by a growing pool of scrapping candidates and reduced participation from sanctioned vessels, factors that will influence overall tonners availability and market equilibrium. Against this backdrop, I'm confident that TORM is well-positioned to navigate an environment marked by uncertainty and supported by our solid capital structure, strong operational leverage, and our fully integrated platform.

With that, I'll now hand it over to you, Kim, who will take us through the numbers.

Kim Balle (CFO)

Thank you, Jacob. Please turn to slide 14, and let me walk you through some of the drivers behind our performance this quarter and for the full year. Starting with the market backdrop. The product tanker market stayed strong throughout the fourth quarter, and that supported another solid result for us. For Q4, we delivered TCE of $251 million, which translated into EBITDA of $156 million, and net profit of $87 million. Across the fleet, our average TCE came in at $30,658 per day. Breaking that down, our LR2 earned above $35,000, LR1s were above $31,000, and MRs were just under $29,000 per day.

For the long-range vessels, these numbers were actually a bit better than we indicated in our Q3 coverage, reflecting continued strong markets, helped in part by very firm crude tanker rates. For the full year, we delivered TCE of $910 million, EBITDA of $571 million, and net profit of $286 million. These are solid numbers. As expected, earnings moderated from the exceptional levels of last year, but they remained robust and importantly, very much in line with the guidance we shared in November. Turning to shareholder returns. With a strong Q4, earnings per share reached $0.88, and the board has declared a dividend of $0.70 per share, bringing total dividends for the year to $2.12 per share.

We continue to believe that our capital return framework strikes the right balance, clear, disciplined, and supported by robust cash earnings generation. With that overview in place, let us move to slide 15, where we break down the earnings in more details and talk through the underlying drivers. Slide 15 shows our quarterly revenue progression since Q4, 2024. With this quarter's results, we see a meaningful uptick building on the positive trajectory in freight rates and earnings we've delivered over recent quarters. It's a clear indication of the favorable markets environment we are operating in. For the quarter, we delivered TCE of $251 million, and EBITDA of $156 million, making our strongest quarterly performance this year.

The underlying uplift is driven by firm freight rates, supported by solid fundamentals and a positive spill over from the crude tanker segment, as mentioned. Given our operational leverage, we are well positioned to benefit from what we already see as very attractive freight rates. Please turn to slide 16. Here, we show the quarterly development in net profit and the key share-related metrics. For the fourth quarter, earnings per share came in at $0.88. Our approach to shareholder returns remain clear, disciplined, and consistent. We continue to distribute excess liquidity on a quarterly basis while maintaining a prudent financial buffer to safeguard the balance sheet. For Q4, this has resulted in a declared dividend of seventy shares, $0.70 per share, corresponding to a payout ratio of 82%.

This is fully aligned with our free cash flow and debt, after debt repayments, and reflects both the strength of our earnings and our ongoing commitment to responsible capital allocation. Now please turn to slide 17. As shown on this slide, broker valuations for our fleet stood at $3.2 billion at year-end. This reflects a continued positive sentiment in the market and results in an NAV increase to $2.6 billion. Importantly to note, average broker valuations for the fleet increased by 4.2% during the quarter, driven primarily by higher valuations for our LR2 vessels, which saw the strongest appreciation. This uplift further underscores the improving market backdrop and the quality of our asset base.

In the recent quarter, or sorry, in the center chart, you can see our net interest bearing debt, which now stands at $848 million, corresponding to 29.4 in net LTV. The increase reflects the vessels acquired made during the quarter, which necessarily required incremental funding. Importantly, even with this investment-driven uptick, our leverage ratio remains within range that we have maintained over recent quarters, typically between 25%-30%, underscoring the strength of our conservative capital structure. This stable level continues to provide us with ample financial flexibility to pursue value accretive opportunities while safeguarding balance sheet resilience across market cycles. On the right, you can see our debt maturity profile.

We have $135 million in borrowings maturing over the next 12 months, excluding these terminations that have already been refinanced. Beyond that, only modest amounts fall due in the following years. Overall, our solid balance sheet gives us a sustainable financial flexibility to navigate current market conditions with confidence and to pursue value-creating opportunities as they emerge. Now, please turn to slide 18. This time, we have added a new slide to show what it actually means for the value creation when we consistently achieve rates above the market average. The MR segment is our largest exposure and the segment where competitors also have meaningful scale, making it the most representative benchmark for the product tanker market. We could, of course, perform a similar comparison for LR2 vessels.

However, the benchmarking becomes less robust, as many of our peers operate only a relatively small LR2 fleet, limiting the comparability and statistical relevance for such an analysis. That said, based on the data available, a comparable calculation for the LR2 segment would probably broadly show the same picture. As shown on slide 24 in the appendix, we compare the rates we achieve with those of our peer group. Quarter after quarter and year after year, we have consistently delivered rates well above the peer average, and in most quarters, even market leading. This performance is a direct outcome of the One TORM model that Jacob discussed, and which continues to differentiate us in the market.

On this slide, when we take the analysis a step further by quantifying what that actually means, then holding everything else equal, we calculate the premium TCE by taking our spot TCE relative to the peer average, multiplying it by our operating days, and comparing that figure directly with our dividends in each quarter from 2022 to 2025. This provides a clear, transparent view of the changeable financial value created by outperforming the market. Two examples illustrate the impact. In 2022, we returned $381 million in dividends. Our premium TCE was $38 million, around 10% of the total dividends paid. In 2025, based on the first three quarters, the premium reached $49 billion, compared to our full year dividend of $212 million.

That represents 23% of the total. The message is clear: Our strong rates have material and measurable impact on our dividends returned to our shareholders. Across that period, which includes different market conditions, we have returned $1.6 billion in cash dividends. Our analysis show that premium earnings from the MR fleet accounted for roughly 15% of the total dividends paid over the past four years. Now please turn to slide 20 for the outlook. We are stepping into 2026 from a clear position of strength and solid momentum across our business. In Q1, we have already secured 70% of our earnings days at an attractive average TCE of $34,926 per day.

This strong coverage provides a robust foundation for the year and reflects the positive traction we are seeing across all vessel segments. With the coverage already locked in and the encouraging market outlook ahead, we expect TCE earnings of $850 million-$1.25 billion, and EBITDA of $500 million-$900 million. Both ranges are based on our midpoint internal forecast, after which we apply a defined range to reflect the uncertainty associated with the full year outlook and the potential volatility in the market conditions as the year progress. We are entering the year with confidence and real momentum behind us. With this, I will conclude my remarks and hand it back to the operator.

Operator (participant)

Thank you. If you would like to ask a question, please press star one on your telephone keypad. Please ensure your phone is not on mute when called upon. Thank you.

Your first question comes from Frode Mørkedal with Clarksons Securities. Your line is open.

Frode Mørkedal (Senior Equity Research Analyst)

Great. Thank you. Hi, guys.

Jacob Meldgaard (CEO)

Hi, Frode.

Frode Mørkedal (Senior Equity Research Analyst)

First question I have is on the EBITDA guidance or the revenue guidance, if you could. You know, I'm curious about what type of spot rate assumption you made there. Of course, I understand there's a lot of moving parts in this type of guidance, but, you know, let's say, LR2 MR rates in the high end, what's the implied rate, if you can share that?

Jacob Meldgaard (CEO)

Hi, Frode. I can tell you about our methodology that we use when calculating our guidance for the year. We take the coverage, the fixed days we have already made for Q1, and then we apply the unfixed days for the rest of the year with the forward curve that we see in the market for the remainder of that period. You get to a midpoint, and from that midpoint of TC, you then deduct our normal cost and get to an EBITDA. Depending on where the freight rates are, we stress that with an interval. And as they are high right now, you will see, compared to last year, that the interval is slightly higher than we had a year ago.

That is due to both, what I said, the higher rates, freight rates, but also more earning days, of course. That's the methodology behind. We are basically building it on what we have achieved already and then the markets.

Frode Mørkedal (Senior Equity Research Analyst)

Right.

Jacob Meldgaard (CEO)

Before,

Frode Mørkedal (Senior Equity Research Analyst)

Is this FFA market or time charter rates that you're looking at, or?

Jacob Meldgaard (CEO)

It's, four freight rates at the reference market.

Frode Mørkedal (Senior Equity Research Analyst)

Yeah. Can you just say, like, the midpoint, is that where roughly that term today or when you made the guidance?

Jacob Meldgaard (CEO)

Yeah. It's around 3,400 across the fleet for...

Frode Mørkedal (Senior Equity Research Analyst)

Right. Okay. That's good, reference point. With this, I wanted to discuss the, how you see the strength in the crude market, impacting the products. You talked about the switching. I'm curious to know if you think there's more to go there. I have noticed that crude Aframaxes are still trading with quite a significant differential to LR2 spot rates. Curious to hear your views.

Jacob Meldgaard (CEO)

Yeah. obviously, time will tell, Frode, but I think clearly, the strength that we are seeing across the crude segments is first and foremost, having a direct one-to-one impact on the behavior of the LR2 fleet and LR2 owners. The incentive currently to switch from being participating as an LR2 in the CPP market and potentially moving into the crude market, is a little dependent on whether you are in the Western Hemisphere or the Eastern Hemisphere. Just as an example, as you point to in the Western Hemisphere, there's a clear financial incentive to switch over. I think we will see more of that, as we showed in the graph. There is basically fewer vessels that are available due to the sanctions regime imposed, especially by the U.K. and EU, but also by OFAC.

That means that the compliant requirements for our customers, whether it's in CPP or in dirty trade, is serviced by fewer vessels, fewer assets, and that is pushing rates higher as we speak. We see term rates rising, and they are not to the extreme volatility that we see in the VLCC segment, but still significantly higher for a 1-year charter today than what it was at the beginning of the year. I think this trend, let's see how it plays out, but I think it is here to stay. We're quite optimistic about the earning power in these segments, to be honest.

Frode Mørkedal (Senior Equity Research Analyst)

I agree. I guess the acquisition you made, I think it was eight ships, right, in Q4, that was a pretty good timing. I think we discussed it last time, but maybe you could just discuss how you thought about the investment case at the time. Clearly, it's been, was a good idea to buy these ships. Secondly, what's your view now, at this point in time of further opportunities to acquire ships?

Jacob Meldgaard (CEO)

So I think it's like this, Frode, that we, when we had the conversation, I think also on this call, in Q4, I think we illustrated that we are looking at it quite methodologically and just saying, "What is the sweet spot in terms of our expectation of free cash flow that we can generate from an asset, and where is the asset driven?" What we identified what these pockets of, we could buy some LR2s. And we did some here actually towards sort of mid-December, bought a couple of ships. And clearly today, the price of these assets, and one of them is actually only delivering tomorrow, is already up by 20%.

If you isolate it out and just say, "Yeah, that's good timing." The backdrop of that is, of course, also that now when we had to sort of do our own thinking around potential other acquisition, clearly with assets rising like this, it gets harder to make the next acquisition. I think we were fortunate about the timing on these eight ships. We actually had hoped, to be very honest, to have up the end a little on that in terms of number of assets, but they were simply not available at that point in time at attractive prices. I think we just had to regroup a little.

Asset prices are moving quite fast, and we just had to regroup and make sure we still follow our methodology and not get carried away. I'm optimistic that we can maybe identify a few, let's say, some other deals that sort of fits the bill on our return requirements.

Frode Mørkedal (Senior Equity Research Analyst)

Right. Interesting. Great work. Thank you, guys.

Jacob Meldgaard (CEO)

Good. Frode?

Kim Balle (CFO)

May I just, I need to answer your question. You started a bit more precise than what we did, just so it's clear how we do it on the guidance. I just didn't have them in my head. I have the numbers here. If you take Q1, we had covered 8,177 days with $34,208. We take the uncovered days, that's 25,691 at $30,371, and you do the math from there. You come to a total n-number of days, houring days, and an average TCE, and you get to a TCE, and you stress that.

Frode Mørkedal (Senior Equity Research Analyst)

Right. That's good info. On the, on the stress test, do you have, like, a percentage, plus, minus, or?

Kim Balle (CFO)

We derived it a few years ago, but the way we use it is plus minus TCE, and it depends on how much you stress, depends on what the actual TCE level is. The lower it is, the lower the stress is. The higher it is, the higher the stress is. It depends on where you are on the actual TCE levels.

Frode Mørkedal (Senior Equity Research Analyst)

Okay. Interesting. That's good. Thank you.

Jacob Meldgaard (CEO)

Thank you, Frode.

Operator (participant)

Your next question comes from Climent Molins with Value Investor's Edge. Your line is open.

Climent Molins (Head of Shipping Research)

Hi, good afternoon, and thank you for taking my questions. I wanted to start by following up on Frode's question on Aframax and LR2s. Could you talk a bit about the portion of your LR2 fleet that traded dirty throughout the quarter? Secondly, on the LR1 side, have you seen an increase in the proportion of vessels trading dirty over the past few months?

Jacob Meldgaard (CEO)

Yeah, thanks for those very precise questions. I'll start from the back end of this. We have not really seen that the dirty market has affected the LR1s in our fleet and in our case. When we look at our vessels then on the spot, we basically have 10%-20% of our LR2 trading spot dirty, and then we've got another 10% that is on term charter dirty.

Climent Molins (Head of Shipping Research)

That's helpful. Thank you. You continue to outperform peers on the MR side with your chartering team doing an excellent job. Could you talk a bit about what portion of your administrative expenses is attributable to a chartering team versus kind of the corporate side? Any color you could provide would be really helpful.

Jacob Meldgaard (CEO)

Yeah, we actually don't account like that. As I tried to illustrate also in the beginning, on the One TORM platform, we believe that it's not actually the chartering team that is the secret sauce. It is actually the power of that you have an organization, you know, ranging from the employees on board our ship, to the people doing the accounting and operations, technical, and of course, also, as you point to, the chartering team. Their success is not an isolated thing that has to do with their ability, it's the whole structure. I don't have an answer. I don't know the number. It's not the way we think about us.

Climent Molins (Head of Shipping Research)

Yeah, makes sense. I had to try. I'll turn it over. Thank you for taking my questions.

Jacob Meldgaard (CEO)

You're welcome. Thank you.

Operator (participant)

There are no further questions at this time. I'll turn the call to Jacob Meldgaard for closing remarks.

Jacob Meldgaard (CEO)

Yeah, thank you very much, everyone, for listening in on the annual report 2021 for 2025, obviously, for TORM. Thank you very much for listening in. Have a great day.

Operator (participant)

This concludes today's conference call. Thank you for joining. You may now disconnect.