TORM plc (TRMD) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary indicates stable financial performance with consistent TCE and EBITDA, and a positive dividend payout plan. However, market uncertainties and a decline in broker valuations temper optimism. The Q&A section reveals some positive insights, such as increased trade volumes and expected higher dividend payout ratios, but also highlights uncertainties regarding asset prices and the impact of geopolitical changes. Overall, the mixed signals result in a neutral sentiment, with no strong catalysts to drive significant stock price movement.

Key Financial Performance

TCE (Time Charter Equivalent) USD 208 million, broadly consistent with both the last quarter of 2024 and the first quarter of 2025. Stability attributed to solid market fundamentals.

Net Profit USD 59 million, consistent with stable TCE and market conditions.

EBITDA USD 127 million, slightly adjusted to USD 122 million after gain on sold vessels. Stability attributed to consistent freight rates and market conditions.

Fleet-wide TCE Rates USD 26,672 per day, with LR2s above USD 35,000, LR1 slightly above USD 27,000, and MRs around USD 23,000. Stability attributed to solid market fundamentals.

Earnings Per Share (EPS) USD 0.60, reflecting the trend in EBITDA and consistent earnings performance.

Dividend Per Share USD 0.40, representing a payout ratio of 67%, aligned with free cash flow after debt repayments.

Broker Valuations for Fleet USD 2.9 billion, down around 7% across the fleet, influenced by older tonnage from 2010 to 2012, while newer tonnage showed only low single-digit declines.

Net Interest-Bearing Debt USD 767 million, with a stable net loan-to-value of 27%, consistent with the last couple of quarters.

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Operating Highlights

Fleet Optimization: Divested 1 LR2 vessel and 2 MR vessels, all built in 2008, to maintain a modern and efficient fleet.

Market Landscape: Product tanker rates remained stable and attractive, supported by increased trade flows and limited net growth in CPP trading fleet.

Trade Volumes: Surged to a 16-month high at the start of Q3, driven by increased East to West middle distillate flows and strong exports from the U.S.

Refinery Closures: Two refineries in Northwest Europe closed, with two more expected by year-end, reducing local supply and increasing demand for imports.

Financial Performance: Achieved TCE of USD 208 million, EBITDA of USD 127 million, and net profit of USD 59 million in Q2 2025.

Debt Refinancing: Secured commitments for up to USD 857 million in refinancing, extending maturity profiles and enhancing financial flexibility.

Guidance Revision: Raised full-year TCE earnings guidance to USD 800-950 million and EBITDA to USD 475-625 million, reflecting market strength and secured coverage.

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Risk or Challenges

Geopolitical Uncertainty: The macro environment is marked by geopolitical uncertainty, including ongoing EU sanctions against Russia, potential U.S. trade policy changes, and Red Sea disruptions. These factors could impact trade flows and market stability.

Refinery Closures: Closures of refineries in Northwest Europe and the U.S. West Coast are reducing local product supply, increasing reliance on imports, and creating potential supply chain challenges.

Sanctioned Fleet Utilization: A significant portion of the fleet is under sanctions, leading to reduced utilization and impacting market balance. For example, ton-mile on sanctioned Aframaxes has declined by 75%.

Aging Fleet and Newbuild Deliveries: The average age of the fleet is the highest in two decades, and while newbuild deliveries are increasing, a large share of the older fleet is being phased out, potentially affecting tonnage availability.

Freight Rate Volatility: While freight rates have been stable recently, the market remains susceptible to rapid changes, which could impact earnings and operational planning.

Economic and Market Fluctuations: Economic uncertainties and evolving market dynamics could influence demand for oil and product tankers, affecting TORM's financial performance.

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Guidance & Outlook

Market Sentiment and Freight Rates: The company has entered Q3 2025 with strong momentum, supported by firming rates across vessel segments and visibility into upcoming fixtures. The forward curve for freight rates remains positive, and the company has raised its full-year guidance to reflect a stronger earnings outlook for the remainder of the year.

Product Tanker Market Trends: The product tanker market is expected to be driven by geopolitical factors and higher uncertainty. Market fundamentals are anticipated to support trade flows and vessel utilization. Increased East-to-West middle distillate flows and refinery closures in Northwest Europe and the U.S. West Coast are expected to drive additional demand for LR2 and MR vessels.

Impact of Refinery Closures: Two refineries in Northwest Europe have closed, with two more expected to close by the end of 2025, reducing local product supply and increasing the need for imported middle distillates. This could translate into additional demand for 15-24 LR2 equivalents per year. Similarly, refinery closures on the U.S. West Coast are expected to increase demand for gasoline and jet imports, potentially requiring more than 25 MR equivalents annually.

Geopolitical Developments: EU sanctions against Russia and potential U.S. trade policy changes are expected to influence crude and product flows. While the impact on ton-miles is expected to be minimal, alternative sourcing could have slight positive effects. The reshuffling of crude flows may benefit larger crude tankers but could negatively impact Aframax demand.

Fleet Supply and Sanctions: The product tanker order book is high, but the average fleet age is the highest in two decades. Sanctions on older fleets are expected to support market exits, particularly for LR2/Aframax vessels. Reduced utilization of sanctioned Aframaxes has led to a 2% decline in the CPP trading fleet over the past year.

Financial Guidance for 2025: The company has secured 56% of Q3 2025 earnings at an average TCE of $30,617 per day and 66% of full-year earnings at $27,833 per day. Full-year TCE earnings are now forecasted at $800 million to $950 million, up from $700 million to $900 million. EBITDA guidance has been raised to $475 million to $625 million, compared to the previous range of $400 million to $600 million.

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Shareholder Return Plan

Dividend Distribution: Declared a dividend of USD 0.40 per share for the second quarter of 2025, representing a payout ratio of 67%. This aligns with the company's free cash flow after debt repayments and reflects solid earnings performance.

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Key Q&A

Q:What has caused the consistency in TCE fleet-wide EBITDA over the last 9 months, and does it restrict TORM's flexibility?

A:Jacob Balslev Meldgaard explained that the consistency is due to a range-bound market and the potential for upside dynamics, such as additional oil coming to market and stretched trade routes. He stated that this stability does not restrict TORM's flexibility.

Q:Will the payout ratio for dividends increase in the future?

A:Kim Balle stated that the payout ratio is expected to increase notably by 2026 due to a decrease in cash flow breakeven. He estimated the payout ratio to be around 75-80%, though he did not have exact calculations at the time.

Q:What is driving the higher MR rates compared to LR2s and LR1s?

A:Jacob Balslev Meldgaard attributed the higher MR rates to increased CPP on the water, reduced cannibalization by crude tankers, and widespread demand. He noted that the trading fleet of LR2s has remained stable despite new deliveries, leading to more trade filtering into MRs.

Q:Are asset prices stabilizing or expected to rise?

A:Jacob Balslev Meldgaard stated that asset prices have been slowly coming down but are now stabilizing. He suggested that if freight rates climb, asset prices could either stay stable or increase.

Q:Have there been changes in CPP ton-miles and trade volumes?

A:Jacob Balslev Meldgaard confirmed an increase in CPP ton-miles and trade volumes, driven by restocking of middle distillates from the Middle East and U.S. Gulf to Europe. This has increased both volumes and distances.

Q:When will the positive effects of refinery closures be felt?

A:Jacob Balslev Meldgaard stated that European refinery closures will take effect by the end of 2025, while U.S. West Coast closures are expected by mid-2026. These closures will increase demand for product tankers.

Q:What is the impact of the Russian price cap change on LR2s and Aframaxes?

A:Jacob Balslev Meldgaard noted that the impact is uncertain but suggested that many vessels in the gray fleet may not return to conventional trades due to commercial or maintenance issues. He mentioned that this could be negative for midsized vessels but potentially positive for VLCCs.

Q:What is the average margin on sale and leasebacks compared to new financing facilities?

A:Kim Balle stated that the margin on new financing facilities is significantly lower than the current syndicated facilities, which are around 1.85-1.9%. He referred to the company's 20-F for detailed information.

Q:What was the selling price for the TORM Discoverer and TORM Voyager?

A:Kim Balle stated that the selling price for these vessels was not disclosed due to an agreement with the buyer.

Q:Review of Unclear Management Responses

A:Management avoided directly answering the question about the selling price of the TORM Discoverer and TORM Voyager, citing an agreement with the buyer. Additionally, while discussing the payout ratio, Kim Balle provided an estimate but lacked exact calculations.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

TRMD Transcript

TORM plc (TRMD) Q3 2025 Earnings Call Transcript

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The earnings call reflects strong financial performance with increased TCE rates and raised guidance, suggesting optimism. The dividend increase aligns with strong earnings, and strategic fleet management shows adaptability. Despite uncertainties like geopolitical risks and aging fleets, the market strategy and financial health appear robust. The Q&A reveals confidence in maintaining high standards and financial returns, reinforcing positive sentiment. Given the market cap, a moderate positive stock reaction is expected.

TORM plc (TRMD) Q2 2025 Earnings Call Transcript

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TORM plc (NASDAQ:TRMD) Q4 2024 Earnings Call Transcript

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The earnings call reveals several concerns: missed EPS expectations, declining freight rates, geopolitical and regulatory risks, and an aging fleet. Although the company maintains a dividend, it has been reduced, reflecting softer market conditions. Guidance for 2025 shows a decline in TCE earnings and EBITDA compared to 2024. The Q&A section highlights uncertainties, particularly regarding U.S. regulatory changes. While there are positive aspects like strong financial performance in early 2024, the overall sentiment is negative due to these challenges and uncertainties.

TORM plc (TRMD) Q4 2024 Earnings Conference Call Transcript

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The earnings call reveals a decline in forecasted TCE earnings and EBITDA for 2025, indicating potential financial challenges. Geopolitical risks, market uncertainties, and an aging fleet further complicate the outlook. Despite a maintained dividend, the declining freight rates and increased net debt suggest financial strain. The Q&A section highlights management's lack of clarity on key issues, reinforcing negative sentiment. Given these factors and the company's market cap, a negative stock price movement is anticipated over the next two weeks.

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