Torm Q1 2025 Earnings Report

Torm EPS Results

• Actual EPS: $0.62
• Consensus EPS: $0.64
• Beat/Miss: Missed by -$0.02
• One Year Ago EPS: N/A

Torm Revenue Results

• Actual Revenue: $214.00 million
• Expected Revenue: $244.25 million
• Beat/Miss: Missed by -$30.25 million
• YoY Revenue Growth: N/A

Torm Announcement Details

• Quarter: Q1 2025
• Date: 5/8/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, May 8, 2025
• Conference Call Time: 9:00AM ET

Torm (NASDAQ:TRMD) is an international product tanker company that transports refined oil products and other energy-related cargoes by sea. Its vessels carry products such as gasoline, jet fuel, diesel and other clean petroleum products between production, storage and consumption markets.

The company operates a fleet of product tankers across several size categories, including long-range, medium-range and Handysize vessels. TORM provides seaborne transportation services to oil companies, trading houses and other commercial customers, with operations serving major shipping routes and energy markets worldwide.

TORM traces its history to 1889 and is headquartered in Copenhagen, Denmark. The company is led by Chief Executive Officer Jacob Meldgaard and is listed on Nasdaq under the symbol TRMD.

Torm Q1 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong Q1 Results: TORM reported first‐quarter TCE of $214 million, EBITDA of $136 million and net profit of €63 million, reflecting stable freight rates and solid earnings.
• Positive Sentiment: Declared a dividend of $0.40 per share and achieved EPS of $0.64, demonstrating a disciplined, transparent and sustainable capital allocation strategy.
• Positive Sentiment: Successfully divested three 20-year-old MR vessels and one 17-year-old LR2 vessel despite a quiet secondhand market, underscoring the high quality and maintenance standards of the fleet.
• Negative Sentiment: The shipping market remains highly dynamic with risks from Red Sea disruptions, EU sanctions, OPEC+ production changes and U.S. trade policy, requiring agility amid elevated uncertainty.
• Positive Sentiment: Narrowed full-year guidance to TCE of $700 million–$900 million and EBITDA of DKK 400 million–DKK 600 million, supported by 43% coverage of 2025 earning days at $27,829 per day.

Presentation

[Operator]

Thank you for standing by. My name is Janet, and I will be your conference operator today. At this time, I would like to welcome everyone to the TORM First Quarter 2025 results. All lines have been placed on mute to prevent any background noise. After the speaker remarks, we will have a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Jacob Meldgaard, CEO. Please go ahead.

[Jacob Meldgaard, CEO at TORM]

Thank you. Thank you, Janet, and a warm welcome to everyone joining us on the call today. This morning, we released our report with the interim results for the first quarter of 2025. TORM achieved a solid result in the quarter in line with our expectations, but again, it was a quarter that has been influenced by a wide range of external factors that we need to take into consideration. The first quarter reflected a more stable market environment compared to the volatility we experienced in the latter half of last year. TCE amounted to $214 million, thus broadly in line with the previous quarter, signaling early signs of stabilization following the declines we saw in the second half of 2024. Fleetwide freight rates remained consistent with the level seen in the fourth quarter, enabling us to deliver solid earnings.

[Jacob Meldgaard, CEO at TORM]

For the quarter, we achieved a net profit of $63 million, demonstrating that while our income has normalized compared to the elevated levels a year ago, we continue to generate strong and sustainable results. I would also like to highlight that we successfully divested several older vessels. Despite a quiet second-hand market with buyers and sellers struggling to align on pricing, we secured the sale of three 20-year-old MR vessels during the first quarter and one 17-year-old LR2 vessel after the end of the quarter. These transactions underscore the high quality and strong maintenance standards of our fleet. Looking into the remaining part of 2025, the shipping market remains highly dynamic, with sentiment continuing to shift and new factors emerging at a faster pace. This environment presents both challenges and opportunities, and it reinforces the need for us to be agile and adapt quickly to changes.

[Jacob Meldgaard, CEO at TORM]

To stay ahead, we maintain a sharp focus on monitoring and analyzing new trends, ensuring that we are ready to respond swiftly to evolving conditions and can position ourselves effectively amid heightened uncertainty. As part of this approach, I will, on the following slides, walk you through some of the key issues currently on our radar. Please turn to slide five. Since the second half of last year, product tanker freight rates have lost momentum compared to the high levels seen since 2022, but the rates have nevertheless remained at levels which are still strong in historical terms. One of the main reasons behind lower rates has been the fact that the Red Sea disruption effect has not been supportive of the product tanker turn marks since the last quarter of 2024. Here, I'll turn to slide six, and I can elaborate on that.

[Jacob Meldgaard, CEO at TORM]

While crew cannibalization has normalized, trade volumes on the routes, mostly affected by the Red Sea disruption, have lost momentum. By the start of this year, trade volumes from the Middle East to Europe have fallen by around 40% compared to the first three quarters of 2024. Lower trade volumes have outbalanced longer trading distances, and with this, the ton-mile impact of the Red Sea disruption has been nonexistent or even negative in recent months. Since March, we have, however, seen some rebound in these trades. Nevertheless, we believe that such low trade levels are not sustainable, especially considering that European deep demand this year is supported by increased demand for marine gas oil from the Mediterranean Emission Control Area, starting from this month. At the same time, three refineries in Northwest Europe are closing, leading to lower local product supply.

[Jacob Meldgaard, CEO at TORM]

According to our calculations, Europe is about to lose around 140,000 barrels per day of combined diesel and jet fuel supply by the end of this year. If all of this were replaced by imported fuels from the Middle East, this would translate into an additional demand of 12 LR2 equivalents per year, which is a conservative estimate based on the Red Sea transit. This corresponds to around 5% of the current CPP trading LR2 fleet. At the same time, since the start of the fourth quarter last year, 24 newbuild LR2s have entered the fleet, while the size of the CPP trading fleet has actually declined by around 20 vessels. This means that more than 40 vessels have left the key trade and are now trading dirty instead. Please turn to slide seven.

[Jacob Meldgaard, CEO at TORM]

Looking a bit further ahead, the product tanker market is expected to continue to be driven by geopolitical factors and high uncertainty. While a sustainable return of the Red Sea shipping in the near term is uncertain, we estimate that it could encourage trade and return the volumes lost since the end of last year. The return of lost trade volumes can potentially offset shorter trade distances, and at the same time, incentives for crude cleanups would decline. When it comes to EU sanctions against Russia, we do not foresee a quick abolishment of these, and the last months have shown that the prospects for a peace settlement remain highly uncertain. Further to this, internal disputes within OPEC+ have resulted in a sizable production increase in May and another one in June, accelerating the timeline for unwinding voluntary production cuts.

[Jacob Meldgaard, CEO at TORM]

With the potential to continue this trend, we expect this to have a favorable effect on the crude tanker market, indirectly supporting product tankers. Last but definitely not least, a new layer of uncertainty stems from the current US administration's approach towards geopolitics and trade policy. Although it has caused a lot of uncertainty, the measures implemented so far are not expected to have any major direct effect on the product tanker market. However, a potential slowdown in global economic activity and consequently lower oil demand can have indirect effects on our market. On the other hand, the U.S. administration's more tough approach towards Iran, towards Venezuela, is expected to indirectly benefit product tankers via stronger crude tanker markets.

[Jacob Meldgaard, CEO at TORM]

The much-discussed U.S. PR Section 301(4)(b) has currently been revised to a version which will not have any material impact on the product tanker market, as a majority of voyages will avoid the fee. Please turn to slide eight. We also turn to the TORM supply side. As we pointed out earlier, the relatively high product tanker order book should be seen in combination with the fact that the average age of the fleet is the highest in two decades. With 15% of the fleet being more than 20 years old, this will potentially offset a large part of the fleet growth in the coming years. Furthermore, we see that as vessels turn towards 20 years of age, their average utilization drops significantly compared to younger vessels. That will lead to a growing share of the fleet operating at lower utilization.

[Jacob Meldgaard, CEO at TORM]

In addition, a large share of, especially the older fleet, is sanctioned, which is expected to support exits from the market. This is especially the case for the combined LR2 Aframax fleet, where a relatively large share of the fleet is under U.S. sanctions. Finally, the ordering of new vessels has basically come to a standstill this year, with the combined capacity of LR1s, LR2s, and MRs ordered in the first quarter of this year at the lowest quarterly levels in three years. Now, kindly turn to slide nine. To some of you in the market, we continue to operate in an environment characterized by high geopolitical uncertainty, where the speed of change has increased significantly. While fleet growth will gain pace compared to recent years, we still see favorable developments in the refinery landscape.

[Jacob Meldgaard, CEO at TORM]

I'm certain that TORM is well positioned to maneuver in this environment of increased uncertainty through our strong capital structure, operational leverage, and integrated platform. With that, I'll hand it over to Kim, who will walk us through the financials.

[Kim Balle, CFO at TORM]

Thank you, Jacob. Now, please turn to slide 11 for an overview of the financials. In the quarter, our TCE amounted to $214 million, and based on this, we achieved $136 million in EBITDA and $63 million in net profit. Fleetwise, we averaged a TCE rate of close to $27,000 per day, with LR2s close to $34,000 per day, LR1s at $25,000, and MRs slightly below this. All these numbers are in line with the 84% coverage that we published in connection with our full year results in March. Thus, freight rates have stabilized at a level compared to Q4 2024, reflecting strong underlying fundamentals. This renewed stability offers a solid foundation as we move throughout the year, with our earnings remaining highly sensitive to market volatility due to our operational leverage.

[Kim Balle, CFO at TORM]

Based on this, TORM achieved basic earnings per share for Q1 at $0.64 per share, and the board has decided to declare a dividend of $0.40 per share. We believe that our approach ensures that distributions align with actual financial performance, maintaining a disciplined, transparent, and sustainable capital allocation strategy. Please turn to slide 12. On this slide, we show the quarter-by-quarter development of our TCE since the first quarter of 2024. Looking back, it is now clear how the elevated freight rates in the first half of 2024 gave way to softer conditions later in the year, impacting our overall performance. Today, freight rates have stabilized at a lower but still healthy level that supports solid financial performance. Despite ongoing geopolitical uncertainties, ton-mile demand fundamentals remain supportive, although we remain mindful that conditions can shift quickly.

[Kim Balle, CFO at TORM]

In this market, we generated TCE of $214 million and EBITDA of $136 million based on a fleetwide rate of $26,807 per day. As a reminder, due to our operational leverage, a change of $1,000 in daily freight rates would have an EBITDA impact of approximately $8 million per quarter based on around 8,000 earning days. This highlights the significant earnings sensitivity to freight rate movements, which remains a key consideration for our financial outlook. Likewise, on slide 13, we provide a breakdown of the quarterly development in net profit and the key share-related ratios. While the current freight rate environment has led to a sequential decline in net profit, earnings per share, and consequently dividend per share, it is important to emphasize that earnings remain at historically attractive levels. Also, our approach to shareholder returns remains firm and consistent.

[Kim Balle, CFO at TORM]

We continue to return excess liquidity on a quarterly basis while safeguarding financial strength through a disciplined buffer. Our liquidity threshold is based on two components: a fixed minimum of $1.8 million per vessel and a discretionary element determined by the board, which considers capital structure, future investment needs, and overall market sentiment. For the first quarter, this disciplined approach has resulted in a declared dividend of $0.40 per share, in line with our free cash flow net repayments, reflecting both our earnings performance and our continued commitment to responsible capital allocation. Please turn to slide 14. As illustrated on this slide, following several quarters of steadily rising vessel values, we saw the first correction in Q4 last year, and that trend has continued into Q1 2025.

[Kim Balle, CFO at TORM]

Average broker valuations for our fleet declined to $3.1 billion, down 12% compared to year-end, aligning more closely with actual market transactions. The largest valuation drop has been in older vessels from 2010 to 2012, with a reduction of up to 18%, while newer tonnage has held up relatively well, showing only single-digit declines. Turning to the center charge, our net interest-bearing debt now stands at $832 million, which, with a stable net loan-to-value of 27% before distribution of dividends for Q4 2024. This is consistent with year-end and underscoring the strength of our conservative capital structure. On the right, you will find our debt maturity profile. Over the next 12 months, we only have $162 million in borrowings maturing, equal to 13% of the total, plus $14 million in committed scrubber installations. Beyond that, our obligations remain manageable, with no major maturities until mid-2029.

[Kim Balle, CFO at TORM]

Altogether, our solid financial foundation gives us flexibility to navigate current market conditions and to pursue value-creating opportunities as they arise. Please turn to slide 15 for the outlook. Our performance in the first quarter puts us on a solid path to achieving our full-year guidance. Also, based on our rates and coverage as of 5th May 2025, we have fixed a total of 57 of our earning days at $28,026 per day in the second quarter across the fleet. Likewise, for the full year 2025, we have now fixed a total of 43% of our earning days at $27,829 per day. That said, we continue to operate in a volatile geopolitical environment, and we recognize that actual results may deviate depending on how key events unfold. Nevertheless, we are comfortable in narrowing the guidance range compared to the guidance provided to the markets two months ago.

[Kim Balle, CFO at TORM]

Thus, we forecast full-year TCE earnings in the range of $700 million-$900 million compared to the previous guidance of $650 million-$950 million. Likewise, we narrow the range for expected EBITDA to $400 million-$600 million compared to the previous guidance of $350 million-$650 million. This outlook incorporates an expected year-over-year decline in freight rates, aligned with both current spot rates and the forward market trends. With this, I conclude my remarks and hand it back to the operator.

[Operator]

At this time, I would like to remind everyone in order to ask questions to start in the number one on your telephone keypad. Your first question comes from the line of Jon Chappell with Evercore ISI. Please go ahead.

[Jon Chappell, Senior Managing Director at Evercore ISI]

Thank you. Good afternoon.

[Jacob Meldgaard, CEO at TORM]

Morning, Jon.

[Jon Chappell, Senior Managing Director at Evercore ISI]

Jacob, you laid out a bunch of different geopolitical and macro uncertainties and maybe the different paths forward. No offense, but I imagine you do not have any better idea on how many of these things are going to play out than we do. Knowing what you can control, which is capital allocation, capital structure, vessel sales, purchases, chartering, etc., has there been any shift to any of those strategies, financial or operational, that maybe 12 months ago, just given all of these different moving parts and the different somewhat binary outcomes?

[Jacob Meldgaard, CEO at TORM]

That's a good question. I would say on the financial side, really, it's really extremely stable. I mean, we keep the discipline, and we also sort of keep the discipline around where our cash is headed when we deliver the strong results like in this quarter. I would say on that. Now, on the business side, I think we are, as I also alluded to, I think we are seeing that I think we are gradually sort of meeting a new normalization of the freight rate compared to where we were a year ago, and that in this more normalized environment, I think it's time to maybe take the calculator out again and see what makes sense in terms of the fleet composition. It's probably a little early.

[Jacob Meldgaard, CEO at TORM]

We've divested, as we normally do when vessels are of a vintage, which is not really servicing our client that well, which is around the 20 years. We've done that this year. I think we'll continue to do that. It is really up to Mr. Market to see what comes out of opportunities in terms of acquiring assets. We haven't seen anything yet that is so transpiring to be interesting, but obviously, in a normalized rate environment, that could be something to look at. Early days, but I think that's probably the changes.

[Jon Chappell, Senior Managing Director at Evercore ISI]

Okay. Two quick follow-ups to that. One, the payout ratio on the IFRS earnings was about 64% for the dividend in the first quarter. Is that just coincidentally lower than the last several quarters, or does that somewhat reflect maybe a bit of the uncertainty going forward? The second follow-up is you had mentioned in your prepared remarks somewhat, I do not know what the right term is, but maybe less liquidity in the secondhand market. As you talk about that fleet path going forward, do you envision that that secondhand market may gain more liquidity in the near term, or do you think it may be status quo in the industry for the next six or so months until we get a little bit more clarity on some of these outcomes?

[Jacob Meldgaard, CEO at TORM]

Yeah, good. Let me start with your second follow-up question, and I'll let Kim talk to the first. I think what we are seeing is that in a market where the secondary sales are less frequent, so lower liquidity, as we discussed, what has served us really well is that the vessels that we have, which we keep in-house, we have the technical and everything operational sort of under the control of ourselves, has meant that the type of buyers that are active in this relatively illiquid market, they gravitate towards the type of vessels that we've got because they are maintained to a standard where they can actually meet any customer's requirements on any day.

[Jacob Meldgaard, CEO at TORM]

I actually don't need so much to qualify whether there would be more liquidity because what we are seeing is that there is a low liquidity, but it's sufficient for us to transact the deals that we want to do. I do think that as the market sort of normalizes, I would be inclined to think that you will see more meeting of minds between buyers and sellers, but irrespective, that is my expectation over the coming months that we will see sort of that to normalize more.

[Jon Chappell, Senior Managing Director at Evercore ISI]

Okay.

[Kim Balle, CFO at TORM]

Hi, Jon. It's Kim.

[Jon Chappell, Senior Managing Director at Evercore ISI]

Hi, Kim.

[Kim Balle, CFO at TORM]

Hi. Regarding the payout ratio, of course, that's one thing that you can adjust for. That is, we have the impact of the sale of vessels. If you take that out, of course, you can normalize it a bit, and then we are above 70%, probably more like the 73-74%. The way we do it is consistent with what we have done throughout this whole period ever since we changed the dividend policy, actually. I think you allude to the right thing. It is more working capital fluctuations that can deviate a bit. One quarter can be 74%, another quarter 79% or 72%. That is where you shall sort of see the slight deviations. We've basically not changed anything.

[Kim Balle, CFO at TORM]

Of course, as Jacob also said, the conservativeness that we have when we divest vessels, where we basically just keep the cash, that, of course, has a little impact on the payout ratio. We've done that consistently throughout the whole period. We just maintain it on the balance sheet. Therefore, you can see some deviations. You shall find it in the working capital because it's the same methodology we use every quarter.

[Jon Chappell, Senior Managing Director at Evercore ISI]

Understood. Thanks, Kim. Thanks, Jacob.

[Jacob Meldgaard, CEO at TORM]

Thank you.

[Operator]

Next question comes from the line of Bendik Nyttingnes with Clarksons. Please go ahead.

[Bendik Nyttingnes, Analyst at Clarksons]

Hey, guys.

[Jacob Meldgaard, CEO at TORM]

Hi, Bendik.

[Bendik Nyttingnes, Analyst at Clarksons]

I'll jump on the market, I think. We were talking about there essentially being no real support from the Red Sea disruption recently. With, I think, the U.S. president tweeting that there is a deal with the Houthis going on, but that is still a bit up in the air. How do you view sort of the market in the event of a reopening? Should we expect some disruptions and instant movement of rates in the short term in the event of a reopening?

[Jacob Meldgaard, CEO at TORM]

Yeah, I mean, time will tell on both parameters, whether there is a deal that we can all trust with the Houthis. Let's just make the assumption that that is actually the case. What will happen with the market? I think what we are seeing with our customers, we had a customer client meeting actually earlier this week with one of the largest producers of oil in the world. Their team on the sales side, they could not really recall when it was last that the arbitrage for them was open for the diesel moving from the Middle East into Europe. Right now, the producers are really not incentivized to hold bigger volumes of diesel from the Middle East into Europe. You will, of course, have the odd trade that needs to be done, but sort of the marginal trade in terms is not done.

[Jacob Meldgaard, CEO at TORM]

I think it would actually, in that sense, in the short end, I think you would see a reopening of the Red Sea, that you would have more demand coming quite quickly because the ARP would definitely be much more supported by that particular trade move. I do think that if we sort of average out over a longer period, then I think it is demand neutral. I do not think that it is going up or down as such. I think there would be kind of an immediate kind of flurry of cargoes that could move quite fast in the case of that you had a reopening.

[Bendik Nyttingnes, Analyst at Clarksons]

Perfect. That's a great caller. I'll return to you.

[Jacob Meldgaard, CEO at TORM]

Yeah, thank you.

[Operator]

Your next question comes from the line of Jae McGarry with Jefferies. Please go ahead.

[Jae McGarry, Equity Research Associate at Jefferies]

Hey, guys. Thanks for taking the question. Just had a market question. You mentioned the supply and how it can play out down the road given the current fleet age and maybe some scrapping down the line. Just for now, the LR2 deliveries generally coming in more so than previous years. Can you describe just the impact in today's market with that oncoming supply, just how noticeable is it, and if you see those ships staying in the clean trade or switching over?

[Jacob Meldgaard, CEO at TORM]

Yeah. At least going forward, we do not know yet. If we just take the data points that we have on hand from, let's say, the last couple of quarters, then as you point to, there is more LR2 newbuilds that have sort of been placed and that are labeled on the ordering and sort of out of the yard as here comes a new LR2. As I alluded to a little in the prepared remarks also, we saw that you had globally around 250 LR2s that were trading as clean vessels in the end of the third quarter last year, whereas as of today, right now, as we speak, you probably have around 230. Actually, the number has declined by 20. In the interim period, exactly as you point to, you have had about 24 newbuild deliveries of this type of vessel.

[Jacob Meldgaard, CEO at TORM]

If the world was flat, we would today say, "Okay, you had 250 clean trading vessels. You added 24 newbuilds, so you would have 274." Actually, trading is 230. Going forward, of course, what we believe is that you should look upon LR2 and Aframax as an integrated trade. These ship owners, the investors, they are not that caring about whether their vessel, as they come out of a yard, will enter one market or the other. What they care about is what is the return on investment. That is, of course, also how we operate our LR2 fleet. We will, from time to time, operate in clean. We will, from time to time, operate as an Aframax. I think this swing factor will be very dominant going forward.

[Jacob Meldgaard, CEO at TORM]

Obviously, given that the age profile of the Aframax fleet globally is much more prone to that these are older vessels, you will see that there will be more scrapping potential as new vessels come into the market. I think this market is actually much more finely balanced than what sort of the labeling of the ships, i.e., that we only have LR2s coming out of yards. They may be coming into the CPP market, but they may just as well be trading as Aframaxes. I think the data points that we've had, as I just pointed to over the last six, nine months, actually sort of point to that that is a fair way to think about that market.

[Jae McGarry, Equity Research Associate at Jefferies]

Great. Thanks for the cover-up. I'll turn it over.

[Jacob Meldgaard, CEO at TORM]

Thanks. Thanks for the question.

[Operator]

I will now turn the call back over to Jacob Meldgaard, CEO, for closing remarks. Please go ahead.

[Jacob Meldgaard, CEO at TORM]

Yeah, thanks a lot, Janet. Thanks for everyone for dialing in to the first quarter 2025 results presentation. Have a great day.

[Operator]

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

Participants

Analysts

• Jacob Meldgaard, CEO at TORM
• Kim Balle, CFO at TORM
• Jon Chappell, Senior Managing Director at Evercore ISI
• Bendik Nyttingnes, Analyst at Clarksons
• Jae McGarry, Equity Research Associate at Jefferies