Hafnia Ltd (HAFN) 2025 Q1 法說會逐字稿

Welcome to Hafnia's first quarter 2025 financial results presentation. We will begin shortly. You will be brought through today's presentation by Haffner CEO Mikael Skov, CFO Perry Van Echtelt, VP commercial Soren Skibdal Winther, and EVP head of investor relations, Thomas Andersen. They will be pleased to address any questions after the presentation. (Operator Instructions)

During this conference call, some statements may be considered forward-looking, reflecting management's current expectations. These statements involve risks, uncertainties, and other factors, many of which are beyond Hafnia's control, that could cause actual results, performance, or plans to differ significantly from those expressed or implied.

Additionally, this conference call does not constitute an offer or solicitation to buy or sell any securities. With that, I'm pleased to turn the call over to Hafnia's CEO Mikael Skov.

Thank you and hello everyone. I'm Mikael Skov, CEO of Hafnia. Welcome to our earnings call for the first quarter of 2025 and thank you for joining us today. With me today are our CFO Van Echtelt, our VP of Soren Skibdal Winther, and our EVP and head of the investor relations, Thomas Anderson.

Together we will walk you through Hafnia's performance for the quarter. Today's presentation will cover 4 key areas. I'll begin with a review of our first quarter performance and key highlights. Followed by an overview of Hafnia and our market position.

Soren will then discuss recent commercial developments and share our outlook for the products in market. Perry will review our financial results and capital allocation strategy. I will then conclude with an update on our ongoing sustainability initiatives and provide closing remarks.

Let's move to the next slide to slide number 2. Before proceeding, I want to direct your attention to our safe harbor's statement. Today's presentation will include forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from these statements. This call does not constitute an offer to buy or sell securities. Thank you for your attention. Let's start the presentation.

Let me begin by outlining some of the key highlights from the quarter. We now go to slide number 4. Despite a challenging market environment, Hafnia delivered solid financial results demonstrating the resilience of our business model and operational strategy.

In the first quarter of 2025, we achieved a net profit of $63.2 million. A reflection of our operational strength and its ongoing uncertainty. Our first quarter results reflect approximately all500 fire days due to scheduled dry docking and repairs. Yet we still generated TCE income of $218.8 million. Underscoring the strength of our core operations, even during a maintenance intensive period.

Our performance was further supported by our adjacent fee generating pool and bunkering businesses, which contributed $7.9 million to our overall results.

Moving to slide number 5. Next, I would like to highlight Hafnia's key investment attributes. Hafnia is a global leader in the product and chemical tanker market operating one of the largest and most diversified fleets in the industry. As owner and operators of more than 200 vessels across 8 pools.

We provide a fully integrated shipping platform, which includes technical management, chartering services, pool management. And the bunker procurement desk that has serviced over 1,500 vessels in 2024, both within our pools and for external ship owners.

SeaScale Energy, our new joint venture with Cargill, is expected to commence operations in May. And will be one of the world's largest bunga procurement companies. These initiatives reflect Hafnia's commitment to delivering cost efficiencies and innovative fuel solutions to our customers. At the end of the quarter, our owned and chartered fleet comprised 125 vessels with a net asset value of approximately $3.4 billion.

This equates to an NAV per share of around USD6.96 or NOK73.03 per share. Our modern fleet presents significant opportunities for enhanced operational efficiency and higher earnings potential. This is reflected in the average age of our own vessels at 9.3 years compared to the global product tanker fleet average of approximately 14 years.

As part of our commitment to a more sustainable maritime future, we also look forward to welcoming the [Ecomar] this month. This vessel is the second of 4 dual fuel methanol, chemical, IMO II, medium range tankers ordered through our joint venture with Socatra of France. As they are designed to run on both conventional fuel and methanol, these vessels will pave the way for a transition to more sustainable fuel options.

Let's move on to the next slide, which is slide number 6. At the end of the first quarter, Our net loan to value ratio stood at 24.1%. Increasing slightly from the previous quarter, primarily due to a decline in vessel market values. Based on our payout policy, I'm pleased to announce a payout ratio of 80% for the quarter.

This represents a total cash dividend of $50.6 million for the quarter, which corresponds to USD 0.1015 per share. Notably, we have elected not to deduct the $27.6 million that has been used for share buybacks from this quarter's dividend calculation. Which effectively increases our total payout ratio to 123%.

This decision underscores our confidence in the market and enables us to maintain financial flexibility while delivering strong returns to our shareholders.

Soren will now be sharing the industry review and market outlook.

Thank you, Michael.

Let me start with an update on the current market conditions in the product tanker and CPP segments where Hair primarily operates and then share our outlook for the months ahead.

The first quarter experienced an increase in trade volumes and to miles, supported by strong global demand, resulting in an improved spot market. Sentiment have improved further in the second quarter, set, setting a positive tone for the remainder of 2025.

As we can see, CPP on water has rebounded strongly from Q4 through Q1 2025, primarily driven by reduced crude tanker cannibalization and higher export volumes. While such trends typically signal improved earnings, this difference between recovering CPP volumes and lagging earnings primarily reflects market sentiment rather than fundamental weakness, creating a potential offside opportunity as sentiment normalizes.

Moving on to the next slide 9. Improvement in demand fundamentals is further illustrated here. When we examine cargo volumes against to miles, we observe an upward trend over the years.

Since April 2018, cargo volumes for CPP and chemicals have steadily increased, reaching the highest levels in April 2025. 10 miles have also increased across the years due to ongoing refinery dislocation but remain lower than 2024 levels, which are largely due to geopolitical unrest that resulted in vessels rerouting away from the Red Sea.

We anticipate this high CPP to miles to persist, driven by export volume gains fueled by ongoing refinery production increases in the Middle East. On the other hand, DPP cargo volumes have slightly declined over the years.

In early May, OPEC plus, led by Saudi Arabia, announced a second consecutive monthly increase in output. We expect this move to support crude tanker rates in the near term and have positive spillover effects on the product tanker market in the medium term. As increased crude supply is likely to drive higher refinery activity.

Moving on to slide 10. A key change in global trading pattern in 2024 has led to the reduction of laden voice lengths. The initial market disruption caused by Red Sea closure led to vessels rerouting around the Cape of Good Hope. This has gradually diminished through 2024 into 2025.

Instead, there has been limited cross-hemisphere trading, leaving tonnage static within regions. As a result, average lane voids lengths have decreased by about 10% from a year ago. On the tonnage supply front, the year-to-date effect on clean tonnage supply has been very marginal.

This is largely driven due to 100% of LR2 new build deliveries or the equivalent thereof in 2025 entering the dirty trade. For dirty tonnage, the earlier OFAC sanctions and the corresponding import ban by China and India on sanctions on it have had a more profound impact on DPP than on clean products. We estimate that the DPP market has experienced an approximate 10% drop in supply.

Moving on to slide 11. The OEC sanctions primarily target crude tankers, which are expected to have a positive spillover effect on the product hanger market. When considering the decreased usage of older vessels, the sanctioned crew tanker fleet is equivalent to the entire crude new build program scheduled through 2025.

We can therefore anticipate reduced crudes of cannibalization and increase in the shift from clean to dirty trade as we have already observed with the year-to-date LA2 deliveries. The percentage of sanctions on fleet on miles measured against global ton miles currently stands at 2.15%. We expect this figure to decline further to Q2 2025.

Given that the trade wind-down period only concluded in March. Compared to the total debt rate increase, the current worldwide fleet of 2.68% for 2025, the underlying supply demand balance for the year remains solid.

Moving on to slide 12. Despite the older age profile of the sanctioned fleet, we do not expect this to significantly impact scrapping levels. However, defect to scrapping seems evident and supports the underlying supply versus demand balance.

Additionally, we estimate that around 400 Darfleet vessels remain engaged in Russian trade despite not being listed by OFAC. The Dark fleet is identified as tonnage with questionable ownership and a predominantly older age profile, while the gray fleet is associated with more reputable ownership. This signals the potential for further sanctions from EU and OFAC.

Moving on to slide 13. The supply outlook remains positive. Considering no new builds from 2025 to 2028, across the tanker segments from handy to VLCC, that weight supply totals approximately 97 million. Based on the sum's grabbing ages at 23 years, For LR1, LR2, Suezmax, and VLCC's.

And 25 years from Handy's and MRs, we estimate potential scrubbing at around 167 million dead weight over the same period. An additional 87 million dead weight could be scrapped between 2029 and 2031. It is worth noting that we did not account for differences in utilization between new builds and older vessels.

Moving on to slide 14. A recent geopolitical key development is the USTR's proposed port fee announced on April 17th, targeting Chinese built vessels as well as Chinese operators and owners. While we expect limited direct impact on the product market, the full implications remain difficult to predict at this stage.

However, we can provide an overview of the magnitude of existing and future new plutonics from Chinese yards. If implemented, the proposal could lead to another global reshaping of trading routes, increasing to miles.

Moving on to slide 15. Perry will now bring you through the key financials for the 1st quarter over to you, Perry.

Thanks, sir.

As Soren mentioned, geopolitical instability impacted the product anchor market during the first quarter. Nevertheless, Huffing has effectively navigated these challenges, achieving stable earnings that reflect their operational resilience.

In Q1, we generated a TCE income of $218.8 million. And additionally, our commercial pool management and bunkering businesses continued to perform well, generating earnings of $7.9 million for the quarter.

It brings our adjusted EBITDA to $125.1 million ending the quarter with a net profit of $63.2 million. With these results, we achieved a return on equity of 11.1% and a return on invested capital of 9.6%. We continue strengthening and optimizing our balance sheet. At the end of the quarter, we had a cash balance of $188 million with total liquidity of approximately $500 million when we include indrawn facilities of over $300 million.

We've had 56% of our interest rate exposure at a weighted average base rate of 1.83%. and our hedging strategy has played an important role in controlling our costs in a higher interest rate environment. The strong hedge position combined with continued leveraging will help us managing our forward interest rate risks. If we move to the next page.

Our delivering efforts have enabled us to significantly reduce our net debt levels over the past two years from $1.3 billion in the first quarter 23 to $856 million at the end of Q1 this year, while at the same time maintaining a high level of dividend payouts.

While challenging market conditions have resulted in a decline in vessel values of approximately 9% since Q4 2024, we've managed to maintain a healthy LTV ratio at 24.1% at the end of this quarter. Besides maintaining a strong financial position, we are focused on effectively controlling our cost levels to enhance our cash flows and profitability.

We continue to focus on and operate at highly competitive cost levels also compared to our peers with substantially lower combined OPEX and G&A per day. This helps us keeping break breakeven levels low throughout the cycles and maintain a high level of cash conversion. Balance sheet management and cost competitive, competitiveness has also enabled us to achieve a stronger return on equity.

If you then move to the next page to the operating summary. In Q1, our TCE income was based on 9,514 earning days, generating an average TCE of $22,992 per day across the segments. OPEX cost, which consists of vessel, operational costs and our technical management expenses, were calculated based on 9180 calendar days in the quarter, leading to an average OPEX of $7,987 per day.

Also, with a significant portion of our own vessels built in 2015 and 2016, many of our vessels will be undergoing their second dry dock during this period. As a result, our Q1 results has also been impacted by a significant number of vessels in dry docks, or under repairs, leading to approximately 500 or higher days during the first quarter.

We anticipate a similar level of dry dockings and repairs in the 2nd quarter, resulting in approximately 630 or higher days in Q2. Looking at our Q2 coverage as of 1st of May, we can see tanker rates recovering. We're confident in the underlying strong market fundamentals, which are expected to bolster our performance in the upcoming quarters.

Then move to the next page. So, based on our coverage for the upcoming quarters, we're on track to achieve strong earnings in 2025.

As of the 1st, May of this year, 57% of the total earning days in Q2, 25 have been covered at an average rate of $24,839 per day across the segments. And for Q2 to Q4 of 25, 27% of the earning days were covered at an average rate of $24,902 per day. On this page, you can see a presentation of three scenarios outlining Hafnia's potential. For the year.

First, based on the consensus forecast of equity. While the second extrapolates the Q2 covert rates, on the left to the available earning days in 2025. And then the last scenario applies to Q2 to Q4 covert rates to the available earning days in 2025.

In all three scenarios, Hafnia is projected to generate robust net profits for the year, estimated to be in the range of $320million to $340 million. With strong global demand and a recovery of spot rates in the second quarter, Hafnia is well positioned for solid returns in 2025.

Mikael, over to you for the next few slides.

Thank you.

We're now on slide 21. Moving on, I would like to provide insight into Hafnia's sustainability strategy and goals. As an established market leader, we recognize our responsibility in shaping a more sustainable maritime future. We actively drive the integration of sustainability principles across our operations to create a positive impact on our communities and stakeholders.

Through collaboration with industry peers, regulators, international bodies, and constant engagement with stakeholders, we aim to develop long-term solutions that will effectively address the challenges facing the maritime sector. This approach enables us to not only futureproof our business but also contribute meaningfully to the world.

Slide 22. Next, we understand the importance of adapting to the dynamic global landscape, and we're actively pursuing initiatives to prove ourselves. We have embarked on several key strategic initiatives that we believe will play a key role in defining the maritime future.

As mentioned earlier, we will soon commence operations at SeaScale Energy, which leveraging the combined strength of both Hafnia and Cargill, will transform marine fuel procurement services and benefit customers worldwide. By aligning our strategic investments with strong industry partnerships, we reinforce our position at the forefront of maritime innovation.

Slide 23. Looking ahead to the rest of the year, Hafnia is operating from a position of strength. Despite navigating macro head winds and vessel maintenance in Q1. Hafnia delivered $63.2 million in net profit while maintaining our 80% dividend payout ratio. Market fundamentals remain strong with constrained fleet supply and rebounding spot rates, offsetting geopolitical uncertainties.

Our proven operational excellence and strategic investments. Position us to create sustainable long-term value while returning significant capital to shareholders. We remain optimistic about Hani's ability to capitalize on the positive trajectory of the market. This concludes our presentation.

With that I would now like to open the call for questions.

We will begin our Q&A session now. (Operator Instructions)

Our first question we have from Omar Nokta. Omar, please can you take yourself off mute?

All right, thank you. I'm Mikael and team. Thanks for the update. Clearly things have improved here recently. We can see that in the spot market, we see that in your bookings. And Q2 is looking a bit more positive, but wanted to ask about the LR2s, even though it's a relatively smaller part of your fleet, it's looking much stronger.

You showed a pool average of about 53,000 for the week of May, 5, which I think really stands out. Can you just give a sense of how you're trading those ships and what's caused such a big move?

I guess I can take that one, Michael. And you can say on the other twos we trade them predominantly in the eastern hemisphere at the moment, in the CPP segments and not much in the dirty trade as it is, and the, $53,000 that you're seeing is a combination of good [frontho] legs, on the tonnage.

However, the market is stronger, especially in the Middle East where the function of refinery turnarounds coming to an end in the in the region and especially in China as we go through now, combined with higher refinery margins due to falling crude value or flat price now has put the LR2 market somewhere between 35 and 37 on a round trip basis in the in the eastern region. So, 53 is a is a little bit high and elevated because of shorter ball sticks.

Okay, thank you. I appreciate that insight. And then maybe just a follow up, kind of maybe a bigger picture, the Han fleet is static here with no changes really since last quarter, and static obviously is not a bad thing. You got, you have a significant critical mass. The JVs have been an area of growth here, but the core fleet, I guess, itself, hasn't changed. Do you expect to keep things like this, any further aim to add or sell ships or fine tune? By selling older and replacing with newer.

Yeah, thank you for that question, Omar. No, I mean, as you say, we were pretty active in building up the fleet back in 21, beginning of 22, and we've kind of been focusing really on harvesting on that, for the last two years. And as returning capital to shareholders, rather than buying new ships. So, I think our view has kind of always been the same that, if there were attractive deals out, then we would look at them.

But we have more been focusing on. Selling all the tonics during the last two years, because we felt prizes were attractive. So, I, and as far as we're concerned, that's probably still the view right now that we're happy with what we've got. We think we have an average age of 9.1 years. We'll probably still look to offload some of the older ships as just as a normal fleet renewal.

And then we'll be open if there are attractive deals, but, I don't think you're going to see us here in the short term being active in buying assets as such as straight cash buyers. That's not the idea. The idea is to continue to. Utilize what we have of a strong fleet and earning power and then return capital to shareholders.

That sounds great. Okay, thank you, Mikael. Thanks team.

Thank you, Omar.

I'll move on to Frode. Frode, can I ask you to please unmute yourself?

Yes, thank You guys.

Frode, can you repeat your question? I think we lost you in the first part.

I talked about the Q1 dividend decision, and the fact that you left out buybacks from the return calculation was a nice surprise. I guess I had two questions on that first. How are you thinking about buybacks in general, as a capital return tool, right? And then second, can we take this as a sign as that you will focus more on dividends going forward.

Thank you for that, Frode, and.

Yes, so basically what we have decided is that we are maintaining our dividend policy. And as far as share buy banks are concerned, then that will be more on an ad hoc basis. I think I've said before on.

We always discussed the two. And I think the last time, we felt that the disconnect between NAV and the share price was significant. Wherefore, we wanted to do a share buyback, but realized that particularly in these turbulent times, it's important for investors in general to have clarity. So, that's why we've kind of decided that we'll stick to our dividend policy and if we do any share buybacks, it will be in addition to that, not as a deduction.

Okay. That's good. A second on the market, I guess. This chart that you had on page 8 is interesting where you showed the 10 days versus the chart rates, right? So, it's a pretty big disconnect there right now. And I think you mentioned that sentiment is one of the reasons why rates are lower than the demand. So, maybe you can. Elaborate on that if you can, and, basically how you reconcile that difference, that's the question.

Yeah, you can say the difference is a little bit difficult to reconcile. What you can truly say is that, you're sitting about what is it 4% lower than the pinnacle of all markets in April last year in terms of oil and water, which indicates a fundamental strength in the supply demand balance given that.

The net addition of debt weight to the CPP market over 2025 has been limited to none, right? I think we are in a situation. Where Comfortable this if you love it today What is tomorrow and also. Yeah. Quite happy just to earn in the 30. On and which creates a little bit good which you know literally is the sentiment. It also tells a story about that you don't need a lot of Outside intention.

I think on top of this before you have a strong chance of a, of a spike in the market. But on a general. Not to now in the Middle East that is as tight as it was in April last year. You're just not seeing the same TD. And that's what sentiment.

Okay, that's good. That's that is helpful. Thank you.

Thank you. Christopher, may I ask you to unmute yourself?

Yes, Hello and thank you.

My question. Presentation on It seems like Really compared to, in terms of sort of where you see the market heading out, can you comment a bit on this OEC plus reversal, I guess this will have an impact on the product space as well. So, do you have any view on sort of How that will impact the product loading south of the Middle East, over the summer months.

Yeah, that's true there is a two-tier thing really. Yeah, bells as announced by plus by really the middle of this summer is first and foremost obviously positive on the on the Kener side, which for us means.

If you look at the two segments. Yeah, Deliveries this year you're looking at it. Ships have actually gone into the dirty trade and the expectation would be to for this train trend on the, well, on the equivalent side of the to go into dirty trade still, especially now that you have more volume coming on.

That's right, principally we like when the market is pushed from the top, i.e. the disease down to the sewers, down to the efforts and so on and so forth. Because it gives a little bit more longevity typically in the sustainable market. At the same time when you have OEC plus pumping out another million barrels.

So, need to see what you find and margins typically go up when the flat price goes down, which we're also seeing currently, that creates more trade volume, more arbitra trade. So fundamentally we are. More positive on the on the structural side for the balance of the on the basis of this news that is really just a Week

But, sure, thanks. And just a quick one on the pool learnings. Obviously, it's a bit more difficult to track where this hand, what these handles are earning now. Can you give some flavor on what you're seeing now, especially on the hand.

Yeah, on the hand you, hang on, sorry. Just give me a split second. Or you caught me in my not call market. At the moment you are, you're looking, similar to the [MR]. You're in the low 20s for handy.

Okay, great.

More confined market if you like, right? I mean, it's obviously very condensed to a little bit of dirty trade in the Far East but mainly Mediterranean and Europe.

Sure. Great, that's all.

Thank you. Great.

Thank you, Christopher. I don't see any more raised hands, just quickly checking the chat and the Q&A box. I don't see anything there either.

So, We have then come to the end of today's presentation. So, thank you to everyone for attending Hafnia's first quarter financial results conference call. You can find more information available online at www.hafnia.com