“During the first quarter of 2023, we saw a sustained strong product tanker market with high volatility, primarily driven by changes in the global flow of refined oil products towards longer haul trades,” says Jacob Meldgaard and continues: “In the first quarter we achieved freight rates across our fleet of USD/day 41,717 compared to USD/day 16,743 in the first quarter of 2022.”
Results
• TCE for Q1 2023: USD/day 41,717 (Q1 2022: USD/day 16,743)
• Profit before tax for Q1 2023: USD 155.1m (Q1 2022: USD 10.7m)
• EPS: Q1 2023: USD 1.87/share, DKK 12.99/share
(Q1 2022: USD 0.13/share, DKK 0.86/share)
• Return on Invested Capital: Q1 2023: 29.2%
(Q1 2022: 4.4%)
• Declared dividends for Q1 2023 of USD 1.46/share, with an expected total dividend of USD 121.1m. Expected payment date is 06 June 2023 based on shareholders on record on 23 May 2023. Ex-dividend date will be 22 May 2023.
Coverage
• As of 05 May 2023, the coverage for the second quarter of 2023 was 64% at USD/day 40,086
• LR2: 51% at USD/day 59,197
• LR1: 62% at USD/day 45,578
• MR: 68% at USD/day 35,804
Business highlights
• As previously announced we completed acquisitions of seven second-hand LR1 vessels and three second-hand MR vessels, increasing TORM’s total fleet size to 88 vessels on a fully delivered basis.
• As of 11 May 2023, we had taken delivery of the seven LR1 vessels. The three MR vessels are expected to be delivered before the end of May 2023.
• As previously announced we obtained commitment for refinancing of USD 433m bank and leasing agreements, thereby extending debt maturities until 2028 with a possibility to extend most of the debt expiration to 2029. Further, we have obtained commitment for financing of additional second-hand vessels for up to USD 123m with the same expiration terms. The transactions are expected to be completed before the end of Q2 2023.
• We reached a total of 59 installed scrubbers during Q1 2023 out of 77 planned across the fleet.
• Based on broker valuations, TORM’s fleet had a market value of USD 2,893.3m including delivered vessels as of 31 March 2023, an increase since 31 December 2022 of USD 243m or 9%.
• Based on broker valuations, TORM’s consolidated Net Asset Value (NAV) excluding charter commitments was estimated at USD 2,560.2m.
Financial review
TCE
Revenue for the first three months of 2023 increased by USD 180.8m to USD 390.2m compared to the same period last year, corresponding to an 86% increase. The significant increase in the revenue can primarily be attributed to the higher freight rates. Higher freight rates continue to be driven by a strong product tanker market supported by the trade recalibration caused by the sanctions and self-sanctioning of Russian product exports as a consequence of the Russian invasion of Ukraine. We saw a significant increase in the average TCE rate/day by 149% from 16,743 to 41,717 in the first three months compared to same period last year.
Port expenses, bunkers, commissions, and other cost of goods sold for the three months period was USD 122.1m, an increase of USD 36.1m compared to USD 86.0m in the same period last year. The increase is driven by increased bunker consumption, and an increase in unrealized losses on derivative financial instruments regarding freight and bunkers of USD 14.2m since end of Q1 2022 to USD 15.8m.
Assets
As of 31 March 2023, total assets were USD 2,864.4m (2022, same period: USD 2,315.8m). The increase was primarily driven by an increase in trade receivables of USD 125.9m and an increase in cash position of USD 316.1m resulting from higher revenue. TORM´s liquidity position by the end of Q1 2023 was USD 574.6m including restricted cash of USD 29.8m and undrawn credit facilities of USD 163.9m.
The carrying value of the fleet was USD 2,025.3m as of 31 March 2023 (2022, same period: USD 1,942.8m). The increase was due to investment in six vessels and capitalized dry-docking of USD 276.4m. Five of the six vessels were purchased during Q1 2023. The increase since 31 March 2022 was offset by divestment of seven vessels of USD 60.6m as well as depreciations and impairments of USD 133.3m. Based on broker valuations, TORM’s fleet had a market value of USD 2,893.3m as of 31 March 2023, 43% above carrying value.
As of 31 March 2023, prepayments were USD 26.3m (2022, same period: USD 7.2m). The increase relates to the transfer of funds to the share registry that facilitates the dividend payment to US non-major shareholding investors. Payment to shareholders was made on 05 April 2023.
Equity
As of 31 March 2023, TORM’s equity was USD 1,656.9m (2022, same period: USD 1,094.5m). The increase was mainly driven by an increase in retained profit as a result of increased freight rates.
As announced on 29 March 2023, TORM has extraordinarily decided to grant the CEO and certain employees 1,633,222 restricted stock options in an additional retention program, which fully vest 01 March 2026. The fair value of the options was determined using the Black-Scholes model and amounts to USD 51.1m. For the first three months of 2023, the dilutive effect on earnings per share of this program would amount to USD 0.04.
Cash flow statement
Net cash flow from operating activities for the first three months of 2023 was USD 214.7m (2022, same period: USD 17.9m). The increase was primarily driven by an increase in TCE.
Net cash flow from investing activities for the first three months of 2023 was USD -241.6m (2022, same period: USD -39.7m), as a result of the purchase and delivery of five secondhand vessels.
Net cash flow from financing activities for the first three months of 2023 was USD 87.3m (2022, same period: USD -48.1m). The increase was primarily driven by proceeds from borrowings as a result of higher vessel purchase activities. Additionally, refinancing in connection with a vessel sale and leaseback and repayment of the working capital facility was made in Q1 2022 and not in Q1 2023.
Distribution
A dividend of USD 1.46 per share has been approved by the Board of Directors for the three months ended 31 March 2023. The distribution is in line with TORM’s Distribution Policy with cash position (USD +410.7m), Working Capital Facilities (USD +115.0m), restricted cash (USD -29.8m) and earmarked proceeds (USD – 23.4m), dividend payable (USD -197.0m) and a cash position related to Marine Exhaust Technology A/S (USD -4.8m). Cash reservation per vessel is USD 1.8m or for 83 vessels USD 149.4m in total.
The product tanker market
Market development in Q1 2023
The product tanker market remained strong in the first quarter of 2023, although volatile and at a lower level than in the previous quarter. Prices for modern newbuild and secondhand product tankers have stayed at multi-year highs.
At the start of the first quarter, product tanker freight rates weakened on earlier-than-usual refinery maintenance in the US Gulf, coupled with slower trade flows towards Europe on elevated middle distillate stockpiles. However, as the EU ban against Russian oil products and the G7 price gap regime took effect on 05 February 2023, product tanker ton-miles increased on the EU sourcing products from further afield (especially from the Middle East) while Russia managed to redirect its exports to destinations further away. Strikes at French refineries helped to bring middle distillate stocks somewhat lower.
Market outlook
In the second quarter, product tanker market has remained volatile but at a generally strong level. The effect of the surprising OPEC+ production cut for product tankers is expected to be limited and outweighed by longer trade distances from Europe’s shift away from Russian diesel. This is likely to be further facilitated by the ramp-up of the Jazan and Al Zour refineries in the Middle East. In the medium term, the market remains supported by low order book and changes in the refinery landscape.
Outlook for Q2 and full year 2023
Financial outlook for 2023
To assess our financial performance, the number of covered days, interest-bearing bank debt, the TCE market, and EBITDA sensitivity to freight rates are included in our periodic ongoing reporting.
The primary driver for our financial performance is the product tanker market which is highly uncertain and therefore expected to be highly volatile. We expect to maintain relatively stable OPEX on a per vessel day basis, however, with a slightly increasing trend compared to recent historical levels.
Our financial outlook is primarily based on the assumptions described on the preceding pages, and the most important macroeconomic factors affecting our TCE earnings in 2023 are expected to be:
The EU ban on imports and transportation of Russian crude oil and oil products, and the G7 price gap vis-à-vis imports of Russian oil by third countries
Global economic growth or recession, consumption of refined oil products, and inflationary pressure
Location of closing and opening refineries and temporary shutdowns due to maintenance
Oil price development
Oil trading activity and developments in ton-mile
Bunker price developments
Global fleet growth and newbuilding ordering activity
Potential difficulties of major business partners
One-off market-shaping events such as strikes, embargoes, political instability, weather conditions, etc.
For further information and a detailed description of the most significant risks, please refer to Note 24 of TORM’s Annual Report 2022.
We have very low visibility on TCE rates that are not yet fixed with our customers. Hence, these rates may be significantly lower or significantly higher than our current expectations.
For the full year 2023, TCE earnings are expected to be in the range of USD 1,025 – USD 1,375m (unchanged from most recent outlook), and EBITDA is expected to be in the range of USD 750 – 1,100m (unchanged from most recent outlook) based on the current fleet size, including published acquisitions and divestments of vessels. Please refer to page 32 for a definition of TCE earnings.
As of 05 May 2023, TORM had covered 47% of the 2023 full-year earning days at USD/day 41,198. Hence, 53% of the 2023 full-year earning days are subject to change. As 18,952 earning days in 2023 are unfixed as of 05 May 2023, a change in freight rates of USD/day 1,000 will – all other things being equal – impact the EBITDA by USD 19.0m. We expect to have 29,927 earning days in 2023.
Also as of 05 May 2023, 64% of the Q2 2023 earning days was covered at USD/day 40,086. For the individual segments, the Q2 2023 coverage was 51% at USD/day 59,197 for LR2, 62% at USD/day 45,578 for LR1 and 68% at USD/day 35,804 for MR.
Source: Hellenic Shipping News
