Hello everyone, welcome to Hafnia's Second Quarter 2024 Financial Results Presentation. We will begin shortly.

You will be brought through today's presentation by Hafnia CEO Mikael Skov, CFO Perry van Echtelt, Soren Steenberg, VP Commercial, and Thomas Andersen, EVP, Head of Investor Relations. They will be pleased to address any questions after the presentation, which will be moderated by myself, Sheena Williamson-Holt, Head of Communications at Hafnia.

Should you have any questions, you can submit them via the chat function or use the raise hand function to be unmuted to ask your question verbally. Questions will be answered at the end of the presentation.

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 CEO Mikael Skov.

Thank you. Hello everyone.

We appreciate you joining us for Hafnia's Second Quarter 2024 earnings call. I'm Mikael Skov, CEO of Hafnia.

With me today are our CFO, Perry van Echtelt, our VP of Commercial, Soren Steenberg, and our EVP, Head of Investor Relations, Thomas Andersen. Our second quarter 2024 results were published earlier today and are available on Hafnia's website.

On today's earnings call, I will first cover the main developments in the quarter, before Soren walks through the market, and Perry reviews the financials. I will then touch on our strategic initiatives before concluding the call for questions.

Let's move to the next slide. Before we proceed, I would like to go through our safe harbor statement.

The information discussed on this call is based on information we have today, which may include forward-looking statements that involve risks and uncertainties. Actual results may differ materially from these statements.

Nothing presented in this call should be construed as an offer to buy or sell securities. Next slide.

I will start with the key highlights from the quarter. Now we go to slide number five.

The second quarter was another very strong quarter for Hafnia. The market has not yet normalized 6 months after the start of the conflict in the Persian Gulf.

We are still experiencing disruptions to gulf flows, and rising tensions have re-established the Red Sea chokepoints, dislocating oil flows across the world. Against this backdrop, we delivered a net profit of $277.8 million, the strongest quarterly results since the third quarter of 2022.

We also continued to optimize the fleet by divesting older vessels. During the second quarter, we sold 1 LR1, 2 MRs, and 3 Handy vessels, recording a gain on sale of $39.3 million.

In the third quarter, we completed the sale of our 50% interest in 2 MRs, held through the joint venture with Andromeda, resulting in a $13.3 million gain for Hafnia. Let's go to the next slide.

Hafnia's platform remains highly integrated, with ship owning, commercial pool management, technical management, bunkering, and adjacent businesses, all aligned. At quarter-end, we owned 103 vessels and had 9 vessels time-chartered in, with an average owned fleet age of 9.7 years.

Our net asset value at quarter-end was approximately $4.4 billion, or around $8.89 per share, corresponding to approximately 88.47 Norwegian kroner per share. Alongside our own fleet, we commercially manage around 60 third-party vessels.

Sea/Scale Energy, our bunkering joint venture with Cargill, also continues to develop as an increasingly relevant platform in a volatile fuel and freight environment. Let's move to the next slide.

Now moving to shareholder returns. Our net loan-to-value at end of Q2 stood at 13%, decreasing from 20.2% in the previous quarter, primarily due to strong cash flow generation from both operations and vessel sales.

With leverage now below the lowest threshold in our dividend framework, we will declare a dividend based on the maximum payout ratio of 90% of net profit. That translates into a dividend of $250 million, or $0.5003 per share.

Together with the first quarter dividend, total dividends for the first half of 2024 amount to $0.7880 per share, which represents an annualized yield of around 21% based on a share price of $7.5. This is the 18th quarter in a row in which Hafnia has paid dividends, underscoring both the cash-generating quality of our platform and our commitment to returning capital.

I will now hand over to Soren to take us through the industry review and outlook.

Thank you, Mikael. Let's move on to the first slide, which is slide 9.

It has been 6 months since the conflict in the Persian Gulf began, and the market remains fragmented, with volumes east of Suez constrained. While the memorandum signed between the US and Iran in mid-June briefly facilitated a partial reopening of the Hormuz Strait, the agreement quickly broke down, re-establishing the Middle East chokepoint.

Alternative routes have also come under pressure, as renewed tensions involving the Yemeni Houthis have prompted vessels to avoid the Bab-el-Mandeb Strait, redirecting Red Sea exports northward through the Suez Canal and SUMED pipeline. Despite these disruptions, market fundamentals remain sound.

The underlying support comes from several sources: depleted inventories that will eventually have to be replenished, longer and less efficient trade flows, increased ballast passages, continued migration of LR2s into dirty trades, and a clean tanker fleet that that is effectively smaller than it was at the end of last year. Let me walk you through these dynamics in more detail.

Next slide, please. Let us first look at world oil demand, and crude flat price and inventories.

The demand recovery is following a familiar pattern to COVID-19 in 2020, which took roughly four quarters to normalize. The IEA believes that demand bottomed out in Q2 2024 at 99.3 million barrels per day, but this is expected to move back to 106 million barrels per day by Q4 this year, as crude flat price eases from the highs.

The inventory picture is equally important. Inventory levels have depleted over the past months, and we expect the eventual restocking to support ton-mile when looking ahead.

The expected restocking is front-loaded. Around 260 million barrels worth of OECD stocks are expected to be rebuilt by mid-2027, with more than 100 million barrels in Q1 2027 alone.

This signals stronger tanker demand. Let's move on to slide 11.

The same conclusion appears when we look at the implied global inventory draws based on lost transport volumes. In the past 180 days since the start of the conflict, seaborne volumes fell by about 7.1 million barrels per day, whereas demand only fell by 3.4 million barrels per day.

The remaining 3.7 million barrel barrels per day gap was effectively supplied from inventories. In essence, the supply crunch was partially met by reduced demand and partially by stock draws.

The return of Middle East volume and the recovery of world oil demand, reversing seaborne trade volumes and drive transportation demand. This is why the inventory rebuild is central to our outlook.

Let's move on to slide 12. The correlation between the supply-demand balance and earnings does not follow a historical pattern.

Normally, an oil supply deficit means fewer barrels moving, causing tanker earnings to soften. This so this time, we saw the deepest deficit of about 5 million barrels per day in Q2, while Aframax earnings remained strong.

That deficit is narrowing, and the supply deficit in Q3 stands at 2.2 million barrels per day, with the forward curve moving into surplus by Q4 and through 2027. Against that backdrop, tanker earnings are better described as easing, supported by Middle East refining activity, which is expected to return in 2027, pending on the geopolitical landscape.

We move to slide 13. Looking at daily loadings, the global clean departures have recovered meaningfully from the low point in May to 18.4 million barrels per day by the end of July, still about 10% lower than pre-crisis levels.

The main pressure point has been east of Suez, where clean loadings bottomed out 40% below normal averages. Since then, the region has improved.

How quickly further easing and recovery continues will be one of the key variables for the clean tanker market. Meanwhile, dirty loadings followed the same trend, but with a much deeper decline.

East of Suez dirty volumes fell from around 24 million barrels per day in February to 12.6 million barrels per day in May, and by July, volumes were still roughly 30% below pre-crisis levels. Further recovery depends on Arabian Gulf exports returning, including Iranian crude.

An additional 2 to 3 million barrels worth of exports would create significant demand for Suez and Aframax vessels. Let's move on to slide 14.

Oil on water follows a similar trend. Clean products on water have recovered slightly from the May lows, but remains 12% below pre-conflict levels.

Discouraging tonnage enabled increased cargo evacuation from inside the Arabian Gulf to ship-to-ship locations off the Omani and Indian coastlines, servicing increases in total transport volumes. The decrease in clean products on water is equivalent to 180 MRs, highlighting the scale of demand and volumes displaced during the disruption.

Dirty products have recovered strongly, underlining the fundamental strength within this segment. We move on to slide 15.

Refining margins are also at record levels, with margins across all three major regions in increasing multifold since the beginning of the conflict. US Gulf has benefited the most.

It has captured and replaced a significant share of the displaced refining demand with margins up ninefold. China's lower margins are likely related to reduced government-controlled export quotas, forcing product prices to rely largely on upstream markets only.

We believe that Chinese margins are set to rise due to the intermediate legalization of cheaper sanctioned barrels in Q2 and the gradual increase in export quotas to the international market in Q3. We expect global margins to moderate, but remain healthy, as forward curves support continued refinery utilization and product trade flows.

We move on to slide 16. Turning into the key exporting regions.

China's anticipated 2024 export quota of about 330 million barrels has a remaining balance of about 225 million barrels. Following the removal of export restrictions on transportation fuels, actual exports have reached around 0.9 million barrels per day in August, up from 0.6 million barrels per day at the start of 2024.

In essence, the foundation for increased Chinese exports is supported. However, the question mark remains if the total 2024 export volumes will meet the 2023 averages.

Primary constraints remain domestic demand and inventory requirements. Russian clean products exports remain constrained by ongoing refinery disruptions caused by Ukrainian drone strikes, removing exports of about 0.8 million barrels per day.

Western freight markets increasingly rely on US Gulf and Nigerian export volumes, supporting Atlantic ton-miles in general. Slide 17, please.

Turning to tanker supply. Over the past year, the tanker markets has faced five major shocks: COVID-19, the Russia-Ukraine War, the Panama drought, the Houthi Red Sea disruption, and now the Hormuz blockade.

Each shock has rerouted trade fruit flows and added ton-miles, where replacement capacity has consistently lacked. The fleet aged 20 years and above has grown from 48 million deadweight tons in 2020 to 187 million deadweight today, with 251 million deadweight projected by 2028.

Aging vessels are likely to provide structural freight support, as scrapping, sanctions, and stricter vetting requirements imply the removal of older tonnage from the mainstream trade. Overall, this paints a resilient picture for the upcoming years.

We move to slide 18. The LR2 to Aframax migration continues to be one of the most important structural supply shifts in our market.

Despite newbuild deliveries, global clean LR2 availability today sits about 27% below normal averages. We move to slide 19.

Looking at the current global clean trading fleet from Handy to LR2 counted in MR equivalents, our estimate is that the effective fleet supply has decreased by 3% since the beginning of the year. This is mainly driven by clean to dirty trading migration.

This is one of the key reasons for the clean tanker freight market remaining robust at mid lower export volumes. We move to slide 20.

Looking at the order book and the scrap landscape and the known newbuild program 2024 to 2029, the Handysize to LR2 order book consists of approximately 60 million deadweight tons, with LR2s accounting for a large proportion. Against that, potential scrapping of vessels older than 25 years and sanctioned tonnage roughly totals 72 million deadweight tons from 2024 to 2029.

We assume that the sanctioned fleet above 20 years is unlikely to re-enter mainstream trading, which we estimate to 21 million deadweight tons, suggesting limited coated tanker fleet supply growth. We move into slide 21, the last slide.

In summary, let me end with a simple balance sheet of what is holding the market up and what could take it down. On the anchor side, inventories, rebounding exports, demand recovery, and a tightened clean fleet remain the key pillars.

On the risk side, the picture is mostly further out. The order book could have a stronger net impact from 2028 onwards, while the unwinding of LR2 migration could add to the clean fleet supply.

If or when Hormuz and the Red Sea Red Sea reopen for normal traffic, markets are likely to lose inefficiency effects such as ship-to-ship shuttle services, longer ballast legs, and other factors currently absorbing tonnage supply. With those words, I'm now handing over to Perry, our CFO, who will bring you through the financial developments.

Thanks Soren, and good day everyone. If we go to the next slide.

In Q2, rates reached records high and we delivered our strongest quarter since the third quarter of 2022. TCE income was $372.9 million, while adjusted EBITDA reached $287.3 million.

Our fee-based businesses contributed $8.8 million for the quarter, and in addition, we received $9.9 million in dividend income from our investment in TORM. Net profit was $277.8 million compared with $75.3 million a year ago.

This includes the $39.3 million gain on disposal from the vessel sales completed during the quarter, bringing our half-year net profit to $457.5 million. Return on equity for the second quarter reached 44.6% on annualized annualized basis, and return on invested capital was 35.2%.

Next slide, please. Turning to the balance sheet.

The balance sheet also improved during the quarter on the back of strong cash flow generation from both operations and the proceeds from sale of vessels. The cash balance increased to $271 million, while gross debt reduced to $798 million.

Net debt therefore declines to $527 million at the end of Q2. The net LTV moved substantially down to 13% from 22 20.2% at the end of the first quarter.

This was mainly due to lower debt and supported by the increased vessel values. Total liquidity remains strong at approximately $631 million, which includes $360 million of undrawn facilities.

We also remain well protected on interest rates with around 67.6% of our exposure hedged at a weighted average rate of 2.85%. Announced last quarter, our newbuild program now consists of 10 MRs, with CapEx payments beginning from the third quarter of 2024.

With this, we believe our net LTV ratio would also understate our true committed position. From 2025 onwards, we will calculate net LTV on a fully committed basis.

We will include remaining newbuild capital commitments, such as unpaid yard installments, in the numerator, while adding the broker-assessed market value of the corresponding newbuilds to the denominator. We believe this provides a more comprehensive representation of our underlying leverage.

Next slide, please. Where we move to the operating summary.

Q2 TCE rates for the year continued to show significant improvement across all segments. Our fleet-wide average TCE reached $44,093 per day, while our average spot rates were close to $50,000 per day.

Dry dock and off-hire days totaled 392 in Q2. We expect this to fall to around 225 days in Q3 and approximately 110 days in the last quarter of the year, which should increase available earning days through the second half.

Let's move to the next slide. As of August 17th, 80% of our Q3 earning days were covered at $30,716 per day, which, although below the exceptionally high levels in Q2, remains a very strong environment considering lower seaborne volumes.

For the second half of 2024, coverage stood at 53% at $28,917 per day. These rates are well above our operational cash flow break-even and set the stage for another strong year of earnings.

For Q3, estimated earning days are around 9,376 after taking into account 50% for the joint venture fleet, scheduled drydocking, the impact of divestments, vessel deliveries, and vessels chartered in during the quarter. Mikael, I will hand it back to you now.

Thank you. Moving on to the next slide, please.

Let me briefly touch on our sustainability priorities. As one of the leading owners and operators in the product tanker segment, we view sustainability as an integrated part of the business.

Safety, environmental performance, governance, and responsible partnerships have and will always remain core to the way Hafnia operates. Our commitments remain unchanged: zero harm across operations, a 40% reduction in fleet carbon intensity by 2028 compared with 2008, net zero Scope 1 emissions by 2050, and continued progress toward 40% women in our offices by 2030.

Next slide, please. The strategic projects shown here are intended to strengthen Hafnia over the long term, whether through improving our overall shipping platform or advancing our technological capabilities.

Sea/Scale Energy continues to strengthen our bunker procurement capabilities together with Cargill, particularly in an environment where fuel availability, pricing, and alternative fuel pathways are becoming more complex. Complexio is also moving from concept into practical deployment, with early use cases already helping to improve response times in commercial and finance workflows.

Next slide, please. Before we close, I want to say a few words about the CEO transition announced on the 30th of June.

This will be my final earnings call as CEO of Hafnia. As announced, from the 1st of September 2024, Soren Steenberg Jensen will take over as CEO.

Subject to shareholder approval at the Extraordinary General Meeting held later this quarter, I'm expected to join Hafnia's Board of Directors and look forward to continuing to contribute to Hafnia in this new capacity. This transition has been planned carefully and with continuity in mind.

Soren has been part of Hafnia since the beginning in 2010, and as Head of Asset Management, he has been deeply involved in shaping our fleet, our asset strategy, capital allocation, and many of the decisions that have brought Hafnia to where it is today. It has been a real privilege to lead Hafnia and to work with an exceptional team across sea and shore.

I would like to take this opportunity to thank our seafarers, shore-based teams, customers, partners, and shareholders for their trust and support throughout this journey. What will not change is Hafnia's direction.

The focus remains disciplined commercial execution, operational excellence, and prudent balance sheet management. That brings us to the end of the prepared remarks.

Thank you for joining us today, and we will now move to questions.

Thank you, Mikael and Perry and Soren for taking us through the results today. To those here, we will begin our Q&A session now.

If you want to ask questions, you can put them into the chat function or you can use the raise hand function to be unmuted to ask your question verbally. Questions via the raise hand function will be addressed first before we then move on into the Q&A box.

I'm going to start with Frode. Please, can you unmute yourself, please, to ask your question?

Yes. Thank you.

Hi Frode.

Yeah. First question is for Soren, I guess.

I guess on on on the topic of Panama Canal. Last time Panama was a big issue.

We didn't really have Red Sea and Hormuz disruption at the same time. When you look ahead and assuming Panama tightens further, how much more disruptive and supportive would this be for products, do you think?

Soren, can I ask you to unmute yourself?

Can you hear me now?

Yes, we can hear you now.

Sorry. Thank you, Frode, for the question.

I think you're right in the sense that when the Panama Canal again comes on top of of many other things ongoing, it probably has a an even larger effect. Now it's tying up with China also in increasing exports, whereby you would expect with a further diminished Panama Canal transit, where you are now paying up to about $1 million for for an auction over there, you're likely to see export from the Far East coming into the US West Coast, adding ton-mile to the region, which in in the first place have a displacement of tonnage.

It is a strong driver. Whether or not this time around it will be a halving of of transits to the tune of 2024 is still a question mark.

You have probably seen the news that two ships less by the end of this week, and then another two a little bit further out. The the trend is there, and the combination of the factors that we have ongoing is is not insignificant.

Right. You discussed a lot of good points here.

If you were to, let's say, summarize it and look ahead just for the next 6 to 9 months, how how would you think that this market will develop?

On a general note, disruption is the is the driver here, right? I think we are now in a scenario that is probably a little bit worse than the beginning of the the Middle East crisis, especially with the news of the blacklisting of ships evacuate in the Middle East, at least a a more closed Red Sea passage than it was when when we we spoke last, with a partial opening there as well.

China exports ramping up, a US and a China that is really gravitating the world towards it, which can only mean longer ton-mile on a general note to supply the world. Our I'm constructive for the balance of Q3 in through Q4, obviously with the with the caveat that we are sitting in a very political driven environment, and changes could still be coming at us like they have been more or less on a weekly basis over the past months, really.

Positive and constructive, always with the with the being mindful that it's all good and fine that we have a lot of ton-mile and we have disruption all over the place, but but oil also have to be available to increase transport demand. It also depends how much the release on SPR volumes will be on a further basis and how much stock draws we can actually do as a world.

Did that answer the question?

Yes, very well. Thank you.

Looks like a good and interesting winter period ahead of us, right?

I think that's that's probably also one of the points that we didn't touch upon. An El Nino year, and whether or not that's going to give the the usual cold winter that that brings with it, but depleted inventories coming into a winter season could in our mind also kickstart an earlier Q4 transportation spike and and probably also market spike than you would be used to, as you would likely see Europe trying to restock at least where possible before the winter really comes up.

Fantastic. My final question is for Mikael, since this is your last call, I guess, as a CEO.

Just wanted to ask you, if you had to leave the investor with one thing you think the market is still underappreciated with Hafnia, what would that be?

That [laughter] that's a really good question. I don't know if there's anything that that's kind of specifically underappreciated, but I think at least what comes to my my first mind—I don't, as I said, I don't know if it's underappreciated—is that, is I think our strong focus on capital allocation and particularly discipline through the cycles.

I think that that has been and will continue to be one of the strong parts of Hafnia, that we have a a major shareholder that has a long-term perspective, which means that we can time our investments and the capital allocation for the right timing rather than being forced by other conditions to make decisions, through the cycle. I think at least to me that's one of the strong parameters for us is that we have the ability to think long term and not be forced to make any panic decision short term.

Yeah. It's been a fantastic journey, I guess.

Thanks, Mikael. Since this is this is your last call as an analyst, I would just, thank you for all the good insights over the past few years.

All the best what comes next. Thank you.

Thank you so much for that.

Thank you, Frode, for your kind words. I don't actually see any more raised hand functions, but I do see a question in the chat, which is from Fausto.

I'm just going to read it out here. Congratulations on your retirement, Mikael, and thank you for your leadership and contribution to Hafnia over the years.

Hafnia performed particularly well in the LR1 and MR segments during the quarter compared with most of its peers. Can you explain the main drivers behind this outperformance?

Was it partly related to a higher number of product tankers trading dirty or were there other factors at play? Do you believe these are structural or repeatable factors that allow Hafnia to continue outperforming in Q3 and beyond?

Soren, I will ask you to unmute yourself and maybe you want to also look at the question in the chat to answer kind of the three different parts of it.

Thank you, Sheena. I think we we divide it in segments and start with the MRs from the bottom up.

We are not super exposed to to dirty trading on the MRs, and it's it's literally not very big in the in the MR segment. We had a strategy from already the end of 2023 to be exposed in the US Gulf market.

That was driven by a belief that the turnaround season for the US Gulf would not be as big this year, driven on the back of high refinery margins on a on a general note. That so transpired that that the AG or Middle East crisis came on top of it.

We already had a big position in terms of tonnage spread from from a Hafnia perspective in the Gulf, and it was just amplified in terms of return for taking that strategic decision by by the Middle East crisis. It's really a positioning thing, where we have been leaning very much towards the Gulf, PADD 3, and the Far Eastern area, which has been the second-best performing area.

On the LR1s, it's to the tune of the the same story. We migrated tonnage from the East to the West early in the year, and they have we have capitalized on that because the even the Europe my Europe market and the Mediterranean and the Red Sea market spiked on the on the back of the the AG crisis.

We also have an exposure in the Panamax market, which has quite clearly through that quarter in particular been been over overachieving, if you like. Our percentage exposure in in the Panamax segment is not that significant, but it has elevated the earnings to a certain extent.

Whether or not we are benefiting from the exact same factors in Q3 still remains to be seen for the rest of the quarter. For the beginning of the quarter, it has not been too bad to be exposed to the US Gulf, and we did actually migrate some tonnage towards the Far East at an early stage.

From a strategic perspective, we are we are sound and well, and and sitting with a a tonnage spread East-West that we we are satisfied with. I would certainly hope that we are up there with the with the best.

Thank you, Soren, for for that. Fausto, I'm assuming or I trust that that covers everything you needed to know.

In case not, feel free to send a follow-up in the chat. I'm at the moment going back to the raise hand function.

I do not see anything there. Great.

Fausto confirms, Soren, you covered everything. I think given that there are no more raised hands, then I'm just going to thank the speakers for the presentation and then thank those for their questions.

Yes, we have come to to the end of today's presentation. Thank you to everyone who joined for attending our Second Quarter 2024 Financial Results Conference Call.

You can find more information on our website after this call, where this recording will be uploaded. Thank you, everyone, and have a great day and a great weekend when you get there.