TORM (NASDAQ:TRMD) released second-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below.

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The full earnings call is available at https://events.q4inc.com/attendee/117124554

Summary

TORM reported a record second quarter with TCE earnings reaching US$512 million, more than doubling the previous year's results, driven by strong freight markets due to geopolitical tensions.

The company is actively renewing its fleet with a focus on newbuildings as secondhand vessel prices rise, with deliveries planned from 2027 through 2029.

TORM increased its full-year financial guidance, expecting to generate the highest annual TCE earnings in its history, and approved an interim dividend of US$2.40 per share.

The company's integrated operating model, 'One TORM,' enabled quick adaptation to market changes, improving fleet deployment and capturing opportunities effectively.

Management emphasized a balanced approach between fleet growth and shareholder returns, noting significant dividend distributions while maintaining a strong financial position.

Full Transcript

Jeannie, Conference Operator

Good morning and thank you for standing by. My name is Jeannie, and I will be your conference operator today. At this time, I would like to welcome everyone to the TORM second quarter 2026 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be 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 would like to withdraw your question, press star one again. Thank you. I would now like to turn the conference over to Jacob Melgaard, CEO. You may begin.

Jacob Meldgaard, CEO

Well, thank you and welcome to everyone joining us today. We are pleased to report a record second quarter reflecting both exceptionally strong market conditions and the strength of the platform we have built over many years. Before turning to the quarter itself, I would like to briefly revisit what continues to differentiate TORM and create value for our shareholders across market cycles. At the core is what we call the One TORM. It is our integrated operating model where commercial, technical and operational decisions are aligned across the organization.

It allows us to react quickly to changing market conditions, optimize fleet deployment and consistently capture opportunities as they emerge. Our culture is equally important. Through a unified organization and centralized decision-making process, we are able to execute faster and more effectively than many of our peers. This alignment creates accountability, improves utilization and supports disciplined cost management throughout the business. The results are measurable.

Over the period from 2023 through 2025, our MR fleet generated more than US$200 million of additional TCE earnings compared to the peer average. This demonstrates the strength of our commercial platform and our ability to consistently create value across different market environments. At the same time, we remain committed to active fleet renewal and disciplined capital allocation. Recent investments in resale and newbuilding vessels demonstrate our confidence in the long-term fundamentals of the product tanker market while helping ensure that TORM maintains a modern and efficient fleet.

Our approach to fleet growth has always been driven by value creation and customer needs. Over recent years, we have primarily expanded through vessels already on the water, but the relative economics have evolved. With secondhand vessel prices continuing to increase, we now see attractive opportunities in newbuildings. As a result, we have established a firm pipeline of resale and newbuilding deliveries from 2027 through 2029 and potentially into 2030.

This ensures that we continue to renew our fleet, maintain a modern offering for our customers and secure future earnings capacity in a disciplined manner. Importantly, these initiatives have not come at the expense of shareholder returns. Our approach remains to balance growth and investment with attractive cash distributions, ensuring that shareholders benefit from both today's earnings and tomorrow's value creation. Please turn to Slide 4. The second quarter was the strongest in TORM’s history, driven by exceptionally strong freight markets following heightened geopolitical tensions in the Middle East and the resulting disruption to global oil trade flows. During the quarter we generated TCE earnings of US$512 million, more than doubling the level achieved in the same period last year. The market benefited from significant inefficiencies created by disruptions around the Strait of Hormuz, which supported freight rates across all vessel classes. This translated into EBITDA of US$416 million, net profit of US$338 million, highlighting both the strength of the market and the operating leverage embedded in the One TORM platform.

Reflecting the continued strength in freight markets and the visibility provided by our contract coverage, we are also increasing our full-year guidance. Thus, we now expect to generate the highest annual TCE earnings in TORM’s history, surpassing all previous years and underscoring the exceptional market conditions currently supporting the product tanker sector. Reflecting these results, our board has approved an interim dividend of US$2.40 per share, corresponding to a total distribution of US$246 million.

Fleet renewal also remained a key priority during the quarter. Our fleet stood at 97 vessels at quarter-end and we further strengthened our growth pipeline through investments in resale newbuildings, with delivery scheduled from first quarter of 2027 through 2029. Overall, we entered the second half of the year from a position of strength supported by a modern fleet, a robust balance sheet and a market environment where geopolitical uncertainty continues to create opportunities for product owners with scale, flexibility and strong execution capabilities.

And here kindly turn to the next slide, to Slide 5. A key element of TORM's strategy is maintaining a balanced approach to capital allocation. While we are committed to growing organically and renewing the business, it has been equally important to ensure that shareholders directly benefit from the strong earnings generated by the company. Since 2023, we have distributed US$15 per share in dividends, returning a significant share of our earnings to shareholders.

In total, this amounts to US$1.5 billion, representing a very significant sum of money relative to the total market capitalization of TORM. This reflects our philosophy that value generation and creation should translate into tangible cash returns, allowing investors to participate directly in the strong cash generation of the business. At the same time, we have continued to invest in the platform. Over the same period, we have expanded the fleet from 78 vessels at the end of 2022 to 97 vessels today, increasing our earnings capacity while also renewing the fleet profile.

This balance is important. Shipping remains a cyclical industry and our objective is not only to maximize returns today, but also to ensure that TORM continues to have a modern and competitive fleet in the years ahead. By maintaining a pipeline of vessel acquisitions and newbuilding deliveries extending through 2029, we position ourselves to participate fully in future market opportunities. We believe this approach creates long-term shareholder value.

It allows us to distribute meaningful cash today while ensuring that we continue to have vessels on the water here and now as well as in the years ahead, particularly during periods when market conditions are exceptionally attractive. Importantly, the pipeline of vessel acquisitions and newbuilding deliveries will also gradually replace older vessels that over time reach an age where divestment becomes the most attractive option. As illustrated in the appendix on Slide 27, the delivery profile through 2029 and potentially 2030 supports a continuous renewal of the fleet while preserving earnings capacity and maintaining a modern fleet for our customers.

In short, our strategy is to keep high operational leverage, renew the fleet, maintain financial discipline and return excess cash to shareholders. And now please turn to Slide 7. The product tanker market remains exceptionally strong. Recent Middle East tensions have further tightened what was already a fundamentally robust market. Disruptions to key trade routes have increased voyage distances and reduced effective fleet availability, directly supporting freight rates.

This is reflected in our commercial performance where average earnings in the second quarter exceeded US$59,000 per day, while third-quarter bookings secured to date averaged US$38,600 per day across vessel classes. It is also worth highlighting the historical perspective shown on this slide. Market conditions were already robust prior to the latest geopolitical developments. Limited effective fleet growth and sanctions had already created a favorable supply-demand balance.

The five-year average earnings levels for both MRs and LR2s show that product tankers have generated solid returns under changing market conditions. The wide gap between historical highs and lows illustrates the significant volatility inherent in our industry, with freight rates sometimes moving sharply from one month to the next. What we are experiencing today is a market operating well above historical averages supported by geopolitical disruptions and structural inefficiencies.

At the same time, the volatility shown by the historical ranges reinforces the importance of maintaining a flexible commercial platform that can respond quickly to changing market conditions and capture opportunities as they emerge. And now please turn to Slide 8. Despite major disruptions to global oil flows, the product tanker market has remained highly resilient. While the closure of the Strait of Hormuz reduced oil volumes, the loss was more than offset by longer-haul movements and extensive trade rerouting.

Fewer barrels moved, but they traveled significantly further. Following the temporary ceasefire, oil flows improved from roughly 17% below pre-conflict levels in April and May to around 10% below by July, demonstrating how quickly global energy markets adapt. However, renewed hostilities are again disrupting trade. Rising tensions around the Strait of Hormuz and Houthi naval blockade against Saudi Arabia are forcing additional rerouting and creating further inefficiencies across the supply chain.

For tanker owners, those inefficiencies matter because they increase vessel utilization and support freight rates. Let me illustrate that on the next slide. And here we turn to Slide 9. The closure of the Strait of Hormuz initially disrupted oil flows equivalent to roughly 20% of global oil consumption. Part of the disruption was absorbed through increased pipeline exports from Saudi Arabia and the UAE as well as higher exports from the Atlantic Basin.

Nevertheless, lower crude availability in Asia reduced refinery runs and clean product exports from the region. Since then, rerouting, inventory releases and the ceasefire period have stabilized trade flows. What is particularly interesting is how Gulf producers have adapted. The UAE and others are increasingly using dedicated shuttle operations and ship-to-ship transfers to sustain exports. Today, more than 30 VLCCs and around 14 LR2s are engaged in these activities.

To restore pre-closure export volumes entirely, these shuttle operations could require two to three times more VLCCs and over three times more LR2s than currently employed. Even before reaching that level, every additional vessel tied up in shuttle trades reduces effective market supply and creates incremental support for freight rates. Please turn to Slide 10. The latest escalation around the Strait of Hormuz combined with the continued Red Sea disruptions is driving another round of straight rerouting.

Cargoes that previously moved on direct routes are increasingly being diverted through the Suez Canal and around the Cape of Good Hope. In some cases, these changes add weeks to voyage duration. We have experienced this firsthand. In July, our LR1 vessel, TORM Innovation, was fixed to load in Yanbu for discharge in Asia. The original routing was through Bab el-Mandeb. Following renewed security concerns, the voyage was redirected via Suez and around the Cape of Good Hope under the terms of the charter party.

The result was an extension of more than 30 days. A single voyage extension of more than 30 days effectively removes a vessel from the market for a time. When this is replicated across the industry, the impact on effective supply becomes significant. This serves as a practical example of how geopolitical events translate directly into increased ton-mile demand and tighter fleet supply. Please turn to Slide 11 and let's now look in more detail at supply.

While vessels trapped in the Persian Gulf were gradually released during the ceasefire, another and potentially more important trend has emerged. A record number of LR2 vessels have shifted from clean product transportation into crude transportation, a process known in the industry as dirty-up. By the end of July, approximately 70 fewer LR2s were available for CPP transportation than at the start of the year. As a result, effective CPP capacity overall has declined by roughly 5% despite nominal fleet growth of a similar magnitude.

In other words, headline fleet growth suggests more supply. The reality is that the fleet available to transport clean petroleum products has become tighter. Now please turn to Slide 12. Although strong markets have encouraged additional newbuilding orders, particularly in crude tankers, fleet growth remains constrained by an aging fleet profile and sanctions. In the combined LR2 and Aframax segments, approximately one in four vessels is currently subject to US, EU or UK sanctions.

Importantly, around 60% of those sanctioned vessels are more than 20 years old. Given their age, many are unlikely to return to mainstream trading even if sanctions were eventually lifted. As a result, headline fleet growth overstates the increase in effective market supply. Taken together, sanctions, fleet aging and replacement requirements suggest that effective fleet growth is likely to remain limited for the next several years. Please turn to the next slide.

The key message is simple. This is unlikely to be a temporary market event. It looks increasingly like a structural reset. We will not speculate on when the Strait of Hormuz may fully reopen. Our focus is on operating the business prudently and maintaining flexibility. What matters equally is what happens after reopening. Even if transits normalize, the market will not immediately return to its previous state. Vessel repositioning, trade normalization and fleet rebalancing will take time and create additional friction throughout the system.

At the same time, strategic and commercial inventories will need to be rebuilt. As an illustration, replenishing inventory depleted so far could add approximately 1% to 2% to global trade volumes over the next 12 months, with further upside if stock rebuilding accelerates or sourcing patterns become more geographically diverse. Just as importantly, the product tanker market was already supported by strong fundamentals before the Strait of Hormuz disruption.

Those supportive fundamentals remain in place. Our view is therefore that reopening the Strait should not be viewed as the end of the story, but rather as the beginning of a new phase of market adjustment that can continue to support tanker demand. Slide 14. Please, to conclude on the market, the tanker industry is operating in an environment increasingly shaped by geopolitics, sanctions and security risk. Shifting energy flows are making global trade more complex and less efficient.

This is not a temporary phenomenon. Since 2022, the number and significance of geopolitical factors influencing our industry have increased materially and this continues to reshape global trade patterns. For the tanker market, greater inefficiency means longer voyages, higher vessel demand, fleet dislocation and increased volatility. For TORM, it reinforces the value of our scale, commercial agility and operational execution. And with that, I'll hand it over to Kim who will take us through the financial results.

Jeannie, Conference Operator

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. And your first question comes from the line of John Chappell with Evercore ISI. Please go ahead.

John Chappell, Analyst at Evercore ISI

Thank you. Good afternoon. Jacob, you spent a lot of time talking.

Jacob Meldgaard, CEO

Yeah, thanks.

John Chappell, Analyst at Evercore ISI

Jacob, you spent a lot of time talking about the justification for the newbuildings both on this call and apparently in the press this morning. I think it makes complete sense given the discrepancy between newbuild prices and secondhand values. Looking at it from the other side, it looks like roughly 30% of the fleet almost is 15 years or older. You have these incredible prices for secondhand vessels, including, you know, older tonnage at present.

Have you considered an acceleration of maybe some divestitures to lock in some of these elevated prices on the resale side?

Jacob Meldgaard, CEO

Yeah, well, that's a good question. We have considered that. What we have found so far is that when we take the NPV, obviously, of a potential sale of any of our assets versus what we, I would say conservatively, then estimate that we will be earning until sort of the useful life, then that calculation will dictate whether we do this or not. And I've not seen any signs that we should accelerate based on that calculation.

John Chappell, Analyst at Evercore ISI

Okay, the second question I had relates to Slide 7. So the LR2 benchmark being near the all-time highs makes sense given the dirtying up that you discussed. The MRs had a nice little spike when the conflict broke out in the Middle East in late winter, early spring, but they've since kind of normalized back to these long-term averages. Is there any other difference? Is it just a trade flow, you know, amount of products leaving the Middle East, the disruption impact of ton-miles variance between kind of bigger crude carriers and smaller product, that's meant that the MRs have been probably the most consistent performers as opposed to every other sub-segment of the market being exceptionally stronger year to date? And I guess if I can add a second to that as well, is there kind of a catch-up trade to the MRs that you foresee once there is some return to normalization in global trade flows?

Jacob Meldgaard, CEO

Yeah, that's a very good observation, and of course being in this day to day, we are making the same observation. I think there's, of course, a lot of elements in the teaser list, but I think if we lift it up, our conclusion so far, John, is that every day we are depleting inventory globally. And The crude oil and the product that is being moved is obviously lower volumes than what it would have been before the current, more or less, closure of Hormuz. And it means that crude is definitely moving to a higher degree, and it is arriving at destination, wherever the end user is at the refinery site. But what you would then have as spillover for the MRs to pick up — marginal trades — those marginal trades, in an environment where there's not enough cargoes, are simply less.

They simply don't occur as often. So it's more base loads for the MRs. And you would need, in our opinion, to see that you have more volumes of crude that meet or exceed the daily consumption before you will see that refineries and the arbitrage trades will really, in earnest, start to reopen so that the MRs can come into flux. Can you follow? So as long as we're in this sort of environment, where there's just enough oil for there to be enough, the spillover trades from the refinery sites are less than the day when we see normalization of the amount of crude that goes to market.

Jeannie, Conference Operator

Your next question comes from the line of Frida Morcadel with Clarkson Securities. Please go ahead.

Frida Morcadel, Analyst at Clarkson Securities

Yes, thank you. Hey, guys.

Jacob Meldgaard, CEO

Hi, Frida.

Frida Morcadel, Analyst at Clarkson Securities

Yeah, so it's really interesting times, right? Hormuz more or less closed. Red Sea, Black Sea, even Panama Canal disruptions. I mean, I have to go way back in the history book to find these type of conditions. So I just wanted to pick your brain on this. How important are these disruptions behind the recent, let's say, rebound in LR2 rates versus, let's say, cargo flows? Right. So there are — obviously you have the refineries shut down. That meant less export volumes.

And now you have these inefficiencies and freewheeling things and shuffle trades and, you know, so what's driving the recent pullback in rates?

Jacob Meldgaard, CEO

Sorry, say it again so I'm sure that I heard you. The final question — just repeat.

Frida Morcadel, Analyst at Clarkson Securities

Yeah, I mean, the LR2 rates coming up — is it driven by the rerouting inefficiencies or cargo flows?

Jacob Meldgaard, CEO

Yeah. So I think there's two things on the supply side. Clearly, what we mentioned earlier — going into the year, I think we all recall that there was some discussion among analysts and, of course, shipowners like ourselves around the magnitude of the orderbook on LR2s — that that could have potentially a negative effect on the freight rates because, simply, of supply coming to market. And the fact that we see 70 fewer LR2s today has, of course, proven that that was not how the story unfolded.

It was more that volumes have kept coming down because of the disruptions, especially in the Middle East — that a lot of the naphtha, a lot of the sort of long-haul LR2 natural cargoes, the diesel from Middle East to Europe, have not been moving in these boats. So volumes have gone down. But, of course, the effective supply of clean-trading LR2s have also been coming down and sort of keeping the market more or less at bay. Now, the inefficiencies you mentioned — then you only need a little more volume.

You just need a little more of the ship-to-ship transfer to occur. And our instincts are that currently there is a movement — it's also discussed in the public press — that the national states in Middle East are contemplating having this oil bridge, which is basically that you load in the Middle East and you don't go for your end destination but make the ship-to-ship transfer. I think that is maxed out, more or less, on the capacity that they have, and that they're looking to increase that further as a strategic response to the closure and the Iranians and America currently having a tit-for-tat around who is controlling this.

I think they are basically saying, "We would like to control our own destiny, so we will up the ante on this oil bridge because we don't know when the situation helps." So I think it is two things: volumes have come down, but also supply. And now we're starting to see a little more tickling around that this strategic choice to have also LR2s hauling cargoes out to the Omani waters and make ship-to-ship transfer is creating a stronger demand.

Frida Morcadel, Analyst at Clarkson Securities

That's interesting. So, yeah, I guess most people have noticed the crude shuttle business, but you're also seeing the same for products, right? So how important is that, and is that something that is going to expand, do you think, going forward?

Jacob Meldgaard, CEO

Yeah. So when we had our Q1 results in May, I think we alluded to that we started to see a few of our vessels being engaged in this ship-to-ship transfer. And our estimation is that at that time you would be seeing about a million barrels in totality of crude and CPP moving per day on this sort of shuttle. Now fast forward to today, we estimate that it's about 6 million barrels of crude and 1 million barrel of CPP. So obviously not the same level as we saw before, but significantly more than in May.

Our expectation is that, as a strategic answer — as, again, it is being communicated almost daily that the Strait of Hormuz is either closed or open — to take it into your own destiny and sort of control the value chain for the producers where the oil is stuck, they will, in our opinion, more likely than not increase the volume both on crude but also on CPP in the months to come in order to sort of normalize their economic stance, and also, of course, to normalize their relation in terms of that they are not under the gun of somebody else saying there's a war or there's not a war.

So we believe that we are seeing a trend that will continue. Of course there's a long way to 20 million barrels — that was what we saw prior to this conflict. It doesn't need to go there. But as I mentioned, if you imagine that volumes could go back to that, instead of using, let's say, 15 LR2s, you probably need closer to 50 LR2s in that short trade — and that would be beneficial for LR2s, in our opinion.

Frida Morcadel, Analyst at Clarkson Securities

Yeah, super interesting. I mean, how about the impact on vessel values? I mean, at least you've seen on the crude side a lot of these Middle Eastern companies basically buying up whatever tonnage they can get hold of to just refill its shuttling services. Are you seeing the same dynamics on products? Perhaps we're not seeing it with... It is...

Jacob Meldgaard, CEO

We've, of course, with interest noted what you also described. We have not seen that yet on the clean side. It has been so far more a crude story, especially on VLCCs, but also to some degree, as we can all note, on Suezmax, and to a lesser degree. I don't think it has played out on the product side yet. If you're overflowing and you are an oil producer, I think it is most important right now — the first sort of dilemma that you would like to solve is, what do I do with my crude?

And you clearly engage with these in order to have that shortened service. And then, as a second step, I think you would proceed to evaluate, can we resume our operation at the refinery side, and how do we then solve the logistical problem around that? So I think it's natural that we have not seen anything yet.

Frida Morcadel, Analyst at Clarkson Securities

Yeah, makes sense. But you are seeing the Chinese ramping up refining runs, so hopefully that will add some volumes going into the fall. So how comfortable are you, and how bullish are you on the next few months of products?

Jacob Meldgaard, CEO

Well, we are constructive around it, but, I mean, as we've just discussed, we have all these choke points, and probably historically we've never seen more. But our instinct is that most of these choke points will either remain more or less as they are or be positive for product tankers. So that could be the Panama Canal. We have clearly not seen that play out yet. And I think, straight up, I don't think that the current status quo is how it will stay.

I think that either you'll find a solution and/or you will see that this oil bridge will be expanded. Both those scenarios are positive, in our opinion, for product tankers.

Frida Morcadel, Analyst at Clarkson Securities

Yeah, very good. Thank you.

Jeannie, Conference Operator

Your next question comes from the line of Bendik Nittingis with Bansk Bank. Please go ahead.

Bendik Nittingis, Analyst at Bansk Bank

Thank you. Hey guys, I have one on the newbuilding program as well. You're sort of doubling down on the MRs here. Can you talk a bit through your reasoning on doing MR newbuilds as opposed to LR2s?

Jacob Meldgaard, CEO

Yeah, absolutely. Thank you. So we are not in love with any particular of the segments that we are active in. And the way we come to our investment decisions is basically that we look at what is the cost of an asset and what is our expected cash flow from that investment. And up until date here in the second and into the third quarter, it has been the better choice for our investment to place our money on the MRs that we have alluded to — the prices, the delivery, the specification — rather than alternative investments.

That doesn't mean that we could not do LR1 or LR2 at any time, but it just means that currently that has been the best choice for the investment for our shareholders.

Bendik Nittingis, Analyst at Bansk Bank

It makes sense. And I guess you haven't disclosed any prices on the new fixed plus two vessels, but can you talk a bit about what we should expect in terms of financial leverage as a percentage?

Jacob Meldgaard, CEO

Yeah, we are pretty standard on that currently, so we would normally finance our vessels at 50% leverage. That's a nice sweet spot. You can go higher, of course — not to go lower — but I think for us, the situation we are in gives us ample flexibility here. You have a sweet spot of very low margins, fairly long funding structures. So, of course, we're trying to find the sweet spot. We think this is a very good place to be.

Bendik Nittingis, Analyst at Bansk Bank

Agreed. Thank you. Congrats on a great quarter.

Jacob Meldgaard, CEO

Thanks, Bendik.

Jeannie, Conference Operator

Thank you very much. There are no further questions at this time. I'll now turn the conference back over to Jacob Meldgaard for closing remarks.

Jacob Meldgaard, CEO

Yeah. Thank you very much. And thank you to everyone for listening in to our results for the second quarter, 2026. Have a nice day.

Jeannie, Conference Operator

This concludes today's conference call. Thank you all for joining. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.