Good day and thank you for standing by and welcome to TORM’s First Quarter Results. 2021 Conference Call. Currently all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Morten Agdrup

Thank you all for dialing in here and welcome to TORM’s conference call regarding the results of first quarter 2021. My name Morten Agdrup, Head of Corporate Finance and Strategy; IR@torm. As usual, we will refer to the slides as we go along and speak and at the end of the presentation, we will open up for questions. Please turn to slide two. Before commencing, I’d like to draw your attention to our usual Safe Harbor statement. Slide three, please. The results for will today will be presented by Executive Director and CEO, Jacob Meldgaard; and CFO, Kim Balle. I will now hand over the call to you Jacob.

Good afternoon to all. Thanks for dialing in. I'm happy to be here today. We published our results for the first quarter of 2021 and I'm of course also quite pleased because we this morning have announced the acquisition of three LR two vessels. The first quarter of 2021 was impacted by the continued market downturn and the COVID-19 pandemic, which lowered the global demand for all products. For TORM. The quarter ended with an EBITDA of $19 million and lost before tax of $21 million. As a consequence we turn on invested capital was negative at 2.7%, which of course is on satisfactory part. Our part Tanker feed realized an average TCE rate of almost $13,500 per day. And in the largest segment, the MR segment, the achieved rates were just below $13,000 per day. Now looking into here the second quarter, we've secured bookings at almost $15,000 per day. And we are looking into a stronger result than realized in the first quarter with now 78% of all earning days already covered. During the quarter, and as we previously announced, we purchased eight LR2 in a party share based transaction and adding to this feed increase we've today announced the purchase of three modern [indiscernible] vessels for a total consideration of $121 million. Lastly, we have after the quarter ended also sold one older MR vessel. So these S&P transactions are all part of our coverage and S&P strategy that we've pursued over the last year and I will elaborate on here on the following slide. So please turn to slide five. 2021 is a special year also for product tankers impacted by the global pandemic and the related close downs. The product in the market was divided into a brilliant first half and you have to not…

Thank you, Jacob. Please turn to Slide 16. With our spot based profile, TORM has significant leverage to utilize an increase in the underlying product tanker rates. As of March 31, 2021, we had just about 14,000 open earning days in 2021 and almost 30,000 open earning days in 2022. Adding our, just published LR2 purchases to these numbers, the earning days will increase with around 1,000 on an annualized basis. For the nearer term, we have, as Jacob has mentioned, however, deliberately taking increased coverage over the last year in anticipation of a continued downturn in the market. And for the second quarter, you have covered 78% at almost $15,000 per day. Please turn to Slide 17. As part of our coverage strategy, we use a combination of freight rate derivatives and physical contracts. These freight derivatives have the advantage of providing flexibility in relation to precise timing and size of coverage entering 2020 and throughout the first quarter of 2021. We have benefited from the use of derivatives with a total realized amount of $12.2 million. However, the market value development is booked in TORM’s TCE, and we have over time seen fluctuations in our result as driven by changes in the unrealized element of these derivatives. To amplify by the end of March, 2021, the unrealized element of TORM freight derivatives had a negative market value of $7 million us dollars. The value then increased during April resulting in a positive impact of $5.7 million, which was then booked in our TCE during April. Please turn to Slide 18. I would now like to review our financial position in terms of key metrics, such as net asset value and loan to value. Vessel values have decreased slightly during the first quarter, by round 2% with a positive…

[Operator Instructions] Our first question comes from the line of Jon Chappell from Evercore. Your line is now open.

Good afternoon everyone. Kim, if I could start with you, the liquidity situation seems fantastic. There's no big debt amortization coming up. You seem to be getting debt financing for all the purchases that you've made, and you have a very optimistic view on the market. I'm just curious why continuing to do sale and leasebacks, which would be higher cost debt by definition. It's just one thing to do it for the third LR2 you're buying, but then you're adding two more ships from the existing fleet from what I understand. Is there a reason that sale and leasebacks are still necessary given the outlook for the market and your liquidity situation? Is this the bank financing not available of the size that you need? I'm just trying to understand the, maybe the difference there.

Thank you, Jon, for the question, it is very good question. We have a group of relationship financing institutions, banks, as well as different leasing partners. So as such, we are trying to make – using our partnerships, but also establishing a very diversified funding platform. So as you can see, we have with the LR2s financed through DSF and then further via a sale and leaseback scheme. So it is basically to build up a diverse platform of different funding sources with the pros and cons there on each of those.

And just correct me if I'm wrong, but you're adding two more ships as part of the sale and leaseback for the third LR2.

Yes, that's correct. We had the opportunity to – yes, basically to first of all, we had the opportunity to – on pretty good commercial terms to add the two further vessels. And then, on sort of a liquidity and a balance sheet – from a liquidity and balance sheet perspective, we like to be conservative. So having that opportunity, we just added those also as I said on quite decent terms.

Okay. And then the second thing I would ask about, and thanks for clarifying the freight derivatives, when we see something like 112% for the second quarter, LR2 days are covered, you'd start to scratch ahead a little bit. Just curious on the, your nimbleness and flexibility around that. I mean, it sounds like the majority of them will roll-off in the second half of the year, where you have a far more optimistic view about the market, despite some choppiness, maybe for the rest of the second quarter. If you get to early part of June, mid-June, and you think this may be delayed, the recovery may be delayed for another quarter or two for whatever the case may be. Do you have the ability to kind of step up those derivatives or those kind of optimally timed when the market was really at a trough and the opportunity to re-up on those has kind of passed.

Yes. So, I think to your point on – if it is so that there is a delay in the expected recovery, then it will be too later. So we, we pay – our base case is that the fundamental recovery for the product in the market would coincide, as I mentioned with the rollout of vaccinations and reopening of societies at large. And that is all the course of the second half. The exact timing could be later than, July 1. Clearly but we are willing to take that risk right now. And I think that if you stood end of June and you had second thoughts about this, that's probably going to be too late as you point to the positions we have now we'll take some time ago. It's not new positions, obviously.

Yes, that makes sense. All right. Thank you, Jacob. Thanks Kim.

Thanks for the question.

Okay. Our next question comes from the line of Ulrik Bak from SEB. Your line is now open.

Hi, Jacob and Kim, also a few questions from my side. Firstly, in terms of your capital allocation, how do you internally evaluate how many vessels and how much debt to take onto your balance sheet? Because you have now been acquiring eight vessels in March and additional three now. So what is the, yes, the capital allocation strategy.

Okay. Just to clarify, perhaps, and thank you for the question Ulrik. When we did the first eight, the Team Tanker’s transaction that really didn't – we really need any liquidity to purchase those. Those were partly a share based transaction 60/40. So that is quite, quite nice transaction, well-structured we found and we really like those kinds of structures certainly. So for that no liquidity needed, and of course, in this case with the three LR2s different scenario where we needed some liquidity and we’ve put that in place with a financing as we have displayed. So of course it depends on the specific structure that we are looking into.

Okay. But what would you still be in the market to purchase additional tonnage or is, or do have is your fleet big enough for the upcoming recovery as you alluded to?

So I think as Kim pointed, it will depend on the deal. So there's, now over the course of this year, we've done two different type of structures. One where basically this cash neutral and where the LTV, that came with the Team Tankers were in-line with our own LTV. So that's not really moving the needle on an aggregate basis when you have 60% debt, 40% issuance of shares. It's different with the deal we have announced today. Here you are levering up, you are utilizing cash. And so the next deal you could say, well, if we, if we were to look at a new project, you would have to evaluate what type of structure it has. And I would lean towards that the next year would have to be more or less fully funded, i.e. not taking away more cash until at least we are into a recovery.

That's very clear. Thank you so much.

Okay. [Operator Instructions] Okay, sir. No further questions at the moment. Please continue.

Okay. Thank you. We don't have any questions from the web either. So we hereby end the conference call. Thank you all for listening in and have a good day. Thank you.

Okay. That does conclude our conference for today. Thank you for participating. You may all disconnect.