TORM plc(TRMD) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q2 2020, TORM realized a profit before tax of $71 million, with a total of $128 million for the first half of the year [7] - The average TCE rates for the fleet were $25,274 per day in Q2 2020 and $24,465 per day for the first half [7] - Return on invested capital (ROIC) was 18.5% for Q2 and 17.1% for the first half, with earnings per share of DKK 11.6 for the first six months [7][8] Business Line Data and Key Metrics Changes - The LR segment achieved average rates of $32,732 per day for LR2 and $31,655 for LR1, while the MR segment achieved rates of $23,012 per day and Handysize segment rates were $15,270 per day [12] - TORM's operational performance in the MR segment outperformed the peer group average, achieving rates of $23,012 per day compared to a peer average of $19,512 per day, translating into additional earnings of $34 million for the first six months [25] Market Data and Key Metrics Changes - By the end of Q2 2020, approximately 4% of clean trading tonnage was still in floating storage, down from 14% at its peak in early May [15][18] - The U.S. Gulf market remained strong, supported by increasing exports and tight vessel availability, with 35% of TORM's MR fleet positioned in the Americas [15][16] Company Strategy and Development Direction - TORM is focused on ongoing fleet renewal, having sold 7 older vessels for $66 million, which supports the company's strategic flexibility and ability to capitalize on market opportunities [9][11] - The company aims to maintain a balanced strategy in positioning vessels across different basins to maximize earnings potential [26] Management's Comments on Operating Environment and Future Outlook - Management noted that while the market is currently experiencing volatility due to COVID-19, there are positive indicators for underlying demand recovery [22][48] - The order book to fleet ratio for product tankers is at a historically low level, which is expected to support product tanker rates over the longer term [21] Other Important Information - TORM announced a dividend distribution of $63 million or $0.85 per share, aligning with its distribution policy of 25% to 50% of net income [8][33] - The company has a strong liquidity position with available liquidity of $302 million as of June 30, 2020, and a net loan to value of 47% [30][31] Q&A Session Summary Question: Capital allocation plans in light of the dividend payout - Management indicated that the strong performance allows for a 50% dividend payout, with plans to utilize remaining capital for potential market opportunities [39] Question: Market dynamics and inventory levels - Management noted that inventories have peaked and are in a de-stocking phase, with expectations for a positive trajectory in underlying demand [47][48] Question: Future vessel sales or acquisitions - Management stated that future decisions on vessel sales or acquisitions will depend on market conditions and pricing [49] Question: Dividend distribution rationale and share buybacks - Management explained that the decision to distribute 50% of net income was based on a strong balance sheet and cash availability, while also considering share buybacks as a potential strategy [50]